North Carolina Governor Resurrects Failed Worker-Classification Enforcement Proposal

By Patrick A. Hollrah

State agencies in North Carolina will be permitted to share information and work collaboratively to bring enforcement actions against suspected worker misclassification – in spite of the defeat of proposed legislation, H.B. 482, which would have permitted these activities.

North Carolina Governor Pat McCrory (R) resurrected the information sharing elements of the failed bill by issuing Executive Order No. 83 (Dec. 18, 2015), the Employee and Employer Fairness Initiative.

By way of background, H.B. 482, which died in the state legislature in September 2015, would have established a division within the Department of Revenue to target worker misclassification, and created a new $1,000 penalty for each instance of willful worker misclassification. To target worker misclassification, the new division would have been empowered to investigate reports of worker misclassification; assist and coordinate with other state agencies to recover monies owed as a result of worker misclassification; assess administrative penalties; and share information concerning worker misclassification with the Department of Labor, Division of Employment Security, and Industrial Commission to facilitate investigations of potential violations of tax, wage and hour, unemployment security, and workers’ compensation law.

E.O. 83 establishes the Employee Classification Section (“Section”) within the Industrial Commission to address worker misclassification. The Section’s duties and responsibilities include receiving and referring complaints of worker misclassification to the appropriate agency liaison to be investigated; coordinating with state agencies, the Office of the Governor, and legislative staff to create comprehensive measures to combat worker misclassification practices; working with agency liaisons and the Department of Information Technology to develop methods to facilitate information sharing between state agencies to proactively identify possible instances of worker misclassification; and developing strategies to educate employers, employees, and the public about worker classification.

Additionally, the new Section will annually provide a report to the Governor containing proposed legislative changes to address worker misclassification and a summary of the Section’s activities, including the number of complaints of worker misclassification received; the number and amount of back taxes, wages, benefits, penalties or other monies assessed and collected; and the number of cases referred to each state agency.

On January 11, 2016, Gov. McCrory announced that he appointed Bradley Hicks to lead the Section. Mr. Hicks previously served as the deputy director of the Department of Administration’s Office for Historically Underutilized Businesses.

The practical effect of the new information sharing among state agencies that E.O. 83 will permit is that affected firms could bear additional costs associated with being the subject of multiple investigations. Additionally, the executive order increases the likelihood that a firm will receive conflicting determinations on whether the independent contractors with whom it does business are classified properly, in light of the different tests for determining worker status that commonly apply for purposes of different laws.

If you have any questions or comments concerning the foregoing, please let us know.

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