Commonwealth Court Issues Ruling Limiting Application of the Construction Workplace Misclassification Act (CWMA) Addressing Employer Misclassification in the Construction Industry

05.04.17

Generally, a claimant has the burden of proving the existence of an employer-employee relationship in order to receive workers' compensation benefits. This means the claimant must prove he or she is an 'employee,' as opposed to an 'independent contractor.' Whether an employment relationship exists is a question of law for the court to decide.

Traditionally at common law, courts look to several factors in deciding whether this relationship exists. While much importance lies upon whether the putative employer has the right of control over the individual's work to be performed and over the manner of performance, courts will also look at other factors, including the terms of any agreement between the parties; the nature of the work performed; the skill required for performance; whether the individual is engaged in a distinct line of work; who supplies the necessary tools; whether payment is by time or by the job; whether the work performed is part of the regular business of the putative employer; or whether taxes are withheld.

Workers' compensation disputes, focusing over whether the requisite employment relationship exists for compensability of a claim, arise in all different employment contexts. The legislature enacted the Construction Workplace Misclassification Act (CWMA), effective February 10, 2011, to address employer misclassification of workers as independent contractors in the construction industry to escape payments such as workers' compensation premiums, taxes and unemployment compensation. All individuals performing services "in the construction industry" are subject to the CWMA. The CWMA imposes penalties for non-compliance.

Considering the CWMA is a relatively-recent statute, there is not much case law interpreting its meaning, its breath or application, or its requirements. While case law indicates courts should not be solicitous to find contractorship rather than an employment relationship, the CWMA appears to set in stone more-stringent requirements for a finding of contractorship. For example, the CWMA requires that an individual 1) have a written contract to perform the services; 2) be free from control or direction over performance of the services under both the contract and in fact, and 3) be customarily engaged in an independently established trade, occupation, profession or business. Concerning prong three, there are several other requirements including but not limited to the individual's maintenance of a liability insurance policy of at least $50,000.

Recently, in Dept. of Labor & Indus. v. WCAB (Lin & Eastern Taste), 2017 Pa. Commw. LEXIS 38*, the Commonwealth Court addressed the question of whom or what parties the CWMA actually applies to. This is significant because if the CWMA does not apply, its multi-pronged requirements do not apply, and therefore it becomes more-difficult for a claimant to prove the existence of an employer-employee relationship. In Lin & Eastern Taste, the putative employer was a yet-to-be-opened restaurant under renovations, and the claimant was a worker hired to perform the remodeling work. The Commonwealth Court reversed the WCAB and held that the CWMA did not apply, because the defendant was not "in the construction industry." It rejected the argument that the CWMA makes no distinctions as to what the primary business purpose of the employer may be, and that if a defendant chooses to undertake construction and remodeling it takes on the role of a general contractor "in the construction industry," noting such would lead to an absurd result subjecting every individual and business engaging in remodeling to the CWMA. Thus for now, courts must consider the context of the putative employer's industry or business in determining whether the CWMA applies.

For more information please contact James Bucilla at jbucilla@wglaw.com or 215.972.7907

Disclaimer: The contents of this post are for informational purposes only, are not legal advice and do not create an attorney-client relationship.

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