Are The Illinois Labor Department's Administrative Fines Unconstitutional?

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Yesterday, the Illinois Supreme Court granted leave to appeal in four new civil cases. We begin our previews of these newest additions to the court’s docket with Bartlow v. Costigan [pdf], which raises a variety of constitutional challenges to the powers of the Illinois Department of Labor under the Employee Classification Act, 820 ILCS 185/1 et seq.

The state legislature enacted the Act because it suspected that construction contractors were evading various protections extended to workers under the state labor laws by improperly classifying their employees as independent contractors. An investigation begins under the Act when an interested party files a complaint (or the Department may file a complaint itself). If the Department finds cause for an investigation, it has discretion to use any method or combination of methods it chooses. Possible methods include sending a written notice to the contractor explaining the charges and giving an opportunity to present any information in writing bearing on the issues.  Before making a final decision, the Department may – but it not required to – convene a fact-finding conference, either in person or by telephone.

If the Department finds a violation, it has various options open to it: (1) issuing a cease and desist order; (2) attempting to collect wages, salary and/or benefits lost to employees by reason of the violation; or (3) assess civil penalties. The contractor may seek an “informal conference” with the Director of the Department and/or his or her chief legal counsel, but if the contractor fails to pay penalties or comply with the remedies specified in a notice of violation within 30 calendar days, the Department may turn the matter over to the Attorney General for enforcement. Even more severe penalties are possible for a second violation within five years of the first.

The plaintiffs in Bartlow received a notice of investigation and request for documents from the Department in the fall of 2008. The plaintiffs produced the materials, and a conciliator working for the Department interviewed various individuals; finally, in early 2010, the Department sent the plaintiffs notice of having preliminarily found multiple violations of the Act. A fine was set at $1.683 million. When the plaintiffs received a second notice of investigation two weeks later, they filed suit, arguing that the Act and the supporting regulations were unconstitutional on a variety of grounds: due process, special legislation, equal prohibition and bills of attainder. On cross-motions for summary judgment, the Circuit Court rejected each of the plaintiffs’ constitutional challenges.

The Fifth District of the Appellate Court affirmed. First, the plaintiffs argued that the Department was essentially exercising adjudicatory powers without being required to grant a hearing. The Department, on the other hand, claimed that its powers are purely investigatory: it has no authority to enforce any finding of violation itself, and any circuit court proceeding is de novo, with the Department having the burden of proving a violation. The Department characterized its “fines” as amounting to an offer to settle outside of court: the contractor was free to ignore the “fine” without consequence, unless and until the Department went to Court and established the violation anew. Although the Appellate Court expressed its skepticism about the Department’s argument, the Fifth Circuit held that it was compelled by the canon that statutes are held constitutional wherever reasonably possible to adopt the Department’s interpretation of its powers and reject the due process challenge.

The Appellate Court had considerably less difficulty rejecting the plaintiffs’ other constitutional challenges. The Court held that the statute gave sufficient guidance as to who could legitimately qualify as an independent contractor to allow parties to conform their conduct, and accordingly, the statute was not void for vagueness, and/or an unconstitutional delegation of legislative power. The Court rejected the plaintiffs’ equal protection and special legislation claims, applying rational basis review to find that the state had a legitimate interest in revenue lost for various employee-protection programs through misclassification, and that the legislature could have reasonably concluded that workers in the construction industry were most urgently in need of immediate protection through the statute.

The Supreme Court will likely decide Bartlow in late 2013.