Seattle Independent Contractor Ordinance – Pitfalls for Unwary Construction Professionals

Chapter 14.34 of the Seattle Municipal Code is a relatively new ordinance that can affect the parties to a construction contract for work performed within the City of Seattle’s city limits. The Independent Contractor Protection Ordinance (“ICPO”) was enacted to provide self-employed persons, or entities composed of not more than one person, regardless of corporate form, recourse for timely payment for work performed.  The ICPO applies to contracts of $600[i] or more between an independent contractor and a hiring entity where the work, in whole or in part, is known to be performed within the City of Seattle’s city limits.[ii]  The ICPO cannot be waived by parties to a contract.[iii]

Historically, the primary legal recourse for non-payment or late payment for work performed under a contract involves an expensive breach of contract action, and one reason the ICPO was enacted was to give greater protection to a growing number of Washington independent contractors who report problems with timely and accurate payment.

The ICPO affects “hiring entities” or any individual, partnership, association, corporation, business trust, or any entity, person or group of persons, or a successor thereof, that hires independent contractors to provide services within the scope of a hiring entity’s business or commercial activities.  In the construction context, most general contractors, subcontractors, design professionals, and design consultants should be aware of this ordinance, as well as certain owners[iv] and development-side entities.

If you or your business hires an independent contractor to perform $600 or more in services, performed in whole or in part within the City of Seattle, failure to comply with Chapter 14.34 may result in penalties and fines.  In order to not run afoul of the ICPO protections, the following are the key requirements:

                1.  Notice of ICPO Rights.[v]  Prior to the date the independent contractor begins work for the hiring entity, the hiring entity must provide information to the independent contractor related to the independent contractor’s right to a (1) pre-contract disclosure, timely payment, and payment disclosures; (2) the right to be protected from retaliation for exercising in good-faith the rights protected by the ICPO; (3) the right to file an ICPO-based complaint to the Office of Labor Standards (“OLS”) or bring a civil action for a violation of the ICPO; and (4) any other rules that the OLS Director may issue.  The City of Seattle provides a model form to satisfy this notice requirement, but the required notice may be made in another document meeting the requirements outlined in SMC 14.34.100.  The model Notice of ICPO Rights form can be found here.

2.  Pre-Contract Disclosure.[vi]  Prior to an independent contractor beginning work, hiring entities shall provide the independent contractor a written pre-contract disclosure of thirteen categories of information including, but not limited to, contact information, a description of the work to be performed, rate and basis of pay, identification of typical expenses to be reimbursed by the hiring entity, any deductions, fees, or other charges the hiring entity may subtract from payment, and a payment schedule.  The City of Seattle provides a model form to satisfy this disclosure requirement, but the necessary disclosures may be made in another document meeting the disclosure requirements outlined in SMC 13.34.050.  The model Pre-Contract Disclosure form can be found here.

3.  Timely Payment.[vii]  The hiring entity must provide the independent contractor with timely compensation for work performed, which shall be due either on or before the date compensation is due under the terms and conditions of the contract.  If the contract does not specify when compensation is due or provide a mechanism for determining when compensation is due, then payment is due thirty (30) days after completion of the independent contractor’s services.  If a pre-contract disclosure has not been provided and the independent contractor performs agreed upon work, and later there is a dispute, there will be a rebuttable presumption that the independent contractor’s alleged terms and conditions govern the contractual relationship between the parties.

4.  Payment Disclosure.[viii]  For each payment made to the independent contractor, the hiring entity shall provide a written disclosure statement that provides itemized payment information, including but not limited to the names of the parties, the description of the services covered by the payment, the rate of pay and pay basis, expenses reimbursed, gross payment, net payment after any deductions, fees, or other charges, and other information that the OLS Director may issue.  The City of Seattle provides a model form to satisfy the Payment Disclosure requirement, but the necessary disclosure may be made in another document meeting the disclosure requirements outlined in SMC 13.34.060.  The model Pre-Contract Disclosure form can be found here.

Hiring entities must retain records that document compliance with the ICPO for each independent contractor for a period of three years.  Failure by the hiring entity to keep the required records results in a rebuttable presumption that the hiring entity violated the ICPO.  Additionally, hiring entities are prohibited from retaliating against independent contractors that exercise or attempt to exercise their rights under Chapter 14.34. Violation of these provisions or the notice, disclosure, and payment requirements can result in fines and civil penalties,[ix] with increasing civil penalties of up to $5,565.10 or an amount equal to ten (10) percent of the total unpaid compensation, whichever is greater, per aggrieved party for a third or subsequent violation.

                Independent contractors can file a complaint with the OLS for ICPO violations and seek relief and receive liquidated damages of up to twice the amount of unpaid compensation, civil penalties, penalties payable to the aggrieved party, fines, and interest at 12% per annum.[x]  Relief is cumulative under the Chapter and is not intended to be exclusive of any other remedy, penalty, fine, or procedure, which would appear to allow a separate civil action where the independent contractor may be again awarded the same relief.[xi]  The OLS may also assess against the hiring entity in favor of the City, reasonable costs incurred in enforcing the ICPO, including but not limited to reasonable attorneys’ fees.

                While this Chapter undoubtedly provides independent contractors with appropriate relief in certain circumstances, it also introduces challenges to the unaware, adds managerial responsibility for busy construction professionals, and compels mandatory administrative protocols that undermine freedom to contract.  Simply, parties to a construction contract, where the work is wholly or partly performed within the City of Seattle city limits, must be aware of the other contracting parties’ status as an independent contractor.  Because the provisions of Chapter 14.34 are not waivable under the parties’ contract, if you are a construction professional contracting with – or potentially contracting with – independent contractors for work within the Seattle city limits, you may be subject to this ordinance and your contracts should be appropriately tailored to address this possibility.  Please do not hesitate to reach out and discuss your particular needs.

[i] See SMC 14.34.045.  The value of services is limited to contracts with proposed or actual compensation of $600 or more, or compensation reasonably expected to by $600 or more either by itself or when aggregated for services between the hiring entity and the independent contractor.

[ii] See SMC 14.34.020.  Determination of whether a hiring entity knows or has reason to know if the work is being performed in the City of Seattle is subject to a multi-factor analysis.

[iii] See SMC 14.34.233.

[iv] Typical residential homeowners who hire construction professionals are likely exempt from the ICPO requirements since they would not be, generally, hiring construction professionals “in the course of the hiring entity’s business or commercial activity.”  The ICPO affects commercial hiring entities.

[v] See SMC 14.34.100.

[vi] See SMC 14.34.050.

[vii] See SMC 14.34.055.

[viii] See SMC 14.34.060.

[ix] Fines and penalties may be increased annually.

[x] See SMC 14.34.170.

[xi] See SMC 14.34.230.

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