Illinois Strengthens Laws to Prevent Independent Contractor Misclassification in the Construction Industry

On July 23, Illinois Governor Pat Quinn signed into law two bills designed to prevent independent contractor misclassification in the construction industry. The legislation, effective January 1, 2014, amends the Illinois Employee Classification Act and enhances reporting obligations and penalties for state construction contractors.

First, H.B. 923 requires state construction contractors to file annual reports with the Illinois Department of Labor (“Department”) when a contractor pays an individual, sole proprietor, or partnership (“payee”) for construction services if the payee is not classified as an employee. In the reports, contractors must disclose:

• the contractor’s name, contact information, and business identification number;
• the payee’s name, contact information, and identification number; and
• the amount the contractor paid to the individual in the taxable year.

If the Department determines that a contractor failed to file the required reports, the Department may impose a civil fine against the contractor. Repeat violators may be disbarred from receiving state contracts.

Second, H.B. 2649 requires the Department to notify contractors of misclassification complaints filed with the Department and creates an administrative hearing process for the Department to pursue misclassification claims against contractors. The legislation also provides that when the Department recovers a monetary penalty against contractors that misclassified workers, the Department shall distribute 10 percent of the penalty to the affected employees. Finally, the legislation creates individual liability for officers and agents of a corporation that “knowingly permit” violations of the law.

According to Governor Quinn’s office, worker misclassification results in the state losing up to $700 million in taxes and payments annually. The new laws are aimed to help the state collect money from contractors for payroll taxes, unemployment insurance, and workers’ compensation premiums.

If you have any questions regarding any matters discussed in this briefing, please contact any of the Winston & Strawn Labor and Employment Department attorneys listed below or your usual Winston & Strawn contact.

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