A recent report from a Pennsylvania Department of Labor & Industry task force describes the economic impact of worker misclassification in Pennsylvania and makes several significant recommendations to the legislature.  These recommendations, if implemented, could dramatically impact how some Pennsylvania employers manage their workforce, particularly those employers in the construction industry.

The report was issued on March 1 by the “Joint Task Force on Misclassification of Employees.”  The Task Force looked at the frequency and extent to which workers in Pennsylvania are classified as “independent contractors” when the nature, type, and oversight of their work would suggest they should actually be classified as an “employee.”

In its report, the Task Force estimated that 49,266 Pennsylvania employers currently have at least one misclassified worker, and that 389,000 workers are misclassified annually in Pennsylvania.

The report makes several important recommendations to the legislature.  Most notable are the recommendations that relate to construction industry employers and Act 72.  Currently, Act 72, or the Construction Workplace Misclassification Act, prohibits employers from misclassifying workers as independent contractors and provides for a three-part test to determine whether a worker is an independent contractor.  The Task Force recommends that Act 72 be amended to include stiffer penalties for employers who misclassify workers, including enhancing the criminal penalties for “knowing” violations.  It also recommends giving the Department of Labor & Industry resources to hire additional investigative personnel and support staff, and, notably, to give L&I subpoena power to collect employer records as part of misclassification investigations.

The Task Force also recommends that L&I be given the authority to issue stop-work orders against companies or individuals found to have employed misclassified workers, and even to debar those companies who knowingly or repeatedly violate Act 72.  This would eliminate L&I’s obligation to petition the court for issuance of a stop-work order.  The Task Force also recommends imposing liability on a general contractor for subcontractor misclassifications if the general had clear evidence of a “knowing” misclassification violation.

Finally, the Task Force recommends that Act 72 be extended beyond the construction trades to cover other industries in Pennsylvania.  It also recommends that the legislature adopt the “ABC Test” as a baseline standard in Pennsylvania to delineate between an employee and independent contractor.

It is important to remember that these are only recommendations to the legislature, and it remains to be seen whether any of these proposals will ever become law.  But this report highlights a trend we have seen elsewhere – an increased emphasis on enforcement of worker classification laws and greater efforts to revise classification schemes that would make “employee” a worker’s default status unless the employer could prove otherwise.

With more aggressive enforcement of worker misclassification on the horizon, there’s no time like the present to take a close look at your workforce and to make any necessary adjustments to the ways in which workers are classified.

For any questions about these issues, contact any member of the McNees Labor & Employment group.