Add Art 25-B SS861 - 861-f, amd S511, Lab L; amd S2, Work Comp L
 
Enacts the "New York state construction industry fair play act"; defines terms; provides notice to persons receiving remuneration from contractors and subcontractors; describes violations; authorizes enforcement and penalties.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A8237D
SPONSOR: John
 
TITLE OF BILL: An act to amend the labor law, in relation to enacting
the "New York state construction industry fair play act"; and to amend
the workers' compensation law, in relation to the definition of employee
 
PURPOSE OR GENERAL IDEA OF BILL: This legislation would amend existing
provisions of law related to the payment of workers in order to combat
misclassification fraud by employers in the construction industry. The
bill would create a presumption of employee status unless an employer
met specific criteria for classifying a worker as an independent
contractor and would establish penalties for classification violations.
 
SUMMARY OF SPECIFIC PROVISIONS: The bill creates new Article 25-A
known as The New York State Construction Industry Fair Play Act.
Section 861 contains the short title of the Article. Section 861-a
contains a declaration of legislative findings. Section 861-b creates
definitions. Section 861-c creates a presumption of employment status in
the construction industry. Section 661-d requires notice be provided to
workers of employment status. Section 661-e establishes violations of
the article. Section 661-f establishes enforcement and penalties for
violations. Section 661-g creates an advisory committee on construction
industry classification. Section 861-h establishes retaliation as a
violation of the Act. Section 99-t of the of the state finance law
establishes the construction industry classification fund.
 
JUSTIFICATION: Misclassification is a type of employer payroll fraud
in which an employer improperly classifies a worker as an independent
contractor rather than an employee. Misclassification hurts workers,
employers, and taxpayers. Misclassification hurts workers by denying
workers protections and benefits that they are entitled to, shifting
healthcare costs to workers, and forcing workers to pay the employer's
share of Social Security and Medicaid costs, enriching the employer by
its noncompliance and reducing the worker's take-home pay. Misclassi-
fication hurts employers by creating an un-level playing field that
causes law-abiding businesses to suffer unfair competition from compet-
itors who intentionally submit lower bids by misclassifying their work-
ers. Misclassification hurts taxpayers by reducing the amount of unem-
ployment and workers compensation funds collected by the state. The
failure to pursue employers who misclassify their workers has the effect
of condoning tax evasion and increasing the number of misclassified
workers.
New York State's construction industry is experiencing dangerous levels
of employee misclassification fraud. Recent studies of New York City's
construction industry suggests that as many as 50,000 New York City
construction workers-nearly one in four--are either misclassified as
independent contractors or are employed by construction contractors
completely off the books.
Unscrupulous employers are intentionally reporting employees as inde-
pendent contractors to state and federal authorities or workers compen-
sation carriers in record numbers. It is estimated that each year nearly
$150 million in health care costs are shifted to employees, taxpayers,
and honest employees. In addition, over $4 billion in taxable wages are
underreported due to misclassification, resulting in an underreporting
of over $175 million in unemployment tax. Because of the lost payroll
taxes and social insurance premium payments, the health care costs frau-
dulently shifted from employers to employees, and the loss of workers
compensation, unemployment insurance, or temporary disability coverage
for workers, this law attempts to curb this underground economy, enforce
longstanding employment laws, ensure compliance with essential social
insurance protections and eliminate the unfair competitive advantage
from contractors in the underground economy.
 
PRIOR LEGISLATIVE HISTORY: New Bill.
 
FISCAL IMPLICATIONS: None.
 
EFFECTIVE DATE: This act shall take effect on the sixtieth day after
it shall have become law.
STATE OF NEW YORK
________________________________________________________________________
8237--D
2009-2010 Regular Sessions
IN ASSEMBLY
May 11, 2009
___________
Introduced by M. of A. JOHN, MILLMAN, BENEDETTO, LANCMAN, COLTON,
DenDEKKER, REILLY, STIRPE, MAGNARELLI, McENENY, CAHILL, SCHIMEL,
TITONE -- Multi-Sponsored by -- M. of A. BRODSKY, CALHOUN, CHRISTEN-
SEN, KOON, LATIMER, LIFTON, McDONOUGH, PERRY, RUSSELL, SKARTADOS,
SPANO, TOWNSEND -- read once and referred to the Committee on Labor --
committee discharged, bill amended, ordered reprinted as amended and
recommitted to said committee -- recommitted to the Committee on Labor
in accordance with Assembly Rule 3, sec. 2 -- reported and referred to
the Committee on Codes -- committee discharged, bill amended, ordered
reprinted as amended and recommitted to said committee -- reported and
referred to the Committee on Rules -- Rules Committee discharged, bill
amended, ordered reprinted as amended and recommitted to the Committee
on Rules -- reported and referred to the Committee on Rules -- Rules
Committee discharged, bill amended, ordered reprinted as amended and
recommitted to the Committee on Rules
AN ACT to amend the labor law, in relation to enacting the "New York
state construction industry fair play act"; and to amend the workers'
compensation law, in relation to the definition of employee
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The labor law is amended by adding a new article 25-B to
2 read as follows:
3 ARTICLE 25-B
4 THE NEW YORK STATE CONSTRUCTION INDUSTRY FAIR PLAY ACT
5 Section 861. Short title.
6 861-a. Legislative findings and intent.
7 861-b. Definitions.
8 861-c. Presumption of employment in the construction industry.
9 861-d. Notice to persons receiving remuneration from contractors
10 and subcontractors.
11 861-e. Violations and penalties.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD11756-23-0
A. 8237--D 2
1 861-f. Retaliation.
2 § 861. Short title. This article shall be known and may be cited as
3 "the New York state construction industry fair play act".
4 § 861-a. Legislative findings and intent. The legislature hereby finds
5 and declares that New York state's construction industry is experiencing
6 dangerous levels of employee misclassification fraud. Unscrupulous
7 employers are intentionally reporting employees as independent contrac-
8 tors to state and federal authorities or workers' compensation carriers
9 in record numbers. In addition, there has been an explosion of employers
10 who operate in the underground economy and fail to report all or a siza-
11 ble portion of their workers.
12 The legislature hereby finds and declares that recent studies of New
13 York city's construction industry alone suggests that as many as fifty
14 thousand New York city construction workers -- nearly one in four -- are
15 either misclassified as independent contractors or are employed by
16 construction contractors completely off the books. Construction industry
17 fraud reduces government revenue, shifts tax and workers' compensation
18 insurance costs to law-abiding employees, lowers working conditions and
19 steals jobs from legitimate employers and their employees.
20 Therefore, the legislature hereby finds and declares that government
21 has an obligation to curb this underground economy, enforce long-stand-
22 ing employment laws, ensure compliance with essential social insurance
23 protections and eliminate the unfair competitive advantage from contrac-
24 tors in the underground economy by and through the enactment of the New
25 York state construction industry fair play act.
26 § 861-b. Definitions. As used in this article:
27 1. "Construction" means constructing, reconstructing, altering, main-
28 taining, moving, rehabilitating, repairing, renovating or demolition of
29 any building, structure, or improvement, or relating to the excavation
30 of or other development or improvement to land.
31 2. "Contractor" means any sole proprietor, partnership, firm, corpo-
32 ration, limited liability company, association or other legal entity
33 permitted by law to do business within the state who engages in
34 construction as defined in this article.
35 3. "Contractor" includes a general contractor and a subcontractor.
36 4. "Department" means the department of labor.
37 5. "Commissioner" means the commissioner of labor.
38 6. "Employer" means any contractor that employs individuals deemed
39 employees under this article.
40 § 861-c. Presumption of employment in the construction industry. 1.
41 Any person performing services for a contractor shall be classified as
42 an employee unless the person is a separate business entity under subdi-
43 vision two of this section or all of the following criteria are met, in
44 which case the person shall be an independent contractor:
45 (a) the individual is free from control and direction in performing
46 the job, both under his or her contract and in fact;
47 (b) the service must be performed outside the usual course of business
48 for which the service is performed; and
49 (c) the individual is customarily engaged in an independently estab-
50 lished trade, occupation, profession, or business that is similar to the
51 service at issue.
52 2. A business entity, including any sole proprietor, partnership,
53 corporation or entity that may be a contractor under this section shall
54 be considered a separate business entity from the contractor where all
55 the following criteria are met:
A. 8237--D 3
1 (a) the business entity is performing the service free from the direc-
2 tion or control over the means and manner of providing the service,
3 subject only to the right of the contractor for whom the service is
4 provided to specify the desired result;
5 (b) the business entity is not subject to cancellation or destruction
6 upon severance of the relationship with the contractor;
7 (c) the business entity has a substantial investment of capital in the
8 business entity beyond ordinary tools and equipment and a personal vehi-
9 cle;
10 (d) the business entity owns the capital goods and gains the profits
11 and bears the losses of the business entity;
12 (e) the business entity makes its services available to the general
13 public or the business community on a continuing basis;
14 (f) the business entity includes services rendered on a Federal Income
15 Tax Schedule as an independent business or profession;
16 (g) the business entity performs services for the contractor under the
17 business entity's name;
18 (h) when the services being provided require a license or permit, the
19 business entity obtains and pays for the license or permit in the busi-
20 ness entity's name;
21 (i) the business entity furnishes the tools and equipment necessary to
22 provide the service;
23 (j) if necessary, the business entity hires its own employees without
24 contractor approval, pays the employees without reimbursement from the
25 contractor and reports the employees' income to the Internal Revenue
26 Service;
27 (k) the contractor does not represent the business entity as an
28 employee of the contractor to its customers; and
29 (l) the business entity has the right to perform similar services for
30 others on whatever basis and whenever it chooses.
31 3. The failure to withhold federal or state income taxes or to pay
32 unemployment compensation contributions or workers' compensation premi-
33 ums with respect to an individual's wages shall not be considered in
34 making a determination under this section, except as set forth in para-
35 graph (f) of subdivision two of this section.
36 4. An individual's act of securing workers' compensation insurance
37 with a carrier as a sole proprietor, partnership or otherwise shall not
38 be binding on any determination under this section.
39 5. When a business entity meets the definition of a separate business
40 entity pursuant to subdivision two of this section, the separate busi-
41 ness entity will be considered a contractor subject to all the
42 provisions of this article in regard to the classification of individ-
43 uals performing services for it.
44 § 861-d. Notice to persons receiving remuneration from contractors and
45 subcontractors. 1. Every contractor shall post in a prominent and acces-
46 sible place on the site where the construction is performed a legible
47 statement, provided by the commissioner, that describes the responsibil-
48 ity of independent contractors to pay taxes required by state and feder-
49 al law, the rights of employees to workers' compensation, unemployment
50 benefits, minimum wage, overtime and other federal and state workplace
51 protections, and the protections against retaliation and the penalties
52 in this article if the contractor fails to properly classify an individ-
53 ual as an employee. This notice shall also contain contact information
54 for individuals to file complaints or inquire with the commissioner
55 about employment classification status. This information shall be
56 provided in English, Spanish or other languages required by the commis-
A. 8237--D 4
1 sioner. The posted statement shall be constructed of materials capable
2 of withstanding adverse weather conditions.
3 2. Within thirty days of the effective date of this article, the
4 commissioner shall create the notice described in subdivision one of
5 this section and post the notice on the department's website for down-
6 loading by contractors.
7 3. Contractors who violate this section shall be subject to a civil
8 penalty of up to one thousand five hundred dollars for a first
9 violation, and up to five thousand dollars for a subsequent violation
10 within a five year period.
11 § 861-e. Violations and penalties. 1. Any contractor who wilfully
12 fails to properly classify an individual as an employee as provided
13 under section eight hundred sixty-one-c of this article shall be subject
14 to the civil and criminal penalties provided under this section. The
15 civil penalties set forth in this section shall be imposed as follows:
16 by the commissioner where such penalty is based on a violation of this
17 chapter; by the chair of the workers' compensation board where such
18 penalty is based on a violation of the workers' compensation law; and by
19 the commissioner of tax and finance when such penalty is based on a
20 violation of the tax law, provided that no more than one civil penalty
21 under this section may be imposed per employee per incident of misclas-
22 sification.
23 (a) The workers' compensation board shall provide a copy of any order
24 relating to the misclassification of an employee, the intentional and
25 material underpayment or concealment of payroll, or the failure to
26 secure workers' compensation in the construction industry to the commis-
27 sioner and commissioner of taxation and finance no later than seven days
28 after the issuance of the order.
29 (b) Notwithstanding the secrecy provisions contained in articles
30 nine-A and twenty-two of the tax law, the department of taxation and
31 finance shall provide a copy of any assessment for failure to pay busi-
32 ness, corporate or personal income tax by an employer in the
33 construction industry arising out of the misclassification of an employ-
34 ee to the commissioner and chair of the workers' compensation board no
35 later than seven days after the issuance of the assessment.
36 (c) Upon the issuance of an order or determination by the commissioner
37 for a violation and penalties under this article, the commissioner shall
38 provide a copy of the order to the chair of the workers' compensation
39 board and the commissioner of taxation and finance no later than seven
40 days after the issuance of the order.
41 2. For the purposes of this section, the term "willfully violates"
42 means a contractor knew or should have known that his or her conduct was
43 prohibited by this section.
44 3. Any contractor who willfully violates section eight hundred sixty-
45 one-c of this article shall be subject to a civil penalty of up to twen-
46 ty-five hundred dollars for the first violation per misclassified
47 employee and to a civil penalty of up to five thousand dollars for each
48 subsequent violation per misclassified employee within a five year peri-
49 od.
50 4. In addition to civil penalties, the criminal penalties imposed on a
51 contractor who willfully violates the provisions of this article shall
52 be a misdemeanor and upon conviction shall be punished for a first
53 offense by imprisonment for not more than thirty days or a fine not to
54 exceed twenty-five thousand dollars and for a subsequent offense by
55 imprisonment for not more than sixty days or a fine not to exceed fifty
56 thousand dollars.
A. 8237--D 5
1 5. If the contractor is a corporation, any officer of such corporation
2 or shareholder who owns or controls at least ten percent of the
3 outstanding stock of such corporation who knowingly permits the corpo-
4 ration to willfully violate the provisions of this article shall also be
5 in violation of this article and the civil and criminal penalties herein
6 shall attach to such officer upon conviction.
7 6. Any contractor subject to civil penalties under this article shall
8 also be subject to any other applicable penalties or remedies provided
9 by law for failure to pay any other statutory payment or coverage obli-
10 gations, including but not limited to, unemployment insurance, workers'
11 compensation insurance, or business, corporate or personal income tax,
12 as follows:
13 (a) for failure to pay unemployment insurance tax, the penalties
14 imposed by section five hundred seventy of this chapter.
15 (b) for intentional and material understatement or concealment of
16 payroll or failure to secure workers' compensation insurance, the penal-
17 ties imposed by paragraph (d) of subdivision one of section fifty-two of
18 the workers' compensation law, and for failure to keep a true and accu-
19 rate record pursuant to section one hundred thirty-one of the workers'
20 compensation law, the penalties of section one hundred thirty-one of the
21 workers' compensation law.
22 (c) for failure to pay business, corporate or personal income tax, the
23 penalties imposed by section six hundred eighty-five and one thousand
24 eighty-five of the tax law.
25 7. Any contractor or any officer or shareholder who owns or controls
26 at least ten percent of the outstanding stock of such corporation that
27 has been convicted of a misdemeanor shall be subject to debarment and be
28 ineligible to submit a bid on or be awarded any public works contract
29 with the state, any municipal corporation, public benefit corporation,
30 public authority or public body for a period of up to one year from the
31 date of such conviction or final determination, or up to five years in
32 the event of any subsequent violation.
33 8. Any substantially owned affiliated entity of a contractor, as
34 defined by paragraph g of subdivision five of section two hundred twenty
35 of this chapter, shall be subject to the same civil penalty provided
36 under this article for a violation of such provision.
37 9. Any penalties imposed under this section by the commissioner shall
38 be appealed to the industrial board of appeals in accordance with arti-
39 cle three of this chapter. Any penalties imposed under this section by
40 the workers' compensation board or commissioner of taxation and finance
41 shall be appealed in the same manner as the underlying violation.
42 10. Nothing in this section shall limit the availability of other
43 remedies at law or in equity for a violation of this article.
44 11. Any fee or penalty assessed for a violation of this article shall
45 be deposited into the department's fee and penalty account.
46 § 861-f. Retaliation. 1. It is a violation of this article for an
47 employer or any agent of any employer, to retaliate through discharge or
48 in any other manner against any person in the terms of conditions of his
49 or her employment for exercising any rights granted under this article
50 for:
51 (a) making, or threatening to make, a complaint to an employer,
52 co-worker or to a public body that rights guaranteed under this article
53 have been violated;
54 (b) causing to be instituted any proceeding under or related to this
55 article; or
A. 8237--D 6
1 (c) providing information to, or testifying before, any public body
2 conducting an investigation, hearing or inquiry into any such violation
3 of a law, rule or regulation by such employer. Nothing in this section
4 shall limit the commissioner's authority under section two hundred
5 fifteen of the labor law, or any other statute.
6 2. Any act of retaliation under this section shall subject an employer
7 to the civil penalties under section eight hundred sixty-one-e of this
8 article, or to a private cause of action, or both.
9 § 2. Paragraph (b) of subdivision 1 of section 511 of the labor law is
10 amended by adding a new subparagraph 1-b to read as follows:
11 (1-b) as an employee in the construction industry unless the presump-
12 tion of employment can be overcome, as provided under section eight
13 hundred sixty-one-c of this chapter; or
14 § 3. The opening paragraph of subdivision 4 of section 2 of the work-
15 ers' compensation law, as amended by chapter 205 of the laws of 1993, is
16 amended to read as follows:
17 "Employee" means a person engaged in one of the occupations enumerated
18 in section three of this article or who is in the service of an employer
19 whose principal business is that of carrying on or conducting a hazard-
20 ous employment upon the premises or at the plant, or in the course of
21 his or her employment away from the plant of his or her employer;
22 "employee" shall also mean for the purposes of this chapter any individ-
23 ual performing services in construction for a contractor who does not
24 overcome the presumption of employment as provided under section eight
25 hundred sixty-one-c of the labor law; "employee" shall also mean for the
26 purposes of this chapter civil defense volunteers who are personnel of
27 volunteer agencies sponsored or authorized by a local office under regu-
28 lations of the civil defense commission, to the extent of the provisions
29 of groups seventeen and nineteen; "employee" shall at the election of a
30 municipal corporation made pursuant to local law duly enacted also mean
31 a member of an auxiliary police organization authorized by local law;
32 and for the purposes of this chapter only a newspaper carrier under the
33 age of eighteen years as defined in section thirty-two hundred twenty-
34 eight of the education law, and shall not include domestic servants
35 except as provided in section three of this chapter, and except where
36 the employer has elected to bring such employees under the law by secur-
37 ing compensation in accordance with the terms of section fifty of this
38 chapter. The term "employee" shall not include persons who are members
39 of a supervised amateur athletic activity operated on a non-profit
40 basis, provided that said members are not also otherwise engaged or
41 employed by any person, firm or corporation participating in said
42 athletic activity, nor shall it include the spouse or minor child of an
43 employer who is a farmer unless the services of such spouse or minor
44 child shall be engaged by said employer under an express contract of
45 hire nor shall it include an executive officer of a corporation who at
46 all times during the period involved owns all of the issued and
47 outstanding stock of the corporation and holds all of the offices pursu-
48 ant to paragraph (e) of section seven hundred fifteen of the business
49 corporation law or two executive officers of a corporation who at all
50 times during the period involved between them own all of the issued and
51 outstanding stock of such corporation and hold all such offices except
52 as provided in subdivision six of section fifty-four of this chapter
53 provided, however, that where there are two executive officers of a
54 corporation each officer must own at least one share of stock, nor shall
55 it include a self-employed person or a partner of a partnership as
56 defined in section ten of the partnership law who is not covered under a
A. 8237--D 7
1 compensation insurance contract or a certificate of self-insurance as
2 provided in subdivision eight of section fifty-four of this chapter, nor
3 shall it include farm laborers except as provided in group fourteen-b of
4 section three of this chapter. If a farm labor contractor recruits or
5 supplies farm laborers for work on a farm, such farm laborers shall for
6 the purposes of this chapter be deemed to be employees of the owner or
7 lessee of such farm. The term "employee" shall not include baby sitters
8 as defined in subdivision three of section one hundred thirty-one and
9 subdivision three of section one hundred thirty-two of the labor law or
10 minors fourteen years of age or over engaged in casual employment
11 consisting of yard work and household chores in and about a one family
12 owner-occupied residence or the premises of a non-profit, non-commercial
13 organization, not involving the use of power-driven machinery. The term
14 "employee" shall not include persons engaged by the owner in casual
15 employment consisting of yard work, household chores and making repairs
16 to or painting in and about a one-family owner-occupied residence. The
17 term "employee" shall not include the services of a licensed real estate
18 broker or sales associate if it be proven that (a) substantially all of
19 the remuneration (whether or not paid in cash) for the services
20 performed by such broker or sales associate is directly related to sales
21 or other output (including the performance of services) rather than to
22 the number of hours worked; (b) the services performed by the broker or
23 sales associate are performed pursuant to a written contract executed
24 between such broker or sales associate and the person for whom the
25 services are performed within the past twelve to fifteen months; and (c)
26 the written contract provided for in paragraph (b) [herein] of this
27 subdivision was not executed under duress and contains the following
28 provisions:
29 § 4. Notwithstanding any other provision of the law to the contrary,
30 the provisions of section 861-c of the labor law, as added by section
31 one of this act, shall apply to and be utilized for all determinations
32 of a construction industry individual's employment status under the
33 labor law and the workers' compensation law, but not the tax law.
34 § 5. This act shall take effect on the sixtieth day after it shall
35 have become a law.