Many cases are litigated every year in Pennsylvania concerning the misclassification of independent contractors (“IC”), which are more prevalent in the construction and health care industries. In Pennsylvania, based on 2018 data, there are over a quarter of a million construction jobs. Many companies utilize “IC diagnostics” to minimize these lawsuits and analyze whether their IC business relationships are documented, structured and implemented to meet legal standards.
Unless proven otherwise, there is a presumption that an individual is considered to be an employee. For an individual to be considered an independent contractor, both of the following must be sufficiently shown:
- The individual has been and will continue to be free from control or direction over the performance of the services involved, both under the contract of service and in fact, and
- As to such services, the individual is customarily engaged in an independently established trade, occupation, profession or business.
If an individual performs services in the construction industry, the Construction Workplace Misclassification Act (Act 72), mandates additional criteria that must be met for an individual to be recognized as an independent contractor. All of the following requirements must be met:
- The individual has a written contract to perform the services;
- The individual is free from control or direction over the performance of the services involved both under the contract of service and in fact, and
- As to such services, the individual is customarily engaged in an independently established trade, occupation, profession or business.
It is important to note and recognize that the written contract for services must be specific to the project for which the individual will be performing such services.
To show that an individual in the construction industry is customarily engaged in an independently established trade, occupation, profession or business, Act 72 requires the following:
- The individual possesses the essential tools, equipment and other assets necessary to perform the services independent of the person for whom the services are performed;
- The individual’s arrangement with the person for whom the services are performed is such that the individual shall realize a profit or suffer a loss as a result of performing the services;
- The individual performs the services through a business in which the individual has a proprietary interest.
- The individual maintains a business location that is separate from the location of the person for whom the services are being performed.
- The individual either (a) previously performed the same or similar services for another person in accordance with (1), (2), (3) and (4) while free from direction or control over performance of the services, both under his contract and in fact; or (b) holds himself out to other persons as available and able, and in fact is available and able, to perform the same or similar services in accordance with (1), (2), (3) and (4) while free from direction or control over performance of the services;
- Maintains liability insurance during the term of the contract of at least $50,000.