NC Focuses on Misclassification of Employees through Employee Classification Section of NCIC
Starting on December 31, 2017, the North Carolina Industrial Commission will have a permanent Employee Classification Section charged with investigating and punishing employers who misclassify employees as independent contractors. The Employee Classification Section was initially created through an executive order signed by former Governor Pat McCrory on December 18, 2015, Executive Order No. 83. The North Carolina legislature recently codified many provisions of Executive Order No. 83 through the Employee Fair Classification Act, which was passed in August of 2017.
The Employee Classification Section is tasked with receiving complaints from the public regarding employers who are misclassifying employees and investigating those complaints. When a complaint is received, the Director of the Section will provide the information to the North Carolina Department of Labor, the Fraud Investigation Division of the North Carolina Industrial Commission, the Division of Employment Security in the North Carolina Department of Commerce, and the North Carolina Department of Revenue. Each agency will then conduct an investigation to assess whether the employer has violated any of their operating statutes. If any of the agencies find a violation of an applicable statute, they will assess appropriate penalties and fines. Each respective agency will then report its findings back to the Director of the Employee Classification Section. Additionally, if any of the aforementioned agencies receive a direct complaint from the public regarding employee misclassification, the agency will report that complaint to the Director of the Employee Classification Section, who will pass the complaint along to all of the other agencies for investigation.
While the Employee Classification Section of the NCIC has been around since 2015, it was made a permanent fixture of the NCIC by the recently passed Employee Fair Classification Act (“EFCA”). The EFCA also formally codified that the Employee Classification Section must takes the steps outlined in paragraph 2 above whenever it receives a complaint regarding employee misclassification.
Practice Tips: Prior to the creation of the Employee Classification Section of the NCIC, a complaint of employee misclassification often would not result in significant consequences for the guilty employer. North Carolina is making a significant effort to reduce instances of employee misclassification going forward. The potential penalties that could be assessed against an employer include fines for not properly carrying workers’ compensation insurance and paying back taxes on each misclassified employee for up to 5 years before the misclassification occurred. Additionally, misclassified employees will have the ability to file private lawsuits against their employers to recover overtime wages and minimum wage amounts that should have been paid under state and federal wage and hour laws (e.g the Fair Labor Standards Act, etc.). In some instances, the employees can also receive treble damages against the employers depending on the nature of the conduct.
Because the consequences associated with employee misclassification are greater than they have ever been in the state of North Carolina, it is imperative for employers utilizing independent contractors to consult with counsel to ensure they are not mistakenly violating any laws. Teague Campbell’s employment law team is focused on this ever emerging issue and is ready to help employers navigate this complex area of the law.