Are You Secretly Running a Construction Business? State Law Says You Might Be!


construction image.jpgI promise that this post isn’t a bad setup to a joke about The Sopranos, the mafia, or being in “waste management.” Late last month, I spoke at a regional meeting of the Wireless Internet Service Providers Association, and many of the WISPs in attendance were surprised to learn that not only were they in the Internet service business, but many of them were in the construction business, too…at least if they operated in Illinois, Nebraska, Pennsylvania, or the handful of other states that have enacted construction industry-specific employee classification statutes that attempt to address perceived abuses in that industry. However, as drafted, these statutes are often the proverbial sledgehammer used to kill a fly.

We’re in the [fill-in-the-blank] Industry. We Don’t Do Construction...Right?

This post’s headline has you worried? Maybe it should. Employee classification laws are bet-the-company traps for the unwary. Take the Illinois Employee Classification Act, for example. That statute, which went into effect January 1, 2008, explains simply that an individual performing any “construction” services for a “contractor” (any entity engaging in “construction”) is deemed to be an employee of the contractor-employer. So, I’ll ask again: Are you in the construction business? Think the answer is no?

Although ostensibly targeted at the construction industry, legislatures like Illinois’ have defined “performing services” so broadly as to encompass most types of hands-on work on any real or personal property:

“Construction” means any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise. Construction shall also include moving construction related materials on the job site to or from the job site.

Does your business have janitors? Maintenance workers? Tower climbers? Installers? Service technicians? Engineers? Anyone doing manual labor of any type? If so, and if you pay any of these workers as independent contractors, give them a Form 1099, or just pay them cash by the day or the job, your “construction” business might have a wage and hour problem.

Okay, So We Might Be In The Construction Business, Now What?

Acts like the one in Illinois create a presumption that all workers covered by their unusually expansive statutory definitions are employees rather than independent contractors. So, even if the Internet, your neighbor, or your accountant tells you that you can give these workers a Form 1099, employee classification laws can put you in the “construction” business, making these contractors your employees under state law. Most of these state laws provide civil and criminal penalties and give misclassified workers the right to sue to recover lost wages and benefits, liquidated damages, compensatory damages and attorneys’ fees. Of course, that’s aside from the potential FLSA or other state law violations you might incur if your sources were wrong about these “independent contractors” from the beginning.

Employee classification statutes are a great reminder of why you can’t simply rely on the FLSA (or the Internet, your neighbor, or your CPA) when classifying your workers. If you use any workers on a cash, per-job, per-diem, 1099, or other “independent contractor” basis, make sure you’re not in the “construction business.” Because depending on the specific facts, these workers might be deemed your employees in the eyes of the law.

Think you might fit this scenario? All is not lost. You can overcome the presumption that these workers are employees by satisfying specific statutory criteria showing that the workers providing services truly operate independently of you, the “construction contractor.” The analysis is very fact-dependent, so don’t go it alone, even if you like the idea of telling people you’re a “waste management consultant.”

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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