Tips from the Pros

This construction blog post discusses whether work performed upon the Property, is either a trade fixture (not lienable) or a permanent improvement (lienable) pursuant to the Illinios Mechanic Lien Act.

In determining whether material or equipement ("Work") installed upon the Property is a permanent improvement, the Court considers three (3) factors:

1)  the nature of the attachment to the Property; 

2) the adaption and necessity of the Work to the Property; and 

3)  whether the Parties intended on the Work to become part of the Propety.

While all of the factors are all considered together, the 3rd factor, intent of the Parties, weighs the heaviest as the most important factor.  

The first factor relates to how securely or permanent the Work is installed at the Property.  However, this fact alone, whether the Work can be removed without injuring the surrounding Property does not prevent the Work from being lienable.  

The second factor relates to whether the Work can be used at other properties and is the Work necessary for the Property's operation and purpose.

Finally, in considering the 3rd factor, intent, the Court would review the agreements between all the Parties in the transaction for the Work and for the use of the Property.  In that regard, the Court will consider the following:

i)  whether the Party performing the construction had notice of the agreements related to the use of the improvement;

ii)  were any agreements recorded with the County Recorder's Office;

iii)  who paid for the Work;

iv)  who gets the benefit of the Work; and

v)  who is actually the legal owner of the Work.  

For example, if any Party besides the Property's owner, is allowed to remove the Work, then the Work is probably not lienable. 

To prevent this situation, a Contractor should ask to see the agreements between the Owner and General Contractor or Developer.  Also, structure the payment as if tge Contractor did not have lien rights. 

Finally, please contact this Firm to review and negotiate the contract with the other Party in order to provide security for payment on behalf of the Contractor or a release of liability on behalf of the Owner, the uncontested right to remove the Work if payment is not received, or be able to enforce the Contractor's lien rights.  

The Illinois Employee Classification Act, 820 ILCS 185/1, applies to all contractors who pays any person to perform any construction work in the State of Illinois.  

1) In order to avoid liability, the Contractor needs to prove that the independent contractor (party performing work) is i) free from the contractor's control and direction in performing the work; ii) outside the usual scope of work that the contractor performs;  and iii) the independent contractor regularly performs the construction work as part of its own business or trade.    

2) An oral or written contract between the Contractor and the independent contractor, which identifies the person as an independent contractor, will not prevent liability from being imposed upon the Contractor.  The contract will be just one factor the State may consider when determing whether the person is an independent contractor or employee.  However, the actual actions between the parties and of the independent contractor will control over the terms of the contract.  

3) The Act requires the Contractor to report to the Dept. of Labor any payments made to any individual, sole proprieteror or partnership (independent contractor) by April 30th of the followng year.  Failure to report is considered to be a violation of the Act. 

4) An example of a Contractor violating this Act: A painting contractor hires independent contractors to perform painting work.  To be in compliance, the painting contractor needs to pay the painters as employees.  

5) While the Illinois Dept. of Labor is the State agency that enforces this Act, any person with a reasonable belief that the Contractior is violating this Act can file a claim against the Contractor for violating the Act.  This includes a competitor of the Contractor.  The penalties include a $1,000 per day violation for each person that should have been identified as an employee and barring the Contractor from contracting with the State to perform work.  

6) In order to prevent any liability, the Act provides a list of twelve factors that the Contractor and independent contractor should perform and the Dept. of Labor will consider when determining whether the Contract is paying a person as an  independent contractor or employee.   In general,  the indpendent contractor should file its own taxes as an independent contractor, obtain its own insurance, advertise to the public, have its own tools, its profits/losses must be based upon its own actions; have the right to continue working if the Contractor terminates the contract, and performs work that the Contractor typically does not perform. 

For more information and to implement procedures to be in complaince with the Act and prevent the Dept. of Labor from imposing fines, contact Corey B. Stern at [email protected] or at 630-824-4808.