Labor unions and small business owners from across New York came together late last year to support one of the most far-reaching legislative crackdowns on employers that misclassify employees as independent contractors.

Former Gov. David Paterson signed the Wage Theft Prevention Act last December, which toughens penalties against employers that are found guilty of misclassification and provides additional protections for employees. Firing a worker who charges wage theft will carry a penalty of up to $10,000. The law goes into effect April 12.

Worker misclassification has been widespread in the state. James Parrot, chief economist for the Fiscal Policy Institute, estimated that 10 percent of New York's workers are misclassified as independent contractors.

Affected workers are deprived of protection under labor law and are ineligible for workers' compensation. And law-abiding businesses are forced to compete with others who don't pay prevailing wages, Social Security taxes and overtime by labeling employees independent contractors.

"It hurts our contractors that play by the rules and treat their employees fairly," says Third District International Representative Larry Davis.

States and localities nationwide lose out on $8 billion in revenue because of worker misclassification.

Davis says the IBEW and NECA contractors mobilized heavily behind N.Y.'s Wage Theft Act and its construction counterpart—the Construction Industry Fair Play Act, which went into effect last October. That law clarifies the difference between full-time employees and independent contractors in the construction industry.

"Under the [act] all construction industry workers would be presumed to be employees unless they meet … specific criteria that would lead to their classification as independent contractors," says bill sponsor state Sen. George Onorato.

Both bills are expected to bring millions in tax revenue to New York, garnering $150 million to help state officials preserve vital government programs.

Pennsylvania passed similar legislation last October, when former Gov. Ed Rendell signed a bill that makes it a third-degree felony for a construction contractor to knowingly engage in worker misclassification.

"While the practice is not as rampant in the electrical trade as it is in other sectors of the construction industry, it has been a growing problem that has put the squeeze on honest contractors—both union and nonunion," says Third District International Representative Randy Kieffer.

On Capitol Hill, Massachusetts Sen. John Kerry and Rep. Jim McDermott (Wash.) introduced national legislation last year that would beef up enforcement of worker classification regulations.

International Representative Dan Gardner, IBEW Political and Legislative Affairs Department, says that it will be hard for Congress to continue to ignore the issue if more states follow New York's and Pennsylvania's lead in cracking down on worker misclassification.

"Misclassification is one of the biggest challenges facing the building trades, but I think it's an issue that elected officials across the country are ready to move on," Davis says.