Section 240.100  Purpose and Scope

 

a)         The Act addresses the practice in the construction industry of some contractors misclassifying individuals as independent contractors in order to avoid payroll taxes, unemployment insurance contributions, workers' compensation premiums and minimum wage and overtime payments.  This practice of misclassification puts contractors that comply with tax and employment laws at a competitive disadvantage.

 

b)         For purposes of ensuring that contractors comply with tax and employment laws, the Department of Labor, the Department of Employment Security, the Department of Revenue and the Illinois Workers' Compensation Commission shall cooperate by sharing information concerning any suspected misclassification of employees as independent contractors.

 

Section 240.110  Definitions

 

"Act" means the Employee Classification Act [820 ILCS 185].

 

"Construction" means any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise.  Construction shall also include moving construction related materials on the job site to or from the job site. [820 ILCS 185/5]

 

"Contractor" means any individual, sole proprietor, partnership, firm, corporation, limited liability company, association or other legal entity permitted by law to do business within the State of Illinois who engages in construction as defined in the Act.  Contractor includes a general contractor and a subcontractor. [820 ILCS 185/5]

 

"Day" means calendar day.

 

"Department" means the Department of Labor. [820 ILCS 185/5]

 

"Director" means the Director of the Department of Labor or an authorized representative. [820 ILCS 185/5]

 

"Employee" means an individual who meets the definition of an "employee" in the Act  and that individual shall be an employee for purposes of all applicable laws relating to wages and the payment of wages contained in 820 ILCS.

 

"Employer" means any contractor that employs individuals deemed employees under Section 10 of the Act; however, "employer" does not include:

 

the State of Illinois or its officers, agencies, or political subdivisions; or

 

the federal government. [820 ILCS 185/5]

 

"Entity" means any contractor for which an individual is performing services and is not classified as an employee under Section 10 of the Act; however, "entity" does not include:

 

the State of Illinois or its officers, agencies, or political subdivisions; or

 

the federal government. [820 ILCS 185/5]

 

"Individual performing services" does not include a bona fide corporation nor a limited liability company (LLC).  In determining whether a corporation is bona fide for purposes of the Act, the Department shall consider, among other factors, whether:

 

the corporation is capitalized;

 

the corporation has issued corporate stock;

 

the corporation maintains a corporate bank account;

 

there is an intermingling of corporate and personal accounts or funds;

 

the corporation holds itself out as a corporation;

 

the corporation maintains corporate books and records, including corporate meeting minutes, and files corporate tax returns that are current and complete;

 

articles of incorporation have been filed and the corporation is in good standing, in the case of Illinois corporations, with the Illinois Secretary of State or, in the case of foreign corporations, as directed by the laws of that jurisdiction;

 

the corporation carries out its daily activities in a manner consistent with the operations of a corporate entity;

 

the corporation employs employees to carry out its corporate purposes and principal activities; and

 

the corporation carries appropriate workers' compensation insurance coverage for its employees and has registered with the Illinois Department of Employment Security for unemployment insurance coverage.

 

In determining whether an LLC is bona fide for purposes of the Act, the Department shall consider, among other factors, whether:

 

            the LLC has assets;

 

            the LLC maintains a company bank account;

 

            there is an intermingling of company and personal accounts or funds;

 

            the LLC holds itself out as an LLC;

 

            the LLC makes necessary tax filings that are current and complete;

 

articles of organization have been filed and the LLC is in good standing, in the case of Illinois LLCs, with the Illinois Secretary of State or, in the case of foreign LLCs, as directed by the laws of that jurisdiction;

 

the LLC carries out its daily activities in a manner consistent with the operations of an LLC;

 

the LLC employs employees to carry out its purposes and principal activities;

 

the LLC carries appropriate workers' compensation insurance coverage for its employees and has registered with the Illinois Department of Employment Security for unemployment insurance coverage.

 

"Interested party" means a person with an interest in compliance with the Act. [820 ILCS 185/5]

 

"Performing services" means the performance of any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise.  Construction shall also include moving construction related materials on the job site to or from the job site. [820 ILCS 185/5]

 

"Permitted by law to do business within the State of Illinois" means located, operating, transacting business, or performing services within the State of Illinois.

 

"Person" means any individual, partnership, corporation, LLC, association, governmental subdivision, or public or private organization of any character.

 

"Responsible bidder" has the meaning ascribed to that term in Section 30-22 of the Illinois Procurement Code [30 ILCS 500/30-22].

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.120  Application of the Act

 

a)         Any individual performing services for a contractor is covered by the Act.

 

b)         Construction services performed on or after January 1, 2008 are covered by the Act.  The misclassification of an employee as an independent contractor prior to January 1, 2008 shall not serve as the basis for a violation under the Act.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.130  Jurisdiction

 

The Act covers public and private construction performed in the State of Illinois.

 

Section 240.140  Waivers

 

There shall be no waiver of any provision of the Act.

 

Section 240.200  Persons Who May File a Complaint

 

Any person may file a complaint alleging a violation of the Act.  The Department can initiate an investigation upon its own motion.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.210  Contents and Filing of a Complaint

 

a)         A complaint shall be filed on a form to be supplied by the Department.  Each complaint shall contain the following information:

 

1)         the full name and address of the complainant;

 

2)         the full name and address of the contractor;

 

3)         a statement or reflection of the complainant's basis of knowledge of the essential facts constituting the alleged violation, including the dates and locations of the alleged violation and the nature of the contractor's business;

 

4)         the complainant's signature, including date of signing; and

 

5)         a statement as to any other action, civil or criminal, instituted by the complainant or that the complainant has knowledge of, in any other forum based on the same violation as alleged in the complaint, together with a statement as to the status or disposition of the other action.

 

b)         Complaints must be filed within 365 days from the date of the alleged violation.  If another State or federal agency is investigating a similar complaint regarding misclassification, the filing period with the Department is tolled until that agency renders a decision in the matter.  A complaint is deemed timely if filed within 365 days after the date of that agency's decision.

 

c)         Any complaint that fails to meet the requirements set forth in subsection (a) may be accepted by the Department if it otherwise contains the information determined by the Department to be necessary for a proper investigation and review of the alleged violation contained in the complaint.

 

d)         All complaints will be considered filed upon receipt.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.220  Review of Complaints and Dismissals

 

a)         Complaints shall be reviewed by the Department to determine whether there is cause for investigation.

 

b)         If the complaint fails to conform to the requirements set forth in Section 240.210, the complaint may be dismissed.

 

c)         A complaint may also be dismissed for lack of jurisdiction (examples include, but are not limited to:  the construction project is located outside the State of Illinois; the complaint does not involve construction services, such as an individual performing services in a nail salon); failure to cooperate with the investigation (examples include, but are not limited to: failure to respond to reasonable requests from the Department, such as not returning phone calls, not answering questions posed during the investigation); inability to locate a party; failure to complete a complaint; lack of evidence that a violation under the Act occurred; or repeat complaints filed by the same interested party against the same contractor for the same investigation.

 

d)         The Department shall serve a written notice of dismissal of all or part of a complaint.  The dismissal notice shall state the grounds for dismissal.  The dismissal notice shall also advise the parties of the right to bring a private action pursuant to Section 60 of the Act.

 

e)         If at any time the Department becomes aware that there is a complaint pending in federal or State court containing some or all of the issues before the Department, it may suspend or close its investigation of those issues of the complaint that are being litigated and continue to process the remaining issues.  The Department shall notify all parties in writing if its investigation of a complaint has been suspended or closed.  

 

Section 240.230  Incomplete Complaint

 

If the Department receives a written complaint that complies substantially with Section 240.210 but is lacking an element that still must be provided, the Department may accept the complaint as an incomplete complaint.  The Department shall notify the complainant in writing of the element that must be supplied.  If the complainant fails or refuses to perfect the complaint within 30 calendar days, the complaint may be dismissed pursuant to Section 240.220.

 

Section 240.300  Investigation

 

The Department shall conduct an investigation to ascertain the facts relating to the violations alleged in the complaint and determine whether a violation under the Act has occurred.  The investigation may be made by written or oral inquiry, field visit, conference or any method or combination of methods deemed suitable at the discretion of the Department.  The Department shall notify the contractor in writing, within 120 days after the filing of a complaint, of the filing of a complaint and provide the employer the locations of the projects, approximate dates of the projects, affected contractors and the nature of the allegations being investigated.  The Department shall provide the contractor an opportunity to present any information the contractor wishes the Department to consider in reaching its determination.

 

a)         During the investigation, if a contractor refuses to cooperate, the Department may make a finding that the Act has been violated based upon the evidence available to the Department.

 

b)         After a timely complaint has been filed, the Department may investigate alleged violations that may have occurred within the 3 years preceding the date the complaint was filed.

 

c)         Before making a final determination of a violation, the Department shall notify the contractors of the substance of the Department's investigation and afford the contractors an opportunity to present any written information, within 30 calendar days, for the Department to consider in reaching its determination.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.310  Fact-Finding Conference

 

As part of its investigation, the Department may convene a fact-finding conference in person or by telephone for the purpose of obtaining additional information or evidence, identifying the issues in dispute, ascertaining the positions of the parties and exploring the possibility of settlement.  The fact-finding conferences will be limited to those issues the Department believes to be relevant.

 

a)         Notice of the conference shall be given to all parties at least 15 calendar days prior to the conference and shall identify the individuals requested to attend on behalf of each party.

 

b)         A party may be accompanied at a fact-finding conference by the party's attorney or other representative and by a translator if necessary.

 

c)         A Department investigator shall conduct the conference and control the proceedings.  No tape recordings, stenographic report or other verbatim record of the conference shall be made.  If any person fails to cooperate at the conference and becomes so disruptive or abusive that a full and fair conference cannot be conducted, the Department investigator shall exclude the person from the conference.

 

d)         A party who appears at the conference exclusively through an attorney or other representative unfamiliar with the events at issue shall be deemed to have refused to attend, unless, with respect to a contractor, the contractor establishes that it does not employ or control any person with knowledge of the events at issue.  A complainant who refuses to attend a fact-finding conference may be dismissed from the complaint pursuant to Section 240.220.  If a contractor or complainant refuses to attend a fact-finding conference, the Department shall make a determination based upon the evidence provided to the Department.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.320  Independent Contractor Test

 

a)         An individual performing services for a contractor is deemed to be an employee unless the individual meets all three conditions in Section 10(b)(1), (2) and (3) of the Act or the sole proprietor or partnership is deemed legitimate by meeting all 12 conditions in Section 10(c) of the Act.

 

b)         In determining whether direction or control exists, the Department will consider the following factors.  For purposes of this Section, an "individual" means an individual performing services for a contractor.  No one factor is dispositive of the issue of whether an individual is an employee or an independent contractor.  The Department will review the totality of circumstances in making a decision on direction and control.

 

1)         Is the individual eligible for a pension, health insurance, bonuses, paid vacation, or sick pay?

 

2)         Does the contractor carry Workers' Compensation insurance and pay Unemployment Insurance taxes on the individual?

 

3)         Does the contractor deduct Social Security taxes from the individual's compensation and report the worker's income to the Internal Revenue Service (IRS)?

 

4)         Does the contractor furnish the individual with transportation, samples, business cards, or an expense account?

 

5)         Does the contractor require the individual to turn down work from other contractors or assign or limit the territory in which the individual performs services?

 

6)         Does the contractor set the price and credit terms for the product or the services being performed by the individual?

 

7)         Does the contractor require attendance at meetings or provide training?

 

8)         Does the contractor have the right to set rules and regulations?

 

9)         Does the contractor require the individual to perform services a specific number of hours per day or per week?

 

10)        Does the contractor issue assignments, schedule work or set quotas with time requirements?

 

11)        Does the contractor require the individual to follow a routine, order or sequence set by the contractor in performing the services?

 

12)        Does the contractor engage the individual with the expectation that the relationship will continue indefinitely, rather than for a specific project or period of time?

 

c)         "Usual course of services" means that the services rendered by the individual are necessary to the contractor's business and not simply incidental to the business.  The fact that the services are customarily or routinely provided by an individual is not dispositive of the issue of whether the services are actually necessary to the contractor's business.  In addition, if a task is performed by both a contractor's employees as well as its independent contractors, the task is considered to be in the usual course of the contractor's services.

 

d)         "An independently established trade, occupation, profession or business" means the individual performing the services has a proprietary interest in such business, to the extent that the individual operates the business without hindrance from any other person and, as the enterprise's owner, may sell or otherwise transfer the business.

 

e)         An individual may be an employee without being entirely dependent upon the relationship with a specified contractor for the individual's livelihood.  An individual engaged in other occupations may be an employee of a specified contractor even though the individual only worked intermittently or part time.

 

f)         In determining whether an individual performing services for a contractor is an employee of the contractor, the Department shall consider the actual, rather than the alleged, relationship between the two.  Designations and terminology used by the parties, as well as the individual's status for tax purposes, are not controlling.

 

Section 240.400  Record Keeping

 

a)         Every contractor, including subcontractors, shall maintain records for all individuals performing services for that contractor or subcontractor, regardless of how those individuals are classified.  These records shall be maintained for a period of 3 years unless the records relate to an ongoing investigation or enforcement action under the Act, in which case the records must be maintained until their destruction is authorized by the Department or by court order.

 

b)         Records to be maintained by the contractor shall include all documents related to, or tending to establish the nature of, the relationship between the contractor and individuals performing services.  Records that must be maintained for each individual performing services for the contractor include, but are not limited to:

 

1)         name, address, phone number,  Social Security number, Individual Tax Identification Number and Federal Employer Identification Number;

 

2)         the type of work performed and the total number of days and hours worked;

 

3)         the method, frequency and basis on which wages were paid or payments were made;

 

4)         all invoices, billing statements or other payment records, including the dates of payments, and any miscellaneous income paid or deductions made;

 

5)         copies of all contracts, agreements, applications and policy or employment manuals; and

 

6)         any federal and State tax documents.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.405  Reporting Requirements

 

a)         Any contractor, other than a person meeting the responsible bidder requirements of Section 30-22 of the Illinois Procurement Code [30 ILCS 500], for which either an individual, sole proprietor or partnership is performing construction service, shall report all payments made to that individual, sole proprietor or partnership if the recipient of payment is not classified as an employee.

 

b)         The report shall be submitted to the Department annually, on or before April 30 following the taxable year in which the payment was made, on forms prepared by the Department. The report, which shall be submitted electronically, must include:

 

1)         the contractor name, address and business identification number;

 

2)         the individual, sole proprietor or partnership name, address and federal employer identification number; and

 

3)         the total amount the contractor paid to the individual, sole proprietor or partnership performing services in the taxable year, including payments for services and for any materials and equipment that was provided along with the services.

 

c)         If the Department, upon investigation, finds that a contractor has failed to file a report or has filed an incomplete report in violation of this Section, the Department shall notify the contractor, in writing, of its finding and shall assess a civil penalty as provided in Section 40 of the Act.

 

d)         These reporting requirements do not apply to a business primarily engaged in the sale of tangible personal property or a contractor doing work for a business primarily engaged in the sale of tangible personal property.

 

(Source:  Amended at 45 Ill. Reg. 7976, effective June 8, 2021)

 

Section 240.410  Notices

 

a)         An entity for whom one or more individuals perform services who are not classified as employees under Section 10 of the Act shall post and keep posted, in a conspicuous place on each job site where those individuals perform services and in each of its offices, a notice in English, Spanish and Polish, prepared by the Department, summarizing the requirements of the Act. [820 ILCS 185/15(b)]

 

b)         Where it is not practicable to post a notice on the job site, notices shall be provided to all individuals performing services who are not classified as employees.

 

Section 240.500  Decision and Notice Following Investigation

 

a)         If, at the conclusion of an investigation, the Department determines that no violation of the Act or this Part has occurred, the complaint shall be dismissed.

 

b)         If, at the conclusion of the investigation, the Department determines that a violation of the Act or this Part has occurred, the Department may seek a voluntary settlement agreement that eliminates the unlawful practice and provides appropriate relief, including, but not limited to, the remedies as set forth in Section 240.510.

 

c)         Whenever a decision is made under this Section, the Department shall provide a written notice to all parties.  The notice shall include a statement of the right to bring a civil action as provided for in Section 60 of the Act.

 

d)         The Department will seek voluntary compliance by the contractor for any violations of the Act.  If the contractor fails to voluntarily resolve the matter, the Department shall set the matter for a formal hearing in accordance with the provisions of Section 240.570.

 

e)         As part of the settlement process, the Department may convene an informal settlement conference that the contractor must attend.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.510  Remedies Upon Finding of a Violation

 

a)         An Administrative Law Judge (ALJ), as part of any final decision finding that a violation has occurred,  may:

 

1)         order the contractor to eliminate the unlawful practice;

 

2)         issue a cease and desist order;

 

3)         assess civil penalties as set forth in Section 40 of the Act;

 

4)         collect the amount of any wages, salary, employment benefits or compensation denied or lost to the individual;

 

5)         place the contractor on the debarment list pursuant to Section 42 of the Act; and/or

 

6)         take any other reasonable action to eliminate the unlawful practice and/or remedy the effect of the violation.

 

b)         If an ALJ finds that an employee has been misclassified under the Act, the misclassified employee is entitled to all rights and benefits to which an employee is otherwise entitled under other applicable State laws by virtue of being an employee, including but not limited to all lost wages resulting from not being paid the minimum wage or overtime. An ALJ shall not make a separate finding of employee status under other applicable laws.  In addition, an ALJ can order a contractor to reimburse the person for improper deductions, such as lost unemployment or workers' compensation benefits resulting from being misclassified, or order the contractor to make contributions on the employee's behalf.

 

c)         An ALJ may hold, in addition to an individual who is an employer as defined by Section 5 of the Act, any officer or agent of a corporation who knowingly permits the employer to violate the Act individually liable for all violations and penalties assessed under the Act. This subsection shall not apply to an individual who is an officer or agent of a corporation that, on the project under investigation, satisfies the responsible bidder requirements set forth in Section 30-22 of the Illinois Procurement Code [30 ILCS 500/30-22].

 

d)         In determining whether an officer or agent knowingly permits violations of the Act under subsection (c), one of the factors to be considered is the extent and nature of the misclassifications and whether the officer or agent is responsible for the corporation conducting, and/or knowingly allowing the corporation to conduct, its regular course of business activities using a business model of misclassifying employees as independent contractors or has knowledge of that business model and does not take any steps to cause it to cease. An isolated incident of misclassification when the corporation otherwise operates with its own employees, or when a clerical mistake is made, is in and of itself insufficient to establish a knowing violation sufficient to impose individual liability.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.520  Civil Penalties

 

a)         A contractor that violates any of the provisions of the Act or this Part shall be subject to a civil penalty not to exceed $1000 for each violation found in the first audit by the Department.  Following a first audit, a contractor shall be subject to a civil penalty not to exceed $2000 for each repeat violation found by the Department within a five-year period.

 

b)         Each violation of the Act, for each person and for each day the violation continues, shall constitute a separate and distinct violation.

 

(Source:  Amended at 38 Ill. Reg. 18500, effective August 21, 2014)

 

Section 240.530  Debarments

 

For any second or subsequent violations determined by the Department within five years after a previous violation, the Department shall add the contractor to a debarment list that will be posted on its official website.  The Department shall give notice to the contractor of its placement on the list.  No State contract shall be awarded to any contractor placed on the debarment list until four years have elapsed from the date of the last violation.

 

Section 240.540  Criminal Penalties

 

a)         Any contractor or individual who willfully violates the Act or this Part, or obstructs the Director of Labor or his or her representatives in the enforcement of the Act, shall be subject to penalties up to double the statutory amount, punitive damages, and/or criminal penalties as set forth in Section 45 of the Act.

 

b)         Anyone attempting to induce an individual to waive any provision of the Act shall be guilty of a Class C misdemeanor.

 

Section 240.550  Retaliation

 

A contractor shall not retaliate against any person for exercising his/her rights under the Act. Any such retaliation shall subject the contractor to civil penalties, a private cause of action, or both, as set forth in Section 55 of the Act.

 

Section 240.560  Referral to Other Agencies

 

If the Department of Labor determines that a contractor has misclassified individuals as independent contractors in violation of the Act, the Department shall notify the Department of Employment Security, the Department of Revenue, the Office of the State Comptroller, and the Illinois Workers' Compensation Commission as set forth in Section 75 of the Act.

 

Section 240.570  Hearing Procedures

 

a)         The Department shall issue a complaint and notice of hearing.  The complaint shall set forth the allegations of the Department regarding its findings and the relief the Department is requesting.

 

b)         The contractor shall file its answer within 28 calendar days from the date of the complaint and specifically admit, deny or explain each of the facts alleged in the complaint.  However, if the respondent is without knowledge, the respondent shall so state and that statement operates as a denial. All allegations in the complaint, if no answer is filed, or any allegation in the complaint not specifically denied or explained in an answer filed, unless the answer states that the contractor is without knowledge, shall be deemed to be admitted to be true and shall be so found by the ALJ.

 

c)         An original and one copy of the answer shall be filed with the ALJ.  Immediately upon the filing of his or her answer, the contractor shall serve a copy on the Director and other parties. An answer of a party represented by counsel or non-attorney party representative shall be signed by at least one attorney or non-attorney party representative of record in his or her individual name, whose address shall be stated. A party who is not represented by an attorney or non-attorney party representative shall sign his or her answer and state his or her address. Except when otherwise specifically provided by rule or statute, an answer need not be verified or accompanied by affidavit. The signature of the attorney or non-attorney party representative constitutes a certificate by him or her that he or she has read the answer; that, to the best of his or her knowledge, information and belief, there is good ground to support it; and that it is not interposed for delay. If an answer is not signed or is signed with intent to defeat the purpose of this Section, it may be stricken as a sham and false and the action may proceed as though the answer had not been served. For a willful violation of this Section an attorney or non-attorney party representative may be subjected to appropriate disciplinary action. Similar action may be taken if scandalous or indecent matter is inserted.

 

d)         The ALJ before whom the hearing is scheduled may by written order extend the time within which the answer shall be filed.

 

e)         If a contractor fails to answer and the ALJ grants a motion for summary judgment and enters a final order based upon the failure to answer and an admission of all the facts as true and, if within 30 days after the final decision issued by the ALJ, the contractor files a motion to vacate the ALJ's final decision demonstrating good cause shown for failing to answer the Department's allegations, and the ALJ thereafter grants the motion, the contractor shall be afforded an opportunity to answer and the matter shall proceed as if an original answer to the Department's findings had been filed.

 

f)         Except as provided for in this Section, the Department's rules for formal hearings set forth in the Rules of Procedure in Administrative Hearings (56 Ill. Adm. Code 120) shall apply.

 

(Source:  Added at 38 Ill. Reg. 18500, effective August 21, 2014)