States Take Action Against Employee Misclassification

More states are taking action to eradicate worker misclassification, recognizing that the underhanded hiring practice by some companies harms underpaid workers, including illegal workers, but also hurts employers who play by the rules. For example, legitimate employers who hire US citizens into lawful employee relationships are put at a disadvantage when competitors hire illegals for cash. Now state legislatures are leveling the playing field for construction companies by introducing penalties for worker misclassification, which includes the hiring of illegal aliens. The Construction Citizen blog has drawn attention to two more instances where states are not waiting for the federal government to handle this problem.

First, New York Governor David A. Paterson signed the Construction Industry Fair Play Act into law last week. How to determine whether a worker is an independent contractor or an employee is now clearly described, and for the first time in that state, employee misclassification specifically on construction projects may now be subjected to criminal penalties as well as fines.

Second, New Hampshire Governor John H. Lynch signed an executive order on September 3 creating the Joint Task Force on Employee Misclassification Enforcement. New Hampshire had already put in place specific legal criteria for determining whether a worker was an employee or not, and the new task force brings together all of the agencies who strive to enforce that law. Construction Citizen quotes an article written by the commissioner of New Hampshire’s Department of Labor and the chair of the NH Task Force to Study Misclassification in which they explain why abolishing misclassification is so important. They write:

“By driving higher unemployment and workers’ compensation costs for the overwhelming majority of businesses that follow the law, misclassification creates a competitive disadvantage for those law-abiding businesses.”

Companies who avoid paying unemployment, workers’ compensation, health and other benefits to their workers by misclassifying them are able to undercut competitors’ project bids. This shifts the burden for these needed services onto citizens who do pay their taxes. In our suffering economy, it is to everyone’s advantage to stop this unfair practice and to “level the playing field” for responsible businesses who do the right thing.

Perhaps new state legislation with stiff penalties and eventual federal legislation is what it will take to reduce the practice of illegal hiring and restore a legitimate competitive environment to construction companies and others who want to play by the rules on a basis of merit, quality and value, and not on a basis of illegal hiring for cash.