State Senate, Assembly Pass Employee Misclassification Bill

ALBANY – The New York State Senate and Assembly gave final approval to legislation (S.5847-F/A.8237-D) that cracks down on the practice of employee misclassification in the construction industry and will help to prevent the siphoning off of tens of millions of dollars in state tax revenue each year into New York’s underground economy. The bill now goes to Gov. David Paterson for approval.

The bill was approved by the Senate on June 25 and by the Assembly on June 29.

“It is very clear that action must be taken to stop unscrupulous employers from misclassifying workers as independent contractors —a practice that costs the State at least $90 million a year, and that hurts both workers and honest employers,” said State Senator George Onorato, chairman of the Senate Standing Committee on Labor. “With the Senate and Assembly passage of this legislation, and with the governor expected to sign it into law, we are just one pen stroke away from bringing an end to this unfortunate practice. Particularly in light of these tough economic times, we cannot continue to turn a blind eye to employer behavior that robs our state of badly needed revenues.”

When fully implemented, the legislation is expected to provide the state with up to $92.3 million a year in savings from lost unemployment taxes and workers’ compensation assessments.

The legislation would enact the “New York State Construction Industry Fair Play Act.” Under this measure, all construction industry workers would be presumed to be employees unless they meet three specific criteria that would lead to their classification as independent contractors. This “ABC test” is used in several states throughout the country where employee misclassification had also diverted millions of dollars into their underground economies, state officials noted. The bill would also provide workers with notice of their classification status, protect them from retaliation for reporting violations, and impose penalties against employers and corporate officers who knowingly allow violations to occur.

Senator Onorato pointed out that a 2009 report by the New York State Joint Enforcement Task Force on Employee Misclassification found 12,300 instances of employee misclassification throughout the state, and more than $157 million in unreported wages. These violations, at the time, led to the recovery of $4.8 million in unpaid unemployment taxes, more than $1 million in unemployment insurance fraud penalties, more than $12 million in unpaid wages, and more than $1.1 million in workers’ compensation fines and penalties. Most of the violations, statewide, were found in the construction industry.

This is part of the July 1, 2010 online edition of Construction News.

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