An Act providing for criteria for independent contractors and for powers and duties of the Department of Labor and Industry and the Secretary of Labor and Industry; and imposing penalties.

PRINTER'S NO. 593
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No. 586
Session of
2025
INTRODUCED BY PISCIOTTANO, PENNYCUICK, KANE, KEARNEY, HUGHES,
COSTA AND SAVAL, APRIL 9, 2025
REFERRED TO LABOR AND INDUSTRY, APRIL 9, 2025
AN ACT
Providing for criteria for independent contractors and for
powers and duties of the Department of Labor and Industry and
the Secretary of Labor and Industry; and imposing penalties.
TABLE OF CONTENTS
Section 1. Short title.
Section 2. Definitions.
Section 3. Independent contractors.
Section 4. Improper classification of employees.
Section 5. Criminal penalties.
Section 6. Private right of action.
Section 7. Administrative penalties.
Section 8. Stop-work orders.
Section 9. Procedure.
Section 10. Certain agreements prohibited.
Section 11. Adverse action prohibited.
Section 12. Availability of information.
Section 13. Use of penalty funds and recovered fees and costs.
Section 14. Rules and regulations.
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Section 15. Annual report required.
Section 16. Severability.
Section 17. Construction of law.
Section 18. Funding.
Section 19. Effective date.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Short title.
This act shall be known and may be cited as the Workplace
Misclassification Act.
Section 2. Definitions.
The following words and phrases when used in this act shall
have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Construction." As defined in section 2 of the act of
October 13, 2010 (P.L.506, No.72), known as the Construction
Workplace Misclassification Act.
"Debar." Action taken by the secretary that:
(1) Prohibits a contractor, subcontractor or person from
contracting with or participating in contracts for public
work or providing services to any State or local government
entity for a period of at least three years.
(2) Includes all divisions or other organizational
elements of the contractor or subcontractor unless limited by
the terms of the action to specific divisions or
organizational elements.
(3) May apply to affiliates or other persons associated
with the contractor, subcontractor or person if they are
specifically named and given written notice of the action and
an opportunity to appeal.
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(4) Applies to a successor entity of the contractor or
subcontractor, if the successor entity:
(i) has one or more of the same principals or
officers as the employer against whom the order was
issued;
(ii) performs similar work within the same
geographical area;
(iii) occupies the same premises;
(iv) shares the same telephone number or facsimile
number;
(v) has the same email address or Internet website;
(vi) employs substantially the same workforce or
administrative employees, or both;
(vii) utilizes the same tools, equipment or
facilities;
(viii) employs or engages the services of any person
or persons involved in the direction or control of the
other; or
(ix) lists substantially the same work experience.
"Department." The Department of Labor and Industry of the
Commonwealth.
"Employee." Either of the following:
(1) In relation to workers' compensation, the term shall
have the meaning given to "employe" in section 104 of the
Workers' Compensation Act.
(2) In relation to unemployment compensation, the term
shall have the meaning given to "employe" in section 4(i) of
the Unemployment Compensation Law.
"Employer." Either of the following:
(1) In relation to workers' compensation, the term shall
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have the meaning given to it in section 103 of the Workers'
Compensation Act.
(2) In relation to unemployment compensation, the term
shall have the meaning given to it in section 4(j) of the
Unemployment Compensation Law.
"Public work." As defined in section 2(5) of the act of
August 15, 1961 (P.L.987, No.442), known as the Pennsylvania
Prevailing Wage Act.
"Secretary." The Secretary of Labor and Industry of the
Commonwealth or the secretary's authorized representative.
"Unemployment Compensation Law." The act of December 5, 1936
(2nd Sp.Sess., 1937 P.L.2897, No.1), known as the Unemployment
Compensation Law.
"Workers' Compensation Act." The act of June 2, 1915
(P.L.736, No.338), known as the Workers' Compensation Act.
Section 3. Independent contractors.
(a) Requirements.--For purposes of workers' compensation,
unemployment compensation and improper classification of
employees, an individual who performs services in any industry
other than construction for remuneration is an independent
contractor only if:
(1) The individual has a written contract that is
project-specific and contains a particular scope of work and
definitive time period to perform the services.
(2) The individual is free from control or direction
over performance of services both under the contract of
service and in fact.
(3) As to services, the individual is customarily
engaged in an independently established trade, occupation,
profession or business.
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(b) Criteria.--An individual is customarily engaged in an
independently established trade, occupation, profession or
business with respect to services the individual performs only
if:
(1) The individual possesses the essential tools,
equipment and other assets necessary to perform the services
independent of the person for whom the services are
performed.
(2) The individual's arrangement with the person for
whom the services are performed is such that the individual
shall realize a profit or suffer a loss as a result of
performing the services.
(3) The individual performs the services through a
business in which the individual has a proprietary interest.
(4) The individual maintains a business location that is
separate from the location of the person for whom the
services are being performed.
(5) The individual:
(i) previously performed the same or similar
services for another person in accordance with paragraphs
(1), (2), (3) and (4) while free from direction or
control over performance of the services both under the
contract of service and in fact; or
(ii) holds themselves out to other persons as
available and able and is available and able to perform
the same or similar services in accordance with
paragraphs (1), (2), (3) and (4) while free from
direction or control over performance of the services.
(c) Factors not to be considered.--The failure to withhold
Federal or State income taxes or pay unemployment compensation
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contributions or workers' compensation premiums with respect to
an individual's remuneration shall not be considered in
determining whether the individual is an independent contractor
for purposes of the Workers' Compensation Act or the
Unemployment Compensation Law.
(d) Workers' compensation.--
(1) An individual who is an independent contractor as
determined under this section is not an employee for purposes
of the Workers' Compensation Act. For purposes of this
section, each employment relationship shall be considered
separately.
(2) Nothing in this act shall be construed to affect
section 321(2) of the Workers' Compensation Act.
(e) Unemployment compensation.--
(1) For purposes of section 4(l)(2)(B) of the
Unemployment Compensation Law, an individual is customarily
engaged in an independently established trade, occupation,
profession or business only if the criteria in subsection (b)
are satisfied.
(2) Except as provided in paragraph (1), nothing in this
act shall be construed to affect any exclusion from
employment as defined in the Unemployment Compensation Law.
Section 4. Improper classification of employees.
(a) Violation.--An employer or officer or agent of an
employer shall be in violation of this act and shall be subject
to the penalties, remedies and actions contained in this act if
the employer, officer or agent:
(1) fails to properly classify an individual as an
employee for purposes of the Workers' Compensation Act and
fails to provide the coverage required under the Workers'
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Compensation Act; or
(2) fails to properly classify an individual as an
employee for purposes of the Unemployment Compensation Law
and fails to pay contributions, reimbursements or other
amounts required to be paid under the Unemployment
Compensation Law.
(b) Separate offenses.--Each individual who is not properly
classified as an employee shall be the basis of a separate
violation of this section.
(c) Order to show cause.--
(1) If the secretary receives information indicating
that a person has violated this act, the secretary may
investigate the matter and issue an order to show cause why
the person should not be found in violation of this act.
(2) A person served with an order to show cause has 20
days from the date the order is served to file an answer in
writing.
(3) If the person fails to file a timely and adequate
answer to the order to show cause, the secretary may,
following notice and hearing:
(i) petition a court of competent jurisdiction to
issue a stop-work order as provided in section 8; or
(ii) immediately assess penalties as provided in
section 7.
(d) Enforcement.--
(1) If, subsequent to issuing an order to show cause
under subsection (c), the secretary finds that an employer
has failed to properly classify an individual as an employee
for the purposes of this act, the secretary shall impose
administrative penalties under section 7.
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(2) In addition to imposing penalties under paragraph
(1), the secretary may refer the matter to the Attorney
General for criminal investigation. The secretary shall make
a referral if the employer has previously been found in
violation of this act in another matter. The Attorney General
has jurisdiction under section 5 to initiate an investigation
or prosecution of criminal violations of this act regardless
of whether a referral has been made.
(e) Acting in concert with other parties.--A party that does
not meet the definition of "employer" in section 2, but which
intentionally contracts or renews a contract with an employer to
supply labor to an employer knowing the employer will
misclassify the supplied employees in violation of this act,
shall be subject to the same penalties, remedies or other
actions as the employer found to be in violation of this act.
(f) Defense.--It shall be a defense to an alleged violation
of this section that the person for whom the services are
performed in good faith believed the individual who performed
the services qualified as an independent contractor at the time
the services were performed.
Section 5. Criminal penalties.
(a) Grading.--An employer or officer or agent of an employer
that intentionally violates section 4(a) commits:
(1) A misdemeanor of the first degree, if the employer
has no prior offense under section 4(a).
(2) A felony of the third degree, if the employer has
one or more prior offenses under section 4(a).
(b) Summary offense.--
(1) An employer or officer or agent of an employer that
negligently fails to properly classify an individual as an
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employee under section 4(a) commits a summary offense and
shall, upon conviction, be sentenced to pay a fine of not
more than $1,000.
(2) Evidence of a prior conviction under this subsection
shall be admissible as evidence of intent under subsection
(a).
(c) Concurrent jurisdiction.--
(1) The Attorney General has concurrent prosecutorial
jurisdiction with the district attorney of the appropriate
county for violations under this section and any offense
arising out of activity prohibited by this section.
(2) No person charged with a violation of this section
by the Attorney General has standing to challenge the
authority of the Attorney General to prosecute the case, and
if a challenge is made, the challenge shall be dismissed and
no relief shall be available in the courts of this
Commonwealth to the person making the challenge.
(d) Definitions.--As used in this section, the following
words and phrases shall have the meanings given to them in this
subsection unless the context clearly indicates otherwise:
"Prior offense." A conviction of a violation of section 4 if
the judgment of sentence was imposed before the defendant was
sentenced for a separate violation of section 4.
Section 6. Private right of action.
(a) Employees.--An employee who has been misclassified in
violation of this act, or has been discharged, been threatened
or has otherwise suffered retaliation, discrimination or other
adverse action as a result of participating in an investigation
or reporting a violation of this act, may bring a private right
of action in a court of common pleas in accordance with
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established civil procedures of this Commonwealth.
(b) Time.--An action under this section must be brought
within three years from the date that the employee knew of the
violation, retaliation or discrimination.
(c) Relief.--If an employee prevails in an action commenced
under this section, the employee shall be entitled to the
following relief:
(1) Reinstatement of the employee without a loss in
seniority status, if applicable.
(2) Restitution equal to three times the amount of the
employee's wages and fringe benefits calculated from the date
of the violation, retaliation or discrimination.
(3) Reasonable attorney fees and costs of the action.
(4) Other legal and equitable relief the court deems
appropriate to make the employee whole.
Section 7. Administrative penalties.
(a) Power of secretary.--If the secretary finds that a
person has violated this act, the secretary:
(1) Shall assess and collect civil penalties of not more
than $1,000 for the first violation and not more than $2,500
for each subsequent violation.
(2) May order a financial audit or tax audit of any
relevant prospective records of the person.
(b) Factors to be considered.--When determining the amount
of the penalty to be imposed, the secretary shall consider
factors, including:
(1) The history of previous violations by the employer.
(2) The seriousness of the violation.
(3) The good faith of the employer.
(4) The size of the employer's business.
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(c) Intentional violation.--
(1) If the secretary determines that a person has
intentionally violated this act, the secretary shall debar,
for a period of at least three years, the person from bidding
on or participating in a public work project or providing
services to any State or local government entity or any
private entity that performs work on behalf of a State or
local contract.
(2) A debarment under paragraph (1) shall apply to the
following:
(i) Future projects and contracts not begun or
entered into on or before the date of the debarment.
(ii) Current projects and contracts already entered
into but on which the debarred contractor, subcontractor
or person has not begun work as of the date of the
debarment.
Section 8. Stop-work orders.
(a) Issuance of order.--
(1) If the secretary determines, subsequent to the
issuance of an order to show cause under section 4(c), that
an employer or officer or agent of an employer has
intentionally failed to properly classify an individual as an
employee under section 4(a), the secretary may petition a
court of competent jurisdiction to issue a stop-work order
requiring:
(i) the cessation of work by individuals who are
improperly classified within 24 hours of the effective
date of the order; or
(ii) in the event that a majority of individuals
working at a site are improperly classified, requiring
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the cessation of all business operations of that employer
at each site at which a violation occurred within 24
hours of the effective date of the order.
(2) The order shall take effect when served upon the
employer, or for a particular employer worksite, when served
at the worksite. The order shall remain in effect until the
court issues an order releasing the stop-work order or upon
finding that the employer or officer or agent of the employer
is no longer in violation of this act.
(3) An order releasing a stop-work order may include a
requirement that the employer file with the department
periodic reports for a probationary period that may not
exceed two years demonstrating the employer's continued
compliance with this act.
(b) Applicability of orders and penalties.--A stop-work
order under subsection (a) and penalty under subsection (c)
shall be in effect against any successor corporation or business
entity that has one or more of the same principals or officers
as the employer against whom the stop-work order was issued or
penalty imposed and which is engaged in the same or equivalent
trade or activity.
(c) Penalty.--The court shall assess a penalty of $1,000 per
day against an employer for each day that the employer conducts
business operations in violation of a stop-work order issued
under this section.
Section 9. Procedure.
(a) Hearings.--Actions taken under sections 4(c) and 6 shall
be subject to the provisions of 2 Pa.C.S. (relating to
administrative law and procedure).
(b) Subpoenas.--The department may subpoena witnesses,
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administer oaths, examine witnesses and take testimony or compel
the production of documents. The secretary may petition
Commonwealth Court to enforce any order or subpoena issued under
this act.
Section 10. Certain agreements prohibited.
(a) Violation.--No person may require or demand that an
individual enter into an agreement or sign a document that
results in the improper classification of the individual as an
independent contractor.
(b) Penalty.--A violation of subsection (a) shall be
punishable by an administrative fine of not less than $1,000 and
not more than $2,500. Each violation shall be considered a
separate offense under this section.
Section 11. Adverse action prohibited.
(a) Retaliation or discrimination.--It shall be unlawful for
an employer or officer or agent of an employer to discharge,
threaten or otherwise retaliate or discriminate against an
employee regarding compensation or other terms or conditions of
employment because the employee:
(1) participates in an investigation, hearing or inquiry
by the secretary or any governmental authority; or
(2) reports or makes a complaint regarding the violation
of this act to an employer or any governmental authority.
(b) Action.--An employee who suffers adverse action in
violation of this section may bring a private right of action
under section 6.
(c) Good faith allegations of noncompliance.--A person who
in good faith alleges noncompliance with this act shall be
afforded the rights provided by this act, notwithstanding the
person's failure to prevail on the merits.
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(d) Rebuttable presumptions.--Taking adverse action against
a person within 90 days of the person's exercise of a right
protected under this act shall raise a rebuttable presumption of
having done so in retaliation for the exercise of the right.
Section 12. Availability of information.
(a) Duty of department.--The department shall develop a
poster for job sites that outlines the requirements and
penalties under this act and shall make the poster available on
the department's publicly accessible Internet website. At the
discretion of the secretary, the department may establish and
answer a toll-free telephone number to receive alleged
violations of this act.
(b) Duty of employers.--An employer shall keep a summary of
this act and any regulations issued under this act applicable to
the employer, posted in a conspicuous place where employees
normally pass and can read it, both on job sites and in all
places of business.
Section 13. Use of penalty funds and recovered fees and costs.
Any money collected as a penalty, recovered attorney fee or
cost associated with any investigation or enforcement action
under this act shall be deposited into a restricted revenue
account in the General Fund. Money deposited into the restricted
revenue account is appropriated on a continuing basis to the
department for the purpose of enforcing this act.
Section 14. Rules and regulations.
The department may promulgate rules and regulations necessary
to implement this act.
Section 15. Annual report required.
The department shall submit an annual report to the General
Assembly by March 1 of the year following the first full year in
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which this act is in effect, and each year thereafter,
detailing, to the maximum extent possible, data on the previous
calendar year's administration and enforcement of this act. The
department may include any relevant facts and statistics that it
believes necessary in the content of the report.
Section 16. Severability.
The provisions of this act are severable. If any provision of
this act or its application to any individual or circumstance is
held invalid, the invalidity shall not affect other provisions
or applications of this act which can be given effect without
the invalid provision or application.
Section 17. Construction of law.
Nothing contained in this act shall be construed to impair or
affect in any manner the ability of the department and secretary
to carry out the powers and duties prescribed by the laws of
this Commonwealth.
Section 18. Funding.
(a) Enforcement.--The department shall not be required to
enforce this act until adequate funding is appropriated or
transferred into the restricted account identified in section
13.
(b) Recovery of fees and costs.--The department, Office of
Attorney General or a district attorney's office shall be
entitled to recover attorney fees and costs associated with the
investigation of employee misclassification, along with any
resulting enforcement action, from employers that violate this
act.
Section 19. Effective date.
This act shall take effect in four months.
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