By: Jeffrey A. Risch, SmithAmundsen LLC
In what is believed to be the largest assessment issued by the Illinois Department of Labor (IDOL) under Illinois’ new Employee Classification Act (Act), a Chicago-area contractor has been penalized over $325,000.00 for treating its workers as independent contractors rather than employees. IDOL recently issued its final determination and assessment under the Act against Elmwood Park, Ill. based Mega Builders Inc. The determination faulted Mega Builders for failing to classify 18 workers as employees and for also “scheming” to evade its obligations under the Act by forcing workers to incorporate.
Signed by former Governor Blagojevich, the Act was passed into law for the purpose of protecting workers who have been misclassified as independent contractors on construction related projects in Illinois. See 820 ILCS 185/1 et. seq. Regardless of whether the construction project is public or private, any contractor who misclassifies any worker faces substantial monetary fines, penalties and other actions that would ultimately prevent the contractor from performing public works projects in Illinois. More specifically, the IDOL has wide latitude in assessing civil penalties and other remedies against any contractor doing business in Illinois for purposes of enforcing the Act. Essentially, the Act provides that individuals performing services for construction contractors on or after January 1, 2008 are presumed to be employees of that contractor unless they meet the criteria specified in Section 10 of the Act. If a contractor has misclassified individuals as independent contractors, the IDOL may assess civil penalties and may seek other remedies provided for in the Act.
What is particularly noteworthy in the Mega Builders case was the IDOL’s determination that the company forced workers to incorporate. Although the Act’s coverage should not reach bona fide corporations or bona fide limited liability companies, the IDOL is sensitive to any schemes by contractors to simply force workers to form legal entities on paper but those alleged legal entities do not comport to the requirements of law. Many contractors are looking at the Act’s Administrative Regulations, 56 Ill. Adm. Code 240.110, where the definition of an individual performing services under the Act does not include a bona fide corporation or bona fide limited liability company. Although bona fide Corps and LLC’s should not be considered employees under the law, the question still remains… “What does BONA FIDE mean?”
In determining whether a corporation is bona fide for purposes of the Act, the IDOL will consider, among other factors, whether:
the corporation is capitalized;
the corporation has issued corporate stock;
the corporation maintains a corporate bank account;
there is an intermingling of corporate and personal accounts or funds;
the corporation holds itself out as a corporation;
the corporation maintains corporate books and records, including corporate meeting minutes and files corporate tax returns that are current and complete; and
Articles of Incorporation have been filed and the corporation is in good standing, in the case of Illinois corporations, with the Illinois Secretary of State or, in the case of foreign corporations, as directed by the laws of that jurisdiction.
In determining whether a limited liability company (LLC) is bona fide for purposes of the Act, the IDOL will consider, among other factors, whether:
the LLC has assets;
the LLC maintains a company bank account;
there is an intermingling of company and personal accounts or funds;
the LLC holds itself out as an LLC;
the LLC makes necessary tax filings that are current and complete; and
Articles of Organization have been filed and the LLC is in good standing, In the case of Illinois LLC’s with the Illinois Secretary of State or, in the case of foreign LLC’s, as directed by the laws of that jurisdiction.
Obviously, the IDOL considered these factors and ultimately concluded that Mega Builders’ workers incorporated on paper alone but failed to act as bona fide corporations. Back in September of this year, SmithAmundsen LLC announced that several of our IDOL contacts were stating privately and publicly that efforts had been underway to aggressively pursue alleged violators. We explained that contractors who have yet to familiarize themselves with this new law - yet continue to “subcontract” construction related work to individuals, sole proprietors and/or partnerships - were more likely to face severe legal and financial hardship in the days, weeks and months to come. Well… the IDOL is certainly keeping its word.
Attorney Jeff Risch is a Partner in SmithAmundsen’s Labor & Employment Law Practice Group. Attorney Risch has counseled contractors (including trucking companies) throughout the United States on their rights and obligations under the Illinois Employee Classification Act. Attorney Risch may be contacted anytime at 312 894-3203 or 630 569-0079 or by email at jrisch@salawus.com.
Tags: IDOL, Independent Contractors, Misclassifying, Subcontractors
[...] Illinois Construction Update: IDOL Crushes Contractor for … [...]