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The New York Construction Industry Fair Play Act

New York State contractors – take note and beware. The New York State legislature has recently enacted: “The New York Construction Industry Fair Play Act,” in October of 2010. (New York State Labor Law starting at section 861).

As a result of economic pressure and lobbying from Unions, the NYS Legislature has adopted the Fair Play Act to prevent contractors from reporting employees as independent contractors to state and federal authorities or workers’ compensation carriers.

The problem with this new law is that it is overly broad and ambiguous and carries with it both civil and criminal penalties for violation.

1. Essentially, under section § 861-c, of the Fair Play Act, any person performing services for a contractor shall be classified as an employee unless the person is a separate business entity under subdivision two of this section or all of the following criteria are met, in which case the person shall be an independent contractor:

(a) the individual is free from control and direction in performing the job, both under his or her contract and in fact;

(b) the service must be performed outside the usual course of business for which the service is performed; and

(c) the individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.

2. A business entity, including any sole proprietor, partnership, corporation or entity that may be a contractor under this section shall be considered a separate business entity from the contractor where all the following criteria are met:

(a) the business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result;

(b) the business entity is not subject to cancellation or destruction upon severance of the relationship with the contractor;

(c) the business entity has a substantial investment of capital in the business entity beyond ordinary tools and equipment and a personal vehicle;

(d) the business entity owns the capital goods and gains the profits and bears the losses of the business entity;

(e) the business entity makes its services available to the general public or the business community on a continuing basis;

(f) the business entity includes services rendered on a Federal Income Tax Schedule as an independent business or profession;

(g) the business entity performs services for the contractor under the business entity’s name;

(h) when the services being provided require a license or permit, the business entity obtains and pays for the license or permit in the business entity’s name;

(i) the business entity furnishes the tools and equipment necessary to provide the service;

(j) if necessary, the business entity hires its own employees without contractor approval, pays the employees without reimbursement from the contractor and reports the employees’ income to the Internal Revenue Service;

(k) the contractor does not represent the business entity as an employee of the contractor to its customers; and

(l) the business entity has the right to perform similar services for others on whatever basis and whenever it chooses.

The Penalties

Some of the civil and criminal penalties for violating the Fair Play Act are as follows:

Any contractor who willfully violates section 861-c of this article shall be subject to a civil penalty of up to twenty-five hundred dollars for the first violation per misclassified employee and to a civil penalty of up to five thousand dollars for each subsequent violation per misclassified employee within a five-year period.

In addition to civil penalties, the criminal penalties imposed on a contractor who willfully violates the provisions of this article shall be a misdemeanor and upon conviction shall be punished for a first offense by imprisonment for not more than 30 days or a fine not to exceed twenty-five thousand dollars and for a subsequent offense by imprisonment for not more than 60 days or a fine not to exceed fifty thousand dollars.

Should you or your company require any advice or assistance in avoiding the severe penalties associated with this new law, please call our office for a free consultation.

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