Springfield This Week Home Builders Association of Illinois
Bill Ward, Director, Governmental Affairs
February 26, 2008

 
Here is an update on some of the issues we are working on in the Illinois General Assembly. Please feel free to contact our offices if you have questions or concerns regarding the following information.

 
Employee Classification Act

The deadline to submit comments on the rules governing the Employee Classification Act is today.   Springfield Attorney, Mike Mannion, has drafted our response and Chicago area Attorney John Cooney has reviewed his work and made additions to the letter sent to the Illinois Department of Labor. The I-DOL will review ours and all responses and submit any changes they deem necessary to the Joint Commission on Administrative Rules. The proposed rules will then have legislative review before permanent adoption. If you would like to see our comments, please respond by e-mail and we will forward them to you.

 
California Home Remodeling & Repair Act

The Illinois Attorney General’s office has decided not to introduce legislation creating new regulations on home remodelers. Based on a recently enacted California law (January 1, 2008), remodelers cannot collect deposits for more than $1000 or 10% of the value on a particular project, whichever is less. Among other troublesome issues, remodelers would be required to list the profit margin on a project. It was likely that HBAI and the Ill. Retail Merchants Association were going to take opposition to the measure but the bill has been dropped for now.

 
Radon Construction Mandate

HB4789 (May) will be called on Wednesday in the House Committee on Environment and Energy. The bill requires the Ill-Emergency Management Agency to administer rules creating passive radon construction requirements on all new residential construction. Our estimates (depending on the home) show this new mandate will require a $1200 to $1800 additional expense to the cost of a new home. Worse then that is the 20 to 24 days required to test the system after construction is completed.

 Some legislators believe a better approach to this issue would be to offer tax incentives to purchasers of homes which have radon systems placed on the home. Chances are good that this bill will receive a favorable vote in House Committee.

False Use of Roofer’s License Number

Language creating penalties for general contractors who knowingly use a false roofer’s license number on a building permit application has been introduced. HB5307 creates a $5000 penalty on residential projects and a $10,000 penalty for commercial work. HBAI is neutral on the bill.

 
Statewide Building Code

The International Code Council in coordination with the Capital Development Board is proposing the implementation of the following codes in areas where no codes are imposed: the International Building, Fire, Residential, Mechanical, Fuel Gas, Existing Building, and Property Maintenance Codes. The bill also references state codes pertaining to plumbing, accessibility, and the national electrical code.

 
All Plan Reviewers and Building Inspectors will be certified by the state and units of local government can contract with certified inspectors to provide inspection services. Inspections will be mandatory on all construction in Illinois. HBAI will offer an amendment exempting residential from the Act, and referencing the 2006 IRC in the Illinois Residential Building Code Act.

 
Farmland Preservation

SB1992 (Althoff) would create a front-door referendum for county property taxes to purchase development rights on farmland. The bill is being pushed by the Openlands Project and the Kane County Farm Bureau. In the past, we have insisted bills such as these must buy the land in total. Kane County is currently using county funds to purchase development rights, an ordinance that probably should be reviewed by this association. HBAI is opposed to this measure and will enlist the help of trade unions and other construction associations in defeating the measure.

 
Certified Letters for Re-Zoning

SB2022 (Frerichs) would require property owners requesting a zoning change in unincorporated areas to send certified mail to all other property owners within a 1 ½ mile radius of a proposed zoning change. We met last week with Senator Frerichs (D-Champaign) and the proponent of this bill, the Champaign County Farm Bureau. Senator Frerichs believes notification could be improved but the mandatory certified letters and the mileage go too far and would be too expensive. The Realtors, Municipal League, and others are opposed. Language is being drafted requiring larger signage when posting notice on an affected property.

EMPLOYEE CLASSIFICATION ACT BECOMES LAW

On January 1, 2008, the Employee Classification Act (formerly House Bill 1795) becomes law in the State of Illinois. It applies to all private sector general contractors and subcontractors who perform construction work, which is broadly defined in §5 of the Act to include most types of construction. The purpose of the Act is to “address the practice of misclassifying employees as independent contractors” and it establishes serious penalties for employers that violate its requirements. The bill was backed by organized labor as well as the State government, which sees the law as a means to enhance the collection of employee taxes as well as keep certain employers from avoiding responsibility for worker’s compensation and medical insurance coverage.

Who is an “Employee” Under the Act?

Section 10(a) of the Act provides that any individual performing services for a contractor is deemed to be its employee, however the contractor may classify that person, unless the individual meets the four part test set forth in Section 10(b). This includes a showing that: (1) the individual is “free from control or direction over the performance” of the work being done; (2) the service being performed by the individual is “outside the usual course of services performed by the contractor;” and (3) the individual is engaged in an “independently established trade, occupation, profession or business;” or (4) the individual is deemed a “legitimate sole proprietor or partnership” under Section 10(c). Section 10(c), in turn, details 12 factors which will determine if the individual in question is a “legitimate” sole proprietorship or partnership. Hence the sole proprietor or partnership must:

• perform the service for the contractor “free from the direction or control over the means and manner of providing the service;”

• not be subject to dissolution upon severance of the relationship with the contractor;
• have a “substantial investment of capital in the [business] beyond ordinary tools and equipment and a personal vehicle;”

• “own the capital goods and gain the profits or bear the loss” of the business;
• make its services available to the general public or business community on a continuing basis;
• include services rendered on a federal income tax schedule under the business’ name;
• perform services for the contractor under the business’ name;
• where the services require a license, obtain and pay for the license in the business’ name;
• furnish the tools and equipment necessary to provide the service;
• hire its own employees without contractor approval, pay them without reimbursement from the contractor, and report their income to the IRS;

• not be held out by the contractor to the public as its own employee; and
• have the right to perform similar services for others as it chooses.

A sole proprietor or partnership that does not meet this standard “shall be deemed an individual for the purposes of [the] Act,” which thereby makes that person an “employee.” (§§10(a), (e)).

Enforcement and Penalties under the Act.

The Department of Labor is responsible for enforcing the Act. It can begin an investigation based on a complaint filed by “any interested party,” and can subpoena documents and witnesses as a part of its investigation. (§25(a)). If the Department believes that there has been a violation of the Act, it has many enforcement options available to it. It can issue a cease and desist order, require other affirmative action by the contractor, collect wages or benefits due, and assess a “civil penalty” not to exceed $1,500 for each violation in a first audit, and up to $2,500 for a repeat violation during the next five years. These penalties are doubled in the case of a willful violation, a finding of which can also subject the contractor to a Class C misdemeanor for a first offense, and a Class 4 felony for subsequent offenses within five years. (§25(b), 40, 45). It should be noted that for each individual misclassified, and for each day the violation continues, a separate violation and therefore a separate penalty occurs. (§40). These penalties can be collected by the Department, a “person aggrieved” by a violation or by an “interested party” in a civil action. The Department may seek court enforcement through a contempt order against a contractor that violates a Department order. (§35). An aggrieved employee or “interested party” may also file a private lawsuit against a contractor and can recover unpaid wages, benefits, liquidated damages, compensatory damages and $500 for each violation of the Act, as well as costs and attorney’s fees. It is also a violation of the Act for an employer to retaliate against an individual for exercising rights under the Act. (§55). Finally, the Department can seek debarment of an offending contractor from eligibility for State contracts on the occurrence of a second violation within five years. (§42).

Getting Ready for the Act’s Enforcement

The foregoing summary of the Act should convince any construction industry employer to be extremely careful before classifying a person as an “independent contractor” instead as an “employee,” unless there is strict compliance with the law. If a violation of the Act is found, the amount of wages and benefits owed by the contractor may pale in comparison to the various civil and criminal “statutory penalties” that may be assessed against it by the Department of Labor. Further, the specter of contract debarment and criminal penalties further underscores the need to be wary. Also, the non-union contractor especially should be alert to the potential for a union that claims to be an “interested party” to couple litigation under the Act with an attempt to organize its employees. Given the potential usefulness of this new law to the government as well as to unions and plaintiffs’ trial lawyers, construction industry firms would be well advised to review the status of any of their independent contractors under the Act prior to January 2008.

Tish Rizzo
WGCHBA Secretary