Illinois Governor Signs Tough New Amendments to Construction Industry Independent Contractor Misclassification Law - Personal Liability Included

By L. Steven Platt / Jul 30, 2013

On July 23, 2013, Governor Pat Quinn of Illinois signed two new laws intended to curtail misclassification of employees as independent contractors, House Bills 2649 and House Bill 923. The two bills amend the state's Employee Classification Act, 820 ILCS 185/1, which, although its title suggests the law applies to all employees in Illinois, is limited to the construction industry employers.

The Employee Classification Act was one of the first state laws to address independent contractor misclassification. It was intended to deal with the misuse of independent contractor status in the construction industry by contractors who wanted to avoid paying withholding and social security taxes on their employees. The law imposes a three-pronged test for independent contractor status for individuals, and a 12-part test for individuals operating as sole proprietors or partnerships.

The law consists of two Amendments. The first adds the word "individual" to the definition of "contractor," which includes general contractors and subcontractors. It also imposes "individual liability" for penalties and assessments on officers and agents of corporations and partnerships who knowingly permit a construction employer to misclassify an individual as an independent contractor.

The civil penalties, which have also been modified by the amendment, are $1,000 per violation for a first offense and $2,000 for each repeated violation. The Act provides that it is a separate violation for each individual misclassified on each separate day. For "willful" violations, the Act provides for double damages as well as the assessment of punitive damages equal to the amount of double damages. Willful violations are misdemeanors, which elevate to felonies if repeated during a five-year period.

The second amendment imposes a new reporting requirement which requires contractors to report annually on all payments made to individuals, sole proprietorships, and partnerships "performing construction services . . . if the recipient of payment is not classified as an employee." Such reports must include the individual's name, address, and "business identification number" or "federal employer identification number" as well as the amount paid to the recipient. The names of the reporting contractors and recipients will be made available to the public upon request under the state's Freedom of Information Act."

Both amendments go into effect on January 1, 2014.

Illinois has been in the forefront of states seeking to regulate at the state level the misclassification of employees as independent contractors. In addition to the Employee Classification Act which deals with the construction industry, the state's wage payment and collection and unemployment laws, both of which cover all industries, use a statutory test more strictly construed by the Illinois courts than similar laws in other states. Thus, all businesses, non-profit organizations, and governments in Illinois that classify workers as independent contractors are at risk of misclassification liability if they do not carefully structure and document their independent contractor relationships.

Laws like the Employee Classification Act pose a problem for national and regional businesses that operate with independent contractors in states that include Illinois. An individual performing services in one state may be properly classified as an independent contractor while his or her counterpart performing the same services in Illinois may be considered misclassified.  We recommend that you contact an attorney familiar with labor and employment law to determine if you meet the independent contractor tests contained in the statute.

If you have any questions please contact L. Steven Platt, (312) 985-5943, , or another Clark Hill or Clark Hill Thorp Reed labor and employment or construction practice group attorney.