Page 17 - John Hundley 2008

Sharp Thinking

No. 11 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. _ August 2008

New Law Changes Debate over ‘Employees’ and

‘Independent Contractors’ in Construction Work

By Mandy Combs, Mcombs@lotsharp.com, 618-242-0246
When one performs a service on behalf of another, is he or she an employee of that person or an
independent contractor? That question has been litigated over the years many times with varying
results.
The importance of the answer arises in determining whether the “employer” is obligated to pay
taxes and premiums for social security, medicare and unemployment and workers’ compensation
insurance, and to abide by minimum wage, overtime and other labor laws. In addition, if an individual
is an employee, the employer is more likely to be liable for damages caused by the individual’s
negligence.

In 2007 the Illinois legislature passed the Employee Classification Act, 820 ILCS 185, which
establishes tests for determining if an individual performing service for a contractor in the
construction industry is an employee of the contractor. In § 10(b), it provides that an individual
performing services for a contractor is an employee of the contractor unless it is shown that:
(1) the individual has been and will continue to be free from control or
direction over the performance of service for the contractor, both under
the contract and in fact;
(2) the service 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 § 10(c) of the Act.
Debate in the legislature evidences that item (4) in that list is an alternative not just to item (3), but
to the entirety of items (1)-(3). To determine whether there is a “legitimate sole proprietorship or
partnership”, one looks at control; whether the proprietorship or partnership is subject to termination
on severance of the relation with the contractor; whether a business name is used; whether licenses
and permits are obtained in the “firm” name; actual investment of capital in the “firm”; how profits and
losses are shared; availability of the firm’s services to others on a continuing basis; how payment
from the contractor is treated for income tax reporting; who furnishes tools and equipment; whether

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
advice on your particular situation, contact a Sharp lawyer at the phone number or one of the addresses provided on page 2 of this newsletter.