Significant Amendments to Wisconsin Law Concerning the Classification of Independent Contractors

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July 26, 2010

By: Rebecca Kellner

Wisconsin Governor Jim Doyle recently signed into law several pieces of legislation that highlight the importance of ensuring that workers are properly classified as either employees or independent contractors. Increased enforcement and scrutiny by the Wisconsin Department of Workforce Development is expected.

Perhaps the most significant piece of legislation is 2009 Wisconsin Act 292, which will go into effect on January 1, 2011. Under the new law, the Department is charged with (1) establishing a system to educate employers, employees and the public about the proper classification of persons performing services for an employer; (2) receiving and investigating complaints alleging the misclassification of employees; (3) conducting investigations on its own initiative; (4) informing other state or local agencies concerning the misclassification of employees; and (5) appointing attorneys to conduct hearings and issue decisions as appeal tribunals.

In addition, the Act also authorizes the Department to require an employer to provide proof of maintaining proper employee records, including wage and hour information, and sufficient worker's compensation coverage for its employees. Failure to provide the requested information may result in the Department serving a notice on the employer of the Department's intent to issue an order requiring the employer to stop work at the locations specified in the notice. The employer will then have three business days to provide the requested information. Failure to do so may result in the issuance of an order requiring the employer to stop work at the location identified in the order. The Act also establishes that if requested, review hearings will be held within fourteen days and written decisions will be issued within seven days of the hearing.

In addition to increased education and enforcement, Governor Doyle also signed into law 2009 Wisconsin Act 287, which amends the standard for independent contractors under Wisconsin's Unemployment Insurance law. Previously, in unemployment insurance cases, an "independent contractor" was required to meet seven of the ten specified conditions; otherwise, the individual was considered an employee. However, effective January 1, 2011, under Wis. Stat. § 108.02, in order for an individual to be considered an "independent contractor," the individual's services must foremost be performed free from control or discretion of the employing unit over the performance of his or her services. When considering whether the individual is free from control or discretion, the Department will consider whether instructions or training was provided, whether the individual was required to personally perform the services, and whether the individual was required to make regular reports to the employing unit. Additionally, the individual must meet six or more of the following nine conditions:

1. The individual advertises or otherwise affirmatively holds himself or herself out as being in business.
2. The individual maintains his or her own office, or performs most of the services in a facility or location chosen by the individual and uses his or her own equipment or materials in performing the services.
3. The individual operates under multiple contracts with one or more employing units to perform specific services.
4. The individual incurs the main expenses related to the services that he or she performs under contract.
5. The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.
6. The services performed by the individual do not directly relate to the employing unit retaining the services.
7. The individual may realize a profit or suffer a loss under contracts to perform such services.
8. The individual has recurring business liabilities or obligations.
9. The individual is not economically dependent upon a particular employing unit with respect to the services being performed.

Furthermore, under Wis. Stat. § 111.327, current law provides that employers engaged in the construction industry who willfully misclassify an employee as an independent contractor to avoid income tax withholding, workers compensation, unemployment insurance, or employment discrimination are subject to a fine of $25,000 for each violation. This statute was recently amended to expand the scope of the penalty provision to include employers engaged in the business of painting or drywall finishing.

In light of these amendments, employers need to be cognizant of their classification of independent contractors, especially due to the potential for a stop work orders and/or increased penalties. If you have any questions or would like additional information concerning these amendments, please contact either Rebecca Kellner at rkellner@lindner-marsack.com or Oyvind Wistrom at owistrom@lindner-marsack.com.

With offices in Milwaukee Lindner & Marsack, S.C. has represented management exclusively in all facets of labor, employment, and employee benefits law since 1908. Call us at (414) 273-3910 or visit our website, www.lindner-marsack.com, to learn more about our firm and its experienced and innovative attorneys.