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Employee or Independent Contractor? The Illinois Supreme Court upholds the Worker Misclassification Law containing strict penalties for wrong classification.

On February 21, 2014, the Illinois Supreme Court unanimously upheld the constitutionality of the state’s Employee Classification Act, which protects construction workers from being misclassified as independent contractors, rather than employees. The court’s ruling is seen as a huge victory for Illinois workers and a benefit to Illinois taxpayers.

Purpose Of The Illinois Employee Classification Act

The Illinois Employee Classification Act (or ECA for short), 820 ILCS 185/1-999, was passed on May 22, 2007, and became effective on January 1, 2008. The ECA focuses on employment status misclassification in the construction industry and the “Act is intended to address the practice of misclassifying employees as independent contractors.”

To remedy the widespread problem of employee misclassification, the ECA creates a presumption that an individual performing construction services is an employee, unless the business can prove:

  1. The individual has been and will continue to be free from control or direct oversight in the means and manner that services are provided;
  2. The services provided by the individual are outside of the usual services performed by the contractor;
  3. The individual is engaged in an independently established business, profession, occupation, or trade; or
  4. The individual is a legitimate sole proprietor or partnership based on the ECA’s test.

However, establishing that a sole proprietorship or partnership truly operates as a self-sustaining, independent entity requires proof that the entity meets all of the requirements of a strict 12-point test.

The stringent requirements for proving the existence of an independent contractor relationship makes Illinois’ ECA one of the strongest worker classifications statutes in the United States. However, the Illinois legislature felt the ECA was necessary because, as explained by one source, workers are harmed in several ways when employers misclassify employees as independent contractors in order to save on bottom line costs.

Some disadvantages of being classified as an Illinois independent contractor include:

  • Losing workplace protections (such as the right to minimum wage guarantees, overtime pay, mandatory breaks, and unemployment benefits);
  • Paying increased taxes (for Social Security and Medicare);
  • Losing access to employer-provided benefit plans and healthcare insurance; and
  • Not having recourse for workplace injury violations and disability-related disputes through the state’s workers’ compensation system.

Additionally, misclassification creates an unfair advantage to the employer over other employers because the misclassifying employer avoids paying Social Security and Medicare taxes, as well as unemployment and workers’ compensation insurance premiums.

Federal, state, and local governments also suffer revenue losses when employers misclassify employees to avoid their tax obligations. In fact, the Illinois Department of Labor has said that the misclassification of employees costs the state up to $700 million per year in lost payments and taxes.

Illinois Supreme Court Upholds Constitutionality of The Employee Classification Act

In Bartlow v. Costigan, the Illinois Supreme Court rejected a constitutional challenge to the ECA by a roofing company that claimed that the ECA was excessively vague and violated the roofing company’s due process rights.

The case arose out of a situation where the Illinois Department of Labor (the Department) sent the plaintiffs’ business a notification of investigation, explaining that the Department had received a complaint that the business was violating the ECA by misclassifying employees as independent contractors. The Department eventually determined that the business had misclassified 10 employees over varying time-periods and assessed a potential penalty of $1,683,000, giving the plaintiffs 30 days for a response before a final penalty determination was made.

In response, the plaintiffs filed an action in the circuit court seeking injunctive relief and a declaratory judgment against the Department, in an effort to prevent the Department from assessing the ECA violation penalty against the plaintiffs.

In their complaint, the plaintiffs asserted, among other things, that the ECA was unconstitutional because (1) the law is impermissibly vague, and (2) the law does not provide a meaningful opportunity to be heard in violation of procedural due process rights.

By the time the plaintiffs’ case reached the Illinois Supreme Court, the ECA had been amended, making a review of the ECA’s pre-amendment enforcement provisions moot. However, the court did review the plaintiffs’ vagueness challenge. After reviewing the plain meaning of ECA’s section 10, the court found that the provisions provide “a person of ordinary intelligence a reasonable opportunity to understand what conduct the Act prohibits.” It went on to say, “the provisions explaining what will constitute an independent contractor, sole proprietor, or partnership are highly detailed and specific, resulting in a reasonably intelligent person understanding how to qualify for an exception.” The provisions also were determined to be “sufficiently detailed and specific to preclude arbitrary enforcement.”

The court then noted that any future proceedings against the plaintiffs under the ECA would need to follow the amended provisions of the ECA, which became effective January 1, 2014, and which provide for notice, a formal hearing, administrative review, and reduced civil penalties.

The Effect Of The Bartlow Ruling

Under the ruling in Bartlow, employers can no longer sidestep their workers’ compensation and other employment-related responsibilities to these workers by claiming they are independent contractors, rather than employees. Thus, the continued enforcement of the ECA means many more construction workers will be eligible to receive workers’ compensation coverage for medical expenses, lost wages, and temporary or permanent disabilities, as well as compensation for their heirs in the event of a fatal workplace accident.

Legal Help For Illinois Workers’ Compensation Injuries And Personal Injuries

Workers’ compensation eligibility is critical for workers because it provides benefits for work-related injuries and occupational illnesses. You are usually entitled to workers’ compensation benefits if your work caused or contributed to an injury or illness, or if it aggravated or accelerated an old injury or illness.

You also may be entitled to recover from parties besides your employer if another party caused your work-related Lake County personal injury. If you have been injured in the Lake County area while performing your job and have been denied Illinois workers’ compensation coverage, or you received a personal injury, please contact the Lake County workers’ compensation attorneys of Salvi & Maher, L.L.C. at (847) 662-3303 for a free initial consultation. We can help you obtain the workers’ compensation benefits you deserve.

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