ADMINISTRATION AND ENFORCEMENT OF THE CONSTRUCTION WORKPLACE MISCLASSIFICATION ACT IN 2011
Julia K. Hearthway,
Secretary of Labor & Industry
Commonwealth of Pennsylvania
TABLE OF CONTENTS
INTRODUCTION
On October 13, 2010, the Governor signed into law the Construction Workplace Misclassification Act, 43 P.S. §§ 933.1 - 933.17 ("Act 72" or "the Act"). The Act, which went into effect on February 10, 2011, establishes a definition of "independent contractor" for purposes of workers' compensation, unemployment compensation, and worker classification. The Act also prohibits construction employers from classifying as independent contractors workers who do not satisfy all of the definitional criteria. It provides for the imposition of criminal and administrative penalties against employers, or officers or agents thereof, who are found to have committed violations. Additionally, it empowers the Secretary of Labor & Industry ("the Secretary") to petition a court to issue a stop-work order mandating the partial or complete cessation of work at the site of an ongoing intentional misclassification.
Section 4(a) of the Act authorizes the Secretary to undertake various forms of remedial action if she receives information indicating that a person has violated the Act. Section 10(a) explicitly prohibits an employer from discriminating in any manner or taking adverse action against any person for exercising any right protected by the Act, including the filing of a complaint with the Department of Labor & Industry ("the department") or informing any person about an employer's noncompliance. Section 10(b) makes clear that a complainant's failure to prevail on the merits on allegations of employer noncompliance does not remove the retaliation prohibition set forth in subsection (a), so long as the complainant's allegations were made in good faith. Finally, Section 10(c) creates a rebuttable presumption that the taking by an employer of adverse action against a person within 90 days of that person's exercise of rights protected by the Act constitutes prohibited retaliation for such exercise.
Section 14 of the Act requires the department to submit annually, by March 1, a report to Pennsylvania's General Assembly "detailing, to the maximum extent possible, data on the previous calendar year's administration and enforcement of [Act 72]." The department is permitted to include in the report all relevant facts and statistics that it believes to be necessary.
Between Feb. 10, 2011 (the date on which Act 72 became effective) and Dec. 31, 2011, the Bureau of Labor Law Compliance ("the bureau"), the entity within the department charged with the investigative responsibilities associated with the enforcement of the labor laws under the department's purview, received 29 complaints alleging violations of Act 72. As of Dec. 31, 2011, all 29 were open and under investigation by the department. In order to avoid breaching the confidentiality of any complainant or the integrity of any active investigation, the department has elected to omit from this report both details of any complaint or information regarding any ongoing investigation. Instead, this report contains only general geographic, temporal, and substantive information regarding such complaints.
ENFORCEMENT PREPARATION AND EDUCATION EFFORTS
The bureau currently has 29 investigators on staff, each of whom is responsible for all labor laws within the department's enforcement authority. In order to prepare in advance for their new investigative and enforcement responsibilities relating to Act 72, the investigators attended several local bureau training sessions on the substance of the Act and their duties thereunder. In November of 2011, the bureau conducted an additional statewide training session that included Act 72 instruction.
The bureau also has conducted many one-on-one and small group educational sessions on Act 72 at job sites for the benefit of both workers and employers. The bureau continually has made such education available to workers and employers, and intends to continue this outreach program in order to educate workers and employers about their rights and responsibilities under the Act. The department believes that such sessions are an effective means via which to increase compliance with the Act without incurring increased investigative or enforcement costs. This should prove especially effective in the law's early years of applicability, when many in the construction sector may not be familiar with the Act and its potential effects upon them.
Finally, the bureau in early 2011 created a poster (see Appendix), as required by Section 11 of the Act. The poster is designed to provide information about Act 72 to interested parties and the general public. It has been published in a printable format on the department's web site, and it outlines the criteria necessary for proper classification as an independent contractor, the criminal and administrative penalties for misclassification, and the procedure for filing a complaint with the bureau. In addition, bureau investigators routinely bring copies of the poster when they visit construction job sites in the course of investigating the Commonwealth's labor standards law, and provide them to workers and employers upon request.
COMPLAINTS RECEIVED
Pursuant to Section 10 of Act 72, "any person" is entitled to file a complaint alleging non-compliance with one or more provisions of the Act. The next few sections of this report provide general information about the complaints which were filed with the bureau during 2011.
Section 12 of the Act provides that "[t]he department shall not be required to enforce this act until adequate funding is appropriated." Nevertheless, the bureau is attempting to enforce Act 72, even though no funding as referenced in Section 12 has been appropriated.
In total, the bureau received 29 complaints between Feb. 10, 2011 (the date on which Act 72 went into effect) and Dec. 31, 2011. The bureau opened investigations into each of the 29 complaints, and all of these investigations remained open and ongoing as of Dec. 31, 2011. Therefore, this report contains only general detail regarding the substance of the complaints. All details which might either breach the confidentiality of a complainant or compromise the integrity of an active department investigation have been omitted. Following are tables and analyses of the complaints by geographic region, month in which the complaint was received by the bureau, and substance of allegations.
COMPLAINT REFERRALS
Pursuant to Section 4(c) of Act 72, if the Secretary has received information indicating that a violation of the Act has been committed, she may not only conduct an investigation into the allegations but also issue upon the alleged violator an order to show cause why it (or one or more of its officers and agents) should not be found to be in violation of the Act. The party upon whom the order to show cause has been issued then is entitled to 20 days to file an answer to the order. Pursuant to Section 4(d), if the Secretary, subsequent to the issuance of an order to show cause, finds probable cause that the employer has committed a violation of the Act which is criminal in nature, she is required either to refer the matter to the Office of Attorney General for investigation or to impose administrative penalties under Section 6 of the Act.
As of Dec. 31, 2011, none of the department's investigations had resulted in the issuance of an order to show cause. Since all 29 investigations remain ongoing, it is possible that the Secretary ultimately will issue an order to show cause in one or more such cases. Because no orders to show cause had been issued, the requirement of referral to the Office of Attorney General, or in the alternative, imposition of administrative penalties, had not been triggered in any case. None of the investigations had matured to the point where such referral would be appropriate. However, one case has been referred to both the department's workers' compensation and unemployment compensation divisions for further review. The results of this referral remained pending as of Dec. 31, 2011.
ANALYSIS OF COMPLAINTS BY REGION
The bureau maintains five district offices in different geographic regions throughout the state. Table 1 (below) indicates the number of complaints received by each district office in 2011. Notably, the offices which serve the more populous areas of the Commonwealth generally received the greatest numbers of complaints. The Philadelphia and Pittsburgh district offices, which serve the geographic areas encompassing the Commonwealth's two most populous cities, accounted for a combined 22 of the 29 complaints received by the bureau statewide.
TABLE 1: NUMBER OF COMPLAINTS FILED BY GEOGRAPHIC REGION (2011)
|
REGION |
NUMBER OF COMPLAINTS FILED |
|
Altoona
|
1
|
|
Harrisburg
|
4
|
|
Philadelphia
|
15
|
|
Pittsburgh
|
7
|
|
Scranton
|
2
|
|
TOTAL
|
29
|
ANALYSIS OF COMPLAINTS BY MONTH
Table 2 (below) sets forth the number of Act 72 complaints received by the bureau during each month of 2011, with the exception of January, during which the Act was not in effect. As the table shows, the bureau received eight complaints in February, the first month during which the Act effective. After two complaints in March, zero complaints were received for three consecutive months, followed by increased receipt of complaints during the summer and fall months, including seven complaints received in September.
TABLE 2: NUMBER OF COMPLAINTS FILED BY MONTH (2011)
|
MONTH |
NUMBER OF COMPLAINTS RECEIVED |
|
February
|
8
|
|
March
|
2
|
|
April
|
0
|
|
May
|
0
|
|
June
|
0
|
|
July
|
3
|
|
August
|
1
|
|
September
|
7
|
|
October
|
2
|
|
November
|
3
|
|
December
|
3
|
|
TOTAL
|
29
|
ANALYSIS OF COMPLAINTS BY SUBSTANCE OF ALLEGATIONS AGAINST EMPLOYER
Section 3(a) of Act 72 provides that an individual is not an independent contractor within the meaning of the Act unless the individual:
-
has a written contract to perform the services in question for the employer;
-
is free from control or direction by the employer, both under the contract and in fact, over the individual's performance of such services; and
-
customarily is engaged in an independently established trade, occupation, profession, or business for the performance of such services.
Section 3(b) provides that an individual is not "customarily engaged" in an independently established trade, occupation, profession, or business with respect to services the individual performs unless all of the following are true:
-
the individual, independent of the person or employer for whom the services in question are performed, possesses the essential tools, equipment, and other assets which are necessary for the performance of such services;
-
the individual's arrangement with the person or employer for whom the services in question are performed is such that the individual will realize a profit or suffer a loss as a result of performing the services;
-
the individual performs the services in question through a business in which the individual has a proprietary interest;
-
the individual maintains a business location that is separate from the location of the person or employer for whom the services are being performed; and…
-
the individual maintains liability insurance during the term of the contract in question of at least $50,000.
As Table 3 (on page 12) shows, the five most common allegations made in the 29 complaints received by the bureau in 2011 each appeared in at least 14 of the complaints. Unlike the previous two tables, the "total" column indicates a number other than 29 because complaints may (and during 2011 often did) contain more than one allegation.
The single most common allegation made by complainants was that an employer had classified as an independent contractor a worker who did not have a liability insurance policy of at least $50,000; Section 3(b)(6) of Act 72 explicitly excludes such uninsured or underinsured workers from the definition of "independent contractor." All but three of the 29 complaints contained such an allegation. Other common allegations included that the worker had no written contract with the employer (such individuals cannot be classified as independent contractors pursuant to Section 3(a)(1) of the Act); that the worker did not own the tools being used to perform the work, but instead was provided with such tools by the employer (Section 3(b)(1)); that the worker was being paid hourly, and therefore would not realize a profit or loss as a result of performing the services (Section 3(b)(2)); and that the worker did not maintain a business location separate from the employer's (Section 3(b)(4)).
TABLE 3: NUMBER OF COMPLAINTS FILED BY NATURE OF ALLEGATIONS (2011)
|
NATURE OF ALLEGATION |
NUMBER OF COMPLAINTS RECEIVED |
|
No written contract between worker and employer (Section 933.3(a)(1))
|
23
|
|
Tools provided by employer rather than owned by worker (Section 933.3(b)(1))
|
18
|
|
Worker paid hourly (Section 933.3(b)(2))
|
14
|
|
No place of business (Section 933.3(b)(4))
|
23
|
|
Worker did not have liability insurance (Section 933.3(b)(6))
|
26
|
|
TOTAL
|
106
|
CONCLUSION
The department's enforcement of Act 72 is in its formative stages, as the Act has been in effect for only one year. The Act contains precise definitional criteria for classification of a worker in the building construction industry as an "independent contractor." Proper education regarding and enforcement of the Act should result in reduced incidence of construction employers evading their financial responsibilities regarding both workers' compensation and unemployment compensation.
The department in 2011 placed emphasis on training and education regarding the Act's substantive requirements, both internally and externally. The department has provided each of the bureau's 29 labor law investigators with immersive training in the Act, especially its definitional criteria, with the goal of developing an investigative force that will recognize readily violations of the Act. Additionally, the department has provided both individualized Act 72 training and educational materials to workers and employers. In so doing, the department's aims are twofold: first, to make it as easy as possible for employers who wish to comply with the law to do so; and second, to provide workers with knowledge necessary to ensure that violations of the Act do not go unnoticed by them or unreported to the bureau. The department intends to continue its educational outreach in order that it may achieve efficient and thorough enforcement of Act 72.
As of Dec. 31, 2011, investigations were open and ongoing in the cases of all 29 complaints which the bureau received during 2011. Therefore, no orders to show cause had been filed; no cases had been referred to the Office of Attorney General; no criminal or administrative penalties imposed; and no cases closed without further action being taken. In future years, the department intends to analyze data from closed cases in order to identify and address any facets of its educational, investigation, and enforcement processes regarding Act 72 which may merit adjustment.
The department appreciates the General Assembly's review and input regarding the manner in which it handled its responsibilities regarding Act 72 in 2011. The department looks forward to continued cooperation with the General Assembly in pursuit of more effective and efficient enforcement and administration of the Act.
