An Illinois state law directed at preventing the misclassification of construction employees as independent contractors remains intact after the US Supreme Court declined to consider a roofing company’s challenge to the 2008 law.
Illinois Employee Classification Act
The Illinois Employee Classification Act imposes substantial penalties for the misclassification of employees as independent contractors with respect to construction projects performed within the State of Illinois. Through these penalties, the Act creates a presumption that any person performing services for a covered construction company is an employee of that company—unless the company can affirmatively prove that the individual is an independent contractor.
In 2010, the Illinois Department of Labor (“DOL”) issued a preliminary determination that Jack’s Roofing had misclassified its workers as independent contractors in violation of the new statute, and the DOL slapped the company with a “potential penalty” of nearly $1.7 million. Plaintiffs responded by filing an action against DOL seeking injunctive relief and a declaratory judgment that the statute was unconstitutional. Plaintiffs argued that the Act was unconstitutionally vague and violated the Equal Protection Clause of the Illinois and US Constitutions because no other industry faced the same standards when seeking to hire independent contractors. Plaintiffs also sought a declaration that the Act violated the Special Legislation Clause of the Illinois Constitution, which the plaintiffs argued prohibits imposing more stringent employment standards for the construction industry than other industries.
Plaintiff’s arguments came unshingled at trial in state court, appellate court, and the Illinois Supreme Court recently completed the leveling. With the latest Illinois court ruling, the state’s highest court determined that plaintiff’s due process arguments were moot and that plaintiffs failed to brief sufficiently the other constitutional arguments. Now with US Supreme Court declining to hear the case, plaintiff’s case is grounded for good. More importantly, this inaction by the nation’s highest court ensures that the Employee Classification Act will likely remain the law for some time, leaving in place the powerful tools granted to the Illinois Department of Labor.
Violations of the Employee Classification Act invoke fines in increasing amounts per violation, starting at $500 per violation. The Act also prohibits retaliation and creates a private right of action under which an employee may recover wages, benefits, attorneys’ fees, and costs. As such, it is important that employers in the construction and related industries pay special attention to the provisions of this law. While a $500 per fine may appear to be manageable at first blush, each day a misclassified worker performs services is deemed a separate violation. Exposure for penalties can add up quickly across the company’s workforce, even with a low fine per worker. To remain on sure footing, Illinois construction employers must be diligent about filing complete and accurate reports to avoid being subjected to harsh penalties.
Employers need to be very careful when classifying workers as independent contractors. Since the Employee Classification Act presumptively assumes construction workers and the like are employees (not independent contractors), proper classification is vital.