By: Tom Davies, Partner
(717) 291-2236
Who is an Independent Contractor?
This is a critical question for construction industry employers and each reader probably has their own idea as to the proper answer. Unfortunately, it doesn’t matter much how you or I would answer this question, but it matters a great deal how the relevant legal authorities answer it. Since the passage of the Construction Workplace Classification Act in 2011 (Act 72) the Pennsylvania Department of Labor & Industry has been charged with enforcing the statutory definition found therein. As set forth in her April 2023 report titled Administration And Enforcement of the Construction Workplace Misclassification Act Acting L&I Secretary Nancy Walker stated:
Act 72 prohibits contractors from treating construction employees as independent contractors. The Act provides that for a worker to be deemed an independent contractor, the worker must:
1. Have a written contract to perform services
2. Be free from control or direction over the performance of work under contract.
3. Be customarily engaged in an independently established trade or business.
There are six factors that establish an independent trade or business:
1. Worker possesses his/her own essential tools and equipment.
2. Worker realizes profit or loss through services.
3. Worker has a proprietary interest in business through which services are performed.
4. Worker has a business location separate from the location where services are provided.
5. Worker previously performed similar services for
others, holds himself/herself out to do work for others, and is free from direction or control of the contractor.
6. Worker maintains liability insurance of at least $50,000.
To meet the Act 72 requirements, you must have a written subcontract with each independent contractor. Also note that the prongs of both set of tests contain the word “and” which means that each element must be met. As Attorney General, Josh Shapiro vigorously enforced this statute, and it must be assumed that his administration will continue to do so. There are some pending legislative proposals that might tweak Act 72, but the important points will likely remain unchanged.
At the federal level, the National Labor Relations Board, in a decision issued on June 13, in The Atlanta Opera, Inc., the Board returned to the Obama era FedEx Home Delivery (2014) standard for determining independent contractor status under the National Labor Relations Act (the Act), and overruled the Trump Board’s more employer favorable ruling in SuperShuttle (2019). Also, although apparently delayed by the difficulty in confirming a new Secretary of Labor to replace Marty Walsh, the DOL will soon be publishing its own revisions to the tests for establishing independent contractor status.
As is apparent, the answer to the question “Who is an independent contractor?” continues to be one generating a lot of interest and construction industry employers face significant risks if they improperly classify workers as independent contractors rather than employees. Make sure you have written contracts with each independent contractor and that they meet all of the other tests set forth above. It is strongly recommended that you seek legal counsel if you have any doubts about your current practices.
