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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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Court Decision Offers Guidance On Effective Date of FLSA Regulations

By Russell A. Hollrah

A recent decision provides support for the proposition that a home-care firm should not be liable for violations of the new U.S. Department of Labor (“DOL”) regulations governing domestic services prior to the appeals court decision upholding their validity.

By way of background, the DOL initially provided that the regulations would become effective January 1, 2015. The industry instituted a legal challenge to the regulations, Home Care Association of America v. Weil, resulting in the U.S. District Court for the District of Columbia issuing decisions in December 2014 and January 2015 vacating substantial portions of the regulations, including the portion that would prohibit a third-party employer from availing itself of the FLSA’s companionship services exemption. Following an appeal by the DOL, the U.S. Court of Appeals for the District of Columbia reversed the District Court decisions and upheld the regulations. This decision became effective October 13, 2015. The industry is currently seeking U.S. Supreme Court review of the decision.

In Bangoy v. Total Homecare Solutions, LLC, (S.D. Ohio Dec. 21, 2015), home healthcare workers instituted a putative class-action lawsuit against the defendant company, alleging violations of the FLSA and the Ohio Minimum Fair Wage Standards Act for the time period commencing January 1, 2015, and ending in late August 2015, when the defendant commenced paying overtime wages to home healthcare workers. The lawsuit was filed on September 4, 2015.

The court dismissed with prejudice the plaintiffs’ Complaint, holding that the defendant could rely on the District Court decisions in not paying plaintiffs overtime for the time period at issue in the case. The court reasoned that when the district court vacated the regulations prior to their effective date, the regulations became in the court’s words “a nullity and unenforceable.” Thus, to permit plaintiffs to recover for a violation of the amended regulations – while the District Court decisions vacating them remained in effect – would give the regulations what the court characterized as an “impermissible retroactive effect.” Moreover, the court reasoned that the fact that DOL indicated it would not bring enforcement actions for violations of the new regulations occurring before the Court of Appeals reinstated them strongly suggests that the regulations should not be given retroactive effect in cases between private parties.

Of interest to firms that operate in the State of Ohio, the court also dismissed the claims under the Ohio Minimum Fair Wage Standards Act, on the grounds that this Ohio law is to be construed in accordance with the FLSA.

The facts of this case explicitly address only the time period January 1 through August 2015. The court’s analysis arguably provides support for a similar outcome for the time period September through October 12, 2015, but that is not certain at this time.

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

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The foregoing is intended solely as general information and may not be considered tax or legal advice; nor can it be used or relied upon for the purpose of (i) avoiding penalties under any taxing statute or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should not take any action based upon any information contained herein without first consulting legal counsel familiar with your particular circumstances.