PENNSYLVANIA — Pennsylvania Department of Labor & Industry (L&I) Secretary Jennifer Berrier on Thursday announced that the Joint Task Force on Misclassification of Employees, a bipartisan-nominated group of volunteers representing business, labor, and government perspectives, has submitted its final report to the General Assembly with 15 unanimous recommendations.
The Joint Task Force was created by Act 85 of 2020 to study the misclassification of workers and its impact on the Commonwealth. Misclassification of employees occurs when a business wrongfully classifies a worker as an independent contractor when the nature, type, and oversight of their work determines they should be considered an employee under the law.
“Misclassification harms everyone except the lawbreakers. Misclassified workers are denied the protections and benefits to which the nature of their work entitles them. Law-abiding businesses lose out on business and contracts to unscrupulous businesses engaged in knowing and rampant misclassification. Taxpayers suffer because misclassification deprives the Unemployment Compensation Trust Fund and General Fund of revenue, which results in higher tax rates for everyone,” Berrier said. “I urge the General Assembly to act on the Joint Task Force’s recommendations to address this glaring problem.”
The Joint Task Force report estimates:
- 48,939 employers in Pennsylvania currently misclassify at least one employee annually;
- 259,000 Pennsylvania workers are misclassified annually;
- $91 million in annual lost revenue to the UC Trust Fund due to misclassification;
- Between $6.4 and $124.5 million in lost revenue in 2019 to the General Fund due to misclassification;
- $383 thousand in estimated losses to the Uninsured Employer Guaranty Fund (UEGF) due to misclassification in 2021;
- 10,892 misclassified employees who suffered injury or illness at work and were denied Workers’ Compensation in 2021;
- $153 million in estimated losses to misclassified employees who suffered injury or illness at work in 2021 without workers’ compensation insurance.
The Joint Task Force has held monthly meetings since January 2021 to study misclassification and will continue to meet through December 2022, when its authority under Act 85 expires. In addition to members appointed by the four caucuses in the General Assembly, the representatives from the Office of the Attorney General and the departments of Revenue and Labor & Industry also serve on the seven-member task force.
“This Task Force has worked to find and expand common ground upon which to build reasonable solutions for addressing these issues and concerns by being accessible, informative, and responsive. Addressing the consequences of worker misclassification is important and, at the end of the day, this issue is about fairness: fairness to workers, fairness to law-abiding businesses, and fairness to working families,” said Basil Merenda, chair of the Joint Task Force and L&I’s deputy secretary for Safety and Labor Relations Management. “I want to thank the members of the task force for their diligent work in thinking outside the box to develop these unanimously approved recommendations, and I urge the General Assembly to strongly consider enacting all 15 into law.”
The Joint Task Force unanimously recommends the General Assembly do the following:
- Extend Act 72, the Construction Workplace Misclassification Act, beyond the construction trades to cover other industries in the Commonwealth.
- Adopt a single, multi-factor test for the commonwealth to clearly delineate the difference between “employee” and “independent contractor.”
- Expand the statewide clearance programs to require all state agencies to pull current licenses or not renew current licenses if a business is determined to have knowingly misclassified workers and has not paid the fines and fees associated with that violation or previous violations.
- Require appropriate state agencies to share FEIN and employment information under proper confidential safeguards on all state agency business applications so that compliance crossmatches can be done efficiently.
- Enhance the penalties associated with worker misclassification violations under Act 72.
- Provide L&I with resources to hire additional investigative and support staff and with subpoena authority to acquire records of employers as part of investigations into misclassification.
- Provide L&I with authority to issue administrative stop-work orders against entities or individuals that have been found to have employed misclassified workers.
- Provide L&I with statutory authority to debar companies or individuals for knowing violations or for multiple violations of Act 72.
- Authorize liability to be imposed by law on general contractors any time their subcontractors are found to have misclassified workers on a project only if the general contractor had clear evidence of a knowing misclassification violation.
- Require labor brokers doing business in the commonwealth to be registered and bonded, including but not limited to reporting requirements for workers’ compensation, unemployment compensation, and federal and state taxes, to safeguard workers from being misclassified as independent contractors.
- Create an interagency working group to meet quarterly to coordinate enforcement strategies involving state agencies, along with the Attorney General’s Office and county District Attorneys’ Offices.
- Allocate funds and expand posting requirements for a statewide effort of education and public outreach to educate the public, workers, and business owners about the worker misclassification issue and the obligations under the law.
- Authorize the Department of Revenue, the Bureau of Workers’ Compensation, and the Bureau of Labor Law Compliance to share data, in addition to existing authority to share data with the Office of Unemployment Compensation Tax Services, for the purposes of investigating employee misclassification.
- Authorize L&I to recover investigative costs and attorneys’ fees from violators and authorize courts to assess investigative costs and attorneys’ fees incurred by the Office of Attorney General and District Attorneys’ Offices against criminal violators who are found guilty or plead guilty or nolo contendere for knowing violations.
- Consider a private right of action for misclassified employees and impose a penalty to be paid directly to plaintiffs that successfully establish a claim of misclassification to be modeled after existing processes in the PA Wage Payment and Collection Law and New Jersey statute.
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