Effective January 1, 2011, the Wisconsin legislature adopted a new law, intended to address perceived violations of the employee classification laws by the construction industry. The new law, 2009 Wisconsin Act 292 (the “Act”), gives the Wisconsin Department of Workforce Development (the “DWD”) substantial enforcing power to investigate and enforce worker misclassification issues involving employers engaged in construction-related services. Among other powers, the new law grants the DWD the powers to:
- Receive and investigate complaints alleging violations of the requirements for proper employee classification or initiate investigations on its own initiative;
- Refer complaints of misclassification of employees as non-employees to other state and local agencies that administer laws whose enforcement depends on the proper classification of employees; and
- Cooperate with other state or local agencies in the investigation and enforcement of laws which enforcement depends on the proper classification of employees. See Wis. Stat. §. 103.05.
The new law granted the DWD substantial investigative and enforcement powers. To ensure compliance, the new law provides that the DWD may require an employer to prove the following:
- That the employer maintains records identifying persons performing work for the employer, including the name, address, and social security number of each employee and independent contractor;
- That the employer maintains worker’s compensation coverage for its employees;
- That the employer has provided the DWD with the information required for each newly hired employee;
- That the employer maintains records of the hours worked by its employees, the wages paid to its employees, any deductions from wages, and any other information that the employer is required to keep and that the employer lists deductions from wages; and
- That the employer complies with the applicable unemployment insurance laws. See Wis. Stat. § 103.06(3).
Any agreement between an employer and its “employee” purporting to waive or modify any of the above-mentioned requirements is void. Wis. Stat. §. 103.06(3)(5).
The Act grants the DWD power to do any of the following in conducting its investigations:
- Enter and inspect any place of business or place of employment and examine and copy any records that the employer is required to keep, including any books, registers, payroll records, records of wage withholdings, records of work activity and hours of work, and records or indicia of the employment status of persons performing work for the employer;
- Determine the identity and activities of any person performing work at any location where the work is being performed; and
- Interview and obtain statements in writing from any employer or person performing work or present at any location where the work is being performed with respect to the names and addresses of persons performing work for the employer, the payment of wages to and hours worked by those persons, and any other information relating to the remuneration of those persons and the nature and extent of services performed by those persons. Wis. Stat. § 103.06(4).
Probably the most important and controversial provision of the Act is Wis. Stat. § 103.06(5), which authorizes the DWD to issue a stop work order prior to any judicial or administrative hearing. If, after an investigation, the DWD determines that an employer has failed to demonstrate its compliance with any of the compliance provisions of Wis. Stat. § 103.06(3)(a), some of which are summarized above, the DWD may serve on the employer a notice of intent to issue a stop work order. Wis. Stat. § 103.06(5)(a). This notice should advise the employer that the DWD will issue the stop work order if the employer fails to provide the requested information satisfactory to the DWD within three business days of the date of such notice.
If the DWD issues a stop work order, the employer may request a hearing before an appeal tribunal by filing a written appeal in a manner to be described in the stop work order. Wis. Stat. § 103.06(5)(b). The employer’s written appeal must be filed with the DWD within 10 days after services of the stop work order. Upon receipt of the employer’s written appeal, the DWD shall hold the hearing within 14 days after receipt of the request. The order to stop work will be automatically stayed from the filing of the request for a hearing until the date on which a decision on the appeal is issued. Yet, notwithstanding the automatic stay of the order to stop work, any applicable forfeiture shall continue to accrue. Within 7 days of the hearing, the appeal tribunal will issue its decision in writing affirming, reversing, or modifying the initial order to stop work and forfeiture. Wis. Stat. § 103.06(6)(b). In additional to other penalties, an employer who violates a stop work order can be fined up to $1,250 per day for each violation. Wis. Stat. § 103.06(6)(e).
An employer has the burden of proof to establish the existence of an independent contractor relationship. What parties to the relationship have agreed to or how they have agreed to label their relationship is not determinative. All Wisconsin employers covered under the Act can minimize their potential liability by evaluating whether they can meet its burden of establishing independent contractor status under the applicable legal test.
Importantly, the criteria used to determine whether an individual is an employer or an independent contractor varies depending upon the law under which it is evaluated. For example, an individual may be classified as an independent contractor for state unemployment insurance purposes, but considered an employee for workers’ compensation or tax liabilities. In this regard, it’s important to note that effective January 1, 2011, the Wisconsin legislature also adopted the 2009 Wisconsin Act 287, pursuant to which the legislature amended the standard for independent contractors under the Wisconsin Unemployment Insurance Law.