Argument Report: Are Statutory Penalties Under the Employee Classification Act Constitutional?

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Bartlow v. Costigan involves a constitutional challenge: can the Department of Labor return administrative fines against construction contractors under the Employee Classification Act without mandatory evidentiary hearings? During oral argument last week, the Illinois Supreme Court seemed skeptical. Our detailed summary of the underlying facts and lower court decisions is here. Our preview of the argument is here.

The plaintiffs received a notice of investigation and request for documents from the Department in the fall of 2008. In early 2010, the Department notified the plaintiffs that they had preliminarily found multiple violations of the Act, and stating that the possible fine was $1.683 million. When the plaintiffs received a second notice of investigation two weeks later, they filed a facial constitutional challenge to the Act. The trial court entered summary judgment for the Department. The Appellate Court affirmed, accepting the Department's characterization of its powers as purely investigatory, and its administrative fines as "no consequence" penalties (meaning that the target could ignore a violation notice without anything bad happening, at least right away).

Counsel for the contractor began by sketching the background facts, arguing that the Department's second complaint could have subjected the plaintiff to criminal penalties. Justice Thomas asked whether the recently enacted House Bill 2649 had replaced the statutory scheme at issue, and when it became effective. Counsel responded that the bill took effective on January 1, 2014. Justice Thomas asked whether the bill was enacted to correct procedural issues in the Act; counsel responded that not all of her client's constitutional issues had been addressed. Justice Thomas asked whether, if the Court finds that the statute applies retroactively, the Department's decision is a nullity. Counsel responded that the contractor did not concede that the newly enacted procedures even could be applied to it on remand. Justice Theis asked counsel about the contractor's vagueness challenge, and counsel responded that the contractor thought it was complying with the statute. Justice Theis noted that the contractor called the statute unambiguous in its brief, and wondered how the statute could nevertheless be vague. Counsel responded that although constitutional vagueness usually indicated two viable constructions of a statute, in this case, there was really only one. Counsel noted the argument that the purpose of the statute is to prevent employers from denying benefits to workers by improperly classifying them, and argued that the contractor had not done so. Justice Freeman asked the contractor if its equal protection/special legislation challenge had been properly preserved in its brief, and counsel answered that it had.

Counsel for the Department began by emphasizing that the Department adjudicates nothing, and that to get a penalty assessed, it must go to the Circuit Court. Justice Thomas pointed out that the Department could issue a cease-and-desist order and civil penalties, and counsel responded that "assessing" penalties didn't mean "imposing" them. Justice Thomas asked counsel whether she would agree that there was a lack of procedure involved in how the Department reached the point of bringing court proceedings. Counsel disagreed, pointing out that there were provisions for an informal hearing and submission of documents; the constitution doesn't require any hearing unless the party was being deprived of property. Justice Thomas suggested that the Appellate Court's characterization of Department penalties as "no consequence" significantly rewrote the statute. Counsel responded that the Department had no way of collecting penalties absent Circuit Court action, and might not even seek court action in the face of an unwitting violation. Justice Thomas asked whether there was a due process problem if the Department was "judge and jury" so long as they stopped short of execution. Counsel argued again that there was no due process violation absent a deprivation of property. Justice Thomas asked what the impact was if the new procedures in the statute apply retroactively. Counsel argued that there was no barrier to simply sending the plaintiffs a hearing notice and starting the newly enacted statutory process. Justice Karmeier commented that the Department could apparently debar a contractor from state contracts for multiple violations, and asked whether such action required a Circuit Court order. Counsel responded that debarment required a court finding of multiple violations. Justice Thomas asked whether there was any significance to the fact that Section 25 of the Act is called "enforcement," and counsel responded that chapter titles are given no significance in statutory construction; within the body of the statute, it explains that enforcement requires Attorney General action. Counsel concluded by briefly addressing the contractor's equal protection challenge, arguing that the contractor had waived strict scrutiny, and the statute easily passed rational basis analysis.

On rebuttal, Justice Freeman asked counsel for the contractor whether, if the Court couldn't find the contractor's position on equal protection in the briefs, the matter was waived. Counsel argued that the issue had been addressed. Counsel continued that since the new statute required action on a timeline, including a complaint 120 days after notice of a violation, if the statute applied retroactively, the contractor could not be pursued again. Counsel suggested that the Court could strike the statute as-applied, rather than facially, and Chief Justice Kilbride suggested that the Court was limited to the challenges parties actually bring. Counsel responded that as-applied issues had arisen from the Department's newly minted interpretation of the statute.

We expect Bartlow to be decided in two to four months.

 

Topics:  Evidentiary Hearings, Fines, Misclassification, Penalties, Statutory Interpretation

Published In: Administrative Agency Updates, Civil Procedure Updates, Constitutional Law Updates, Construction Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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