New Legal Developments Affect Employers In the Construction, Restaurant and Hotel Industries

Construction Industry Fair Play Act

New York Governor David A. Paterson recently signed into law the “Construction Industry Fair Play Act,” a new piece of legislation that will drastically affect employers in the construction industry. Reflecting a continued concern over employer misclassification of independent contractors, the new law, which took effect on October 26, 2010, creates a strong presumption that workers in the construction industry are employees, and not independent contractors.

In other words, the new law creates a presumption that construction workers are employees unless the employer can establish three criteria:

• First, that the employee is “free from control and direction in performing the job, both under his or her contract and in fact;” 
• Secondly, that their services “must be performed outside the usual course of business for which the service is performed;” 
• Third, the employer must establish that the individuals are “customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.”

Construction industry employers are now mandated to provide workers with notification of their classification status. Violators will be subject to monetary and criminal sanctions.

The law also requires contractors to post notice in a prominent place at the business site that describes the responsibility of independent contractors to pay taxes required by state and federal law, the rights of employees to workers’ compensation, unemployment benefits, minimum wage, overtime, and other federal and state workplace protections, and the protections against retaliation and the penalties for failing to properly classify an individual as an employee.

Contractors who violate the notice posting requirement will be subject to a civil penalty of up to $1,500 for a first violation and up to $5,000 for a subsequent violation within a five-year period.

Newly Proposed Wage Order Merges Restaurant and Hotel Industry Wage and Hour Requirements

The New York State Department of Labor recently issued a proposed rule which would combine the current wage orders for the Restaurant and Hotel industries to form a single Minimum Wage Order for the Hospitality Industry. If adopted, the Wage Order would modify requirements related to the minimum wage, tip credits and pooling, customer service charges, allowances, overtime calculations, and other common issues within the restaurant and hotel industries. Additionally, the Wage Order would address certain frequently litigated wage issues such as the handling of service charges and the definition of an employee uniform for purposes of a laundry allowance.

Some of the more significant proposed changes include the following:

• Food service workers would need to receive at least $5.00 per hour and no more than $2.25 per hour in tip credits; however, the total of tips they receive plus their hourly wages would need to amount to $7.25 per hour.
• Prior to beginning employment, employers now would need to notify employees that they are taking a tip credit from their wages and employers would need to notify employees of any changes to their hourly rate of pay.
  Employers would need to pay an additional hour at the rate of minimum wage for each hour the employee works beyond 10 hours per day, regardless of whether the rate of pay for the first 10 hours is above the minimum wage.
• Employers would be able to retain service charges if, and only if, they clearly explain to customers that such charges are not distributed to service employees.
• Currently, a non-exempt employee can still be paid a salary so long as he/she is paid one and one-half times the regular rate of pay for hours worked beyond 40 hours during the week. If adopted, the Wage Order would require that all non-exempt workers (except commissioned salespersons) be paid on an hourly, not a salary, basis.

Employers in the Construction and Hospitality Industries should review and update their practices to comply with this new law and monitor all changes forthcoming in the new proposed wage order.