Independent Contractors Targeted

The new law changes the standards by which employers in the construction and landscaping industries classify employees as independent contractors. The Act also awards back pay to employees who were misclassified and provides for substantial additional penalties for those employers that "knowingly" misclassify employees.

On August 28, 2009, the Maryland Department of Labor, Licensing, and Regulation (DLLR) published its proposed regulations to implement the recently enacted Workplace Fraud Act of 2009 (the Act), which took effect on October 1, 2009.

While the Act and regulations currently affect primarily those employers in the construction and landscape industries, all Maryland employers should pay close attention because all employers are covered under the law for unemployment insurance (UI) purposes.

The state's UI division investigates employee classification through both random and targeted audits and when a person claims UI benefits but is not listed as a covered employee. To further this goal, the governor has recently issued an Executive Order to create a task force to begin targeting employers in other industries that purportedly regularly misclassify employees as independent contractors.

The Act creates a rebuttable presumption that all workers, including bona fide independent contractors, are employees. The existence of an independent contractor agreement between the employer and the independent contractor appears to be only a minor consideration. If challenged, the employer must demonstrate that: The individual is free from control and direction over the performance of the work both in fact and under the contract; The individual is customarily engaged in an independent business or occupation of the same nature as that involved in the work; and the work is outside of the usual course of business of the person for whom the work is performed.

If an employer fails to rebut the presumption of an employee/employer relationship, the DLLR can impose a penalty of up to $1,000 per misclassified employee and order restitution to any individual not properly classified. Under the Act, the DLLR is required to adopt regulations to provide further guidance on this section, which it has not yet done.