New York Restricts Who Can Be Classified as Independent Contractors in the Construction Industry

The New York State Construction Industry Fair Play Act ("Act"), which becomes effective today (October 26, 2010), presumes that workers in the construction industry are employees of the contractor to which they are providing services for purposes of New York Labor Laws unless the contractor can demonstrate that the workers qualify as independent contractors under criteria set forth in the Act.

The Act applies to all contractors who perform construction work. The Act defines the term "contractor" as including any sole proprietor, partnership, firm, corporation, limited liability company, association or other legal entity permitted by law to do business within the state who engages in construction. The Act defines the term "construction" as including "constructing, reconstructing, altering, maintaining, moving, rehabilitating, repairing, renovating or demolition of any building, structure, or improvement, or relating to the excavation of or other development or improvement to land."

Under the Act, any person who performs work for a contractor shall be classified as an employee unless the person: (1) is a separate business entity (as defined below), or (2) meets the following criteria:

1. The individual is free from direction in performing the job, under his or her contract and in fact;
2. The service must be performed outside the unusual course of business for which the service is performed; and
3. The individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.

A person (including a sole proprietorship, partnership, corporation or other entity) will be considered a separate business entity if all of the following criteria are met:

1. The business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result.
2. The business entity is not subject to cancellation or destruction upon severance of the relationship with the contractor.
3. The business entity has a substantial investment of capital in the business entity beyond ordinary tools and equipment and a personal vehicle.
4. The business entity owns the capital goods and gains the profits and bears the losses of the business entity.
5. The business entity makes the services available to the general public or the business community on a continuing basis.
6. The business entity includes services rendered on a federal income tax schedule as an independent business or profession.
7. The business entity performs services for the contractor under the business entity's name.
8. When the services being provided require a license or permit, the business entity obtains and pays for the license or permit in the business entity's name.
9. The business entity furnishes the tools and equipment necessary to provide the service.
10. If necessary, the business entity hires its own employees without contractor approval, pays the employees without reimbursement from the contractor, and reports the employees' income to the Internal Revenue Service.
11. The contractor does not represent the business entity as an employee of the contractor to its customers.
12. The business entity has the right to perform similar services for others on whatever basis and whenever it chooses.

Contractors who violate the Act will be subject to both civil and criminal penalties. Contractors who willfully violate the Act are subject to civil penalties of up to $2,500 for the first violation and up to $5,000 for each subsequent violation within a five year period. The penalty may be assessed for each misclassified worker. Additionally, contractors who violate the Act may be guilty of a criminal misdemeanor and subject to imprisonment for up to 30 days or a fine up to $25,000 for the first offense, or imprisonment for up to 60 days or a fine up to $50,000 for a subsequent offense. 

Individuals also may be held liable for violating the Act. If the contractor is a corporation, any officer or shareholder who owns or controls 10 percent or more of the corporation and who knowingly permits the corporation to willfully violate the Act shall be personally liable for the civil and criminal penalties. 

The Act materially changes the independent contractor landscape for the construction industry in New York. Under the Act, construction industry employers must affirmatively determine that a worker can be classified as an independent contractor or face considerable risk.