Albany, NY (October 26, 2010) -
On a construction site close to the RIT campus, 12 of 21 contractors claimed that they had 211 employees who were really independent contractors. By misclassifying those workers, these employers illegally avoided paying more than $80,000 in unemployment insurance taxes. A painting contractor on the site had over 50 workers painting walls on the project side-by-side and classified each worker wrongly as an independent contractor.
On a construction site in Brockport, one crew of misclassified workers worked for three weeks without pay, were fired and left stranded, with no money to get home to North Carolina. Another group worked for three months without being paid, except for being housed in an apartment in Brockport and getting some money for food.
On a construction site in Cortland, workers were paid off-the-books by one contractor, with no overtime. Two other contractors took illegal deductions from workers' paychecks.
These are not isolated incidents.
Studies show that in any given year, employers misclassify from 15 to 25 percent of construction workers in New York State as independent contractors. Employee misclassification happens when an employer labels workers wrongly as independent contractors or pays them completely off the books and thus denies them benefits and protections under State and Federal law. Misclassification hurts workers. It deprives the government of tax revenue. Further, this form of fraud undercuts legitimate employers who classify their workers correctly. To combat this disturbing trend within the construction industry, on August 27, 2010, Governor David A. Paterson signed the Construction Industry Fair Play Act into law. The law, which was negotiated by the Governor and the Legislature, goes into effect on Tuesday, October 26, 2010.
"Employee misclassification is a terrible practice that deprives the government of tax revenue at a time when it is sorely needed and places an unfair burden on law-abiding employers who play by the rules," Governor Paterson said. "This practice often deprives New York's workers of vital benefits such as overtime pay, workers' compensation and unemployment insurance. This law will be a powerful tool that hopefully will clean up this practice once and for all."
The law creates a clear litmus test to distinguish between a worker and an independent contractor in the construction industry. It also provides a method to clearly define which business on a construction project is responsible for which workers. Finally, for the first time in State history, it imposes monetary and criminal penalties specifically for the act of employee misclassification on construction projects.
"For too long, employee misclassification has run rampant on construction sites across New York State," said State Labor Commissioner Colleen C. Gardner. "This can't happen anymore. People too often don't realize that the consequences of misclassification go well beyond basic labor law violations--it impacts law abiding employers as well as workers and their families. Just last year, 14 victims of misclassification were dropped off in Syracuse with no money and no way to get home. This law will protect the dignity of these workers and tens of thousands more in this state. More importantly, with the law on our side, we now have the teeth to take a bite out of this scourge that plagues our state's construction sites."
The law says that individuals working for an employer are presumed to be employees unless they are an independent business entity, or meet all three of the following criteria:
(1) They are free from control and direction in performing the job.
(2) They are performing services outside of the usual course of business for the company.
(3) They are engaged in an independently established trade, occupation or business that is similar to the service they perform.
The law contains a 12-part test to determine when a sole proprietor, partnership, corporation or other entity is considered a "separate business entity" from the contractor for which it provides a service. If an entity meets all of the 12 criteria, it will be considered a separate business, subject to the new law regarding its own employees.
An employer that willfully violates the Fair Play Act by failing to properly classify its employees is subject to civil penalties of up to $2,500 per misclassified employee for a first violation and up to $5,000 per misclassified employee for a second violation within a five-year period. Employers may also be subject to criminal prosecution (a misdemeanor) for violations of the act with a penalty of up to 30 days in jail, up to a $25,000 fine and debarment from Public Work for up to one year for a first offense. Ensuing misdemeanor offenses are punishable by up to 60 days in jail, up to a $50,000 fine and debarment from performing Public Work for up to five years.
Construction industry employers must post a notice about the Fair Play Act in a prominent and accessible place on the job site for all workers to see. The poster is available at the following link:
For questions about the Fair Play Act or to report suspected worker misclassification, you can call the State Labor Department toll-free at 1-866-435-1499 or email us at: email@example.com.