State Supreme Court Rejects Challenge to Constitutionality of IL Misclassification Law

Illinois Supreme CourtThe Illinois Supreme Court has rejected a constitutional challenge to the state’s Employee Classification Act (ECA). ECA designates most individuals who perform construction-related services as ‘employees’ even if their employer labels them independent contractors. The Illinois ECA is arguably the most strict (read: best!) worker misclassification law in the country.  

Background on the case is provided by Todd Lebowitz:

Bartlow v. Costigan arose out of a preliminary finding that a small construction firm, Jack’s Roofing, had misclassified 10 workers as independent contractors instead of employees for periods ranging from 8 to 160 days in 2008.  The Illinois Department of Labor calculated a potential penalty for having misclassified these 10 workers as $1.6 Million.  Under the Illinois misclassification law, each day that each worker is misclassified is considered a separate violation, with fines of up to $1,000 for a first offense.  Willful violations result in triple damages.  Subsequent violations double the penalties again.

Facing financial ruin, Jack’s Roofing challenged the law as unconstitutional, making various arguments as to lack of due process and equal protection, as well as arguing that the legislation violated the Illinois Constitution’s special legislation clause because it subjected the construction industry to more stringent employment standards than other industries.

The Illinois Supreme Court rejected all challenges and upheld the law’s validity.

Illinois’ ironclad approach to misclassification asks employers to meet 12 different criteria for labeling a worker an ‘independent contractor.’ This goes well beyond the IRS’ requirement:

The ECA presumes that any individual performing services is an employee unless the company can prove that (a) the individual is free from the direction and control of the company over the means and manner of performing the services, and (b) the service performed is outside of the usual scope of services performed by the company, and (c) the individual is engaged in an independently established trade or business.

But unlike misclassification laws in most other states, the ECA carries the presumption of employment a step further, beyond just individuals.  Under the ECA, even sole proprietorships and partnerships are deemed individuals subject to the ABC test, unless an additional test is satisfied to show that the sole proprietorship or partnership truly operates as a self-sustaining independent entity.  The additional test requires proof that the entity meets 12 out of 12 factors, including that it that has made a substantial investment in capital beyond ordinary tools and a personal vehicle, that it makes its services available to the general public, that if it hires any additional employees it does so without the contractor’s approval, and that it does not hold itself out to the contractor’s customers as its employee.

Illinois is now firmly established as a leader in misclassification enforcement — along with New York — thanks to penalties substantial enough to actually prevent bad behavior. Given the grave ripples misclassification can send through a state or local economy, other states would be smart to follow this precedent.

Go to IL State Page
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