New York’s Construction Fair Play Act: An Overview
In New York state, general contractors are required to provide workers compensation insurance for any persons that they employ. They are also responsible for paying the prevailing wage rate set for the locality where the work is performed. This becomes clouded, as general contractors will often subcontract work to other entities, bringing up the question of who is an employee of the contracted entity and who is responsible for providing insurance. In 2010, New York state enacted the Construction Industry Fair Play Act (“the Act”) to help clarify this issue. The topic was recently discussed in the Summer 2019 issue of Cornerstone Magazine, a quarterly publication of the Associated General Contractors of New York State (AGS NYS).
According to the New York State Department of Labor (DOL), “anywhere from 15 to 25 percent of construction workers may be misclassified in New York state” meaning that employers often “treat workers who should be considered employees as independent contractors or simply do not report them (pay them ‘off the books’).” Overall, the Construction Industry Fair Play Act helps discern who is and who is not an employee. It presumes that anyone who performs work for a contractor is an employee of that contractor. The Act broadly defines a contractor as the following: any sole proprietor, partnership, limited liability company, corporation or other legal entity that engages in construction work in New York state. With that in mind, any worker who is injured while performing a service for this contractor is to be covered by the contractor’s workers compensation. Where this becomes a little tricky is when there are exceptions – when a person or entity performing the work fits the legal definition of either an independent contractor or a separate business entity.
The Act clearly defines an independent contractor in the construction industry using a three-prong test. The subcontractor is not an employee of a contractor if…
- The subcontractor is free from control and direction on how the subcontractor performs its contracted work.
- The subcontractor’s work falls outside of the usual course of business for the company.
- The subcontractor maintains an independent business that provides service to the general contractor.
Also, within the Act is a separate business entity test, composed of 12 parts. If the entity meets all 12 of these criteria, it will not be considered an employee, but a separate business that is subject to the law regarding its own employees. The entity must meet all 12 criteria to be considered a separate business entity.
All of this is significant as the Act established new, stiffer penalties for general contractors who misclassify employees. Such penalties include:
- Fines up to $2,500 per misclassified employee (first violation)
- Fines up to $5,000 per misclassified employee (second violation – per five-year period)
- Up to 30 days in jail, a $25,000 fine and debarment from Public Work projects (first offense – for up to one year)
- Up to 60 days in jail, a $50,000 fine and debarment from Public Work projects (subsequent offenses – for up to five years)
If you have any additional questions on the Construction Fair Play Act, you can contact Rose & Kiernan, Inc. here or by calling 800-242-2433. The information provided in this article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.