Union laborers are claiming victory now that Gov. Ed Rendell has signed a law aimed at curtailing construction companies' ability to skirt taxes -- and cut its own costs and liability -- by labeling its workers independent contractors.
By classifying their workers as "independent contractors" instead of employees, companies can avoid paying unemployment compensation and workers' compensation taxes.
Avoiding those taxes, according to labor groups, reduces employer costs and allows such companies to underbid contracting companies that are following the letter of the law.
The new law -- formerly House Bill 400 and now Act 72 -- is called the Construction Workplace Misclassification Act. Contracting companies that violate the act could be subject to fines and criminal prosecution. There's also an "acting in concert" provision, which would penalize anyone who knowingly hires a contractor that is in violation of the act.
"It really will start to separate responsible contractors from irresponsible contractors," said Jason Fincke, executive director of the Builders Guild of Western Pennsylvania, a labor management and contractor association group.
The point of the law isn't to eliminate the use of independent contractors in the construction industry, he said.
"If there's a service that you need that you don't normally provide, you would get someone to do that for you," Mr. Fincke said. "That's a legitimate independent contractor."
The law applies to the construction field only, to the regret of the Teamsters, who had hoped the law would be expanded to include truck drivers (and other kinds of workers) as well. The Teamsters have been fighting with Moon-based FedEx Ground, which classifies its drivers independent contractors. FedEx says its drivers are "small business owners" because they own their own equipment.
But the bill probably wouldn't have gained passage if it had included all manner of workers.
"The Teamsters clearly would have preferred that this bill would have covered them as well," said state Rep. Bryan R. Lentz, D-Delaware, the primary sponsor. But "the more expansive bill would have had more opponents."
And while he thinks the Legislature could address the truckers next session, Mr. Lentz also said the issue might be best addressed by the federal government, since shipping is a matter of interstate commerce. That may be true, but nevertheless, the Pennsylvania Conference of Teamsters has responded to Mr. Lentz' bill by "retracting" its previous endorsement of the state representative, who is running for Congress this year.
FedEx Ground spokesman Robert Boulware said, "While FedEx Ground contractors are not affected by this legislation, we believe that our laws should support the growth and expansion of small, independent businesses, which create most of the new jobs in our economy."
The "misclassification" issue goes beyond construction and truck driving. Other types of workers -- from computer programmers to janitors to writers -- are also classified by their employers as independent contractors when they fit the description of employees. That sort of sleight of hand costs the state's Unemployment Compensation fund hundreds of millions of dollars in tax revenue.
The state estimates that approximately 9 percent of the state's work force is misclassified as independent contractors. Of those misclassified workers, a quarter are in construction.
This law hopes to put a major dent in that number by allowing district attorneys and the state attorney general to pursue the violators. The offices have concurrent jurisdiction, meaning either one could prosecute.
Union leaders say that the law is good for workers in general, not just organized labor.
"It's a nonunion issue, too," said Jack Brooks, executive secretary and treasurer of the Greater Pennsylvania Regional Council of Carpenters. "You have good nonunion contractors out there who do the right thing," but they, like the union crews, are undercut by contractors that hire cheap labor.
Several other states have passed similar laws in the last two years, including neighboring Delaware, New York, New Jersey and Maryland.
Previously, if an employer had been misclassifying its workers, Pennsylvania had the ability to ask an employer to repay missing unemployment compensation funds, but the state couldn't target those employers criminally.
Full text of the Construction Workplace Misclassification Act is online at www.legis.state.pa.us/cfdocs/legis/PN/Public/btCheck.cfm?txtType=HTM&sessYr=2009&sessInd=0&billBody=H&billTyp=B&billNbr=0400&pn=4289.
Bill Toland: email@example.com or 412-263-2625.