On August 6, 2007, Illinois Governor Blagojevich signed into law a bill entitled the Illinois Employee Classification Act of 2007. This new law, effective January 1, 2008, will punish construction contractors who wrongfully treat an employee as an independent contractor. Supporters of the law estimated that $124.7 million in income tax was lost in Illinois from 2001 through 2005 because of misclassification of workers.
The new Act provides that an individual performing construction services for a contractor – including “moving construction related materials on the jobsite to or from the jobsite” – is deemed to be an employee of the contractor unless it is shown that:
- the individual is free from control or direction over the performance for the contractor;
- the service performed is outside the usual course of services performed by the contractor;
- the individual is engaged in an independently established trade, occupation, profession or business; or
- the individual is deemed to be a legitimate sole proprietor or partnership (as narrowly defined in the Act).
The Illinois Department of Labor (“IDOL”) is charged with preparing posters in English, Spanish and Polish concerning the requirements of the law and the procedure for enforcement. All contractors who use individuals that are not classified as employees under the Act must post the notice prepared by the IDOL. “Any interested party,” including workers, competing construction contractors, private interest groups and unions, may file a complaint with the Department of Labor. The Department has the power to conduct an investigation and may: (i) issue a cease and desist order; (ii) take affirmative or other action deemed reasonable; (iii) collect any amount of wages, salary or employment benefits or other compensation denied or lost to the individual; and/or (iv) assess a civil penalty.
An employer who has violated a valid Order of the Department may be held in contempt of court. Monetary penalties are $1,500 for each violation found in the first audit, followed by a penalty not to exceed $2,500 for each repeat violation within a five-year period. After the second or subsequent violation within a five-year period, the IDOL shall bar the employer from state contracts until four years have elapsed after the date of the last violation. Willful violations shall be punished by penalties of up to double the statutory amounts. Also, an employer who willfully violates this Act shall be subject to a Class C Misdemeanor. A second or subsequent willful violation within a five-year period subjects the employer to a Class 4 Felony. The law precludes any retaliation by an employer against an employee who complains about a violation of the Act.
The Act also provides for a private right of action by any interested party or person aggrieved by a violation of this Act. A lawsuit may be brought in Circuit Court in the county where the alleged offense occurred. Any person incorrectly classified as an independent contractor may recover wages, salary and employment benefits, as well as compensatory damages up to $500 and, in the case of unlawful retaliation, all legal or equitable relief – as well as attorney’s fees and costs (which could even overshadow the backpay). Accordingly, any construction industry employer that uses individuals as “independent contractors” must carefully evaluate whether they can satisfy the strict requirements for independent contractors or whether they should start treating those individuals as employees.