Independent Contractor Update: A bill targeting the construction industry has been introduced in the Delaware General Assembly. “The Construction Industry Independent Contractor Act,” HB129, which is similar to one that failed to pass during the last legislative session, creates a presumption that an individual performing a service “in the making of improvements to real property” is an employee rather than an independent contractor. To overcome that heavy burden, an employer must prove that the individual is free from control or direction over the performance of that service, the service is outside the usual course of the employer’s business or performed outside of all of the employer’s places of business [seemingly impossible to prove in the context of a construction employer, who travels from place to place], and the individual is customarily engaged in “an independently established trade, occupation, profession or business.”
And woe to the employer who misclassifies, either unwittingly or knowingly. The law not only contains criminal fines and imprisonment penalties, it also authorizes civil suits, including class actions, and allows attorney’s fee awards to prevailing plaintiffs. An employer who knowingly misclassifies an individual can also be debarred from working on public projects. The law also makes the Secretary of Labor the judge, jury and executioner, authorizing administrative monetary penalties if he or she decides that there has been a violation, subject only to a hearing that can be requested after the initial decision has been made.
Since the Act only applies to individuals, employers wishing to engage legitimate independent contractors may wish to require them to incorporate or form limited liability companies before entering into an agreement for construction-related services. As an alternative, the cautious employer may want to rely heavily on temporary job services, with the individual remaining an employee of the service company, which would be responsible for taxes, withholdings and other legal requirements. Of course these approaches will cost more money, and one wonders why, in the midst of an economic crisis, the Delaware General Assembly would want to create additional financial burdens for companies. The only message that can be inferred from this one-sided legislation is that Delaware is less friendly to business than it used to be.