On August 11, 2017, North Carolina Governor Roy Cooper signed into law Senate Bill 407, which creates Article 82, Chapter 183 of the state’s general statutes — more commonly known as the Employee Fair Classification Act (the Act). Quite simply, the Act creates an Employee Classification Division (ECD) within the North Carolina Industrial Commission, led by Director Bradley L. Hicks.
The legislation creating the ECD was introduced in 2015 but failed to become law. In response, former Governor Pat McCrory signed an executive order temporarily establishing the division and directing its work. The order was made permanent this month when Governor Cooper signed the bill. The 2017 version of the bill, however, did not include the same civil penalties that were set forth in the original draft.
Under the Act, the ECD can receive complaints for employee misclassification via telephone, fax, email, or mail. Once a complaint is filed, the Director disseminates the information to the following four agencies:
- North Carolina Department of Labor;
- North Carolina Industrial Commission — Compliance and Fraud Investigative Division;
- North Carolina Department of Commerce — Division of Employment Security; and
- North Carolina Department of Revenue
Each agency will conduct its own investigation, assess punishments for proven violations, and report back to the Director with its findings.
The new law does not change the existing definitions of “employee” and “independent contractor” set forth elsewhere by statute. However, it provides employees with a mechanism for reporting alleged violations and could make it easier for state agencies to punish employers who classify their workers as independent contractors to avoid paying taxes and other employee benefits (think: minimum wage, overtime pay, workers’ compensation, health and safety protections, unemployment insurance, and family and medical leave). The increased scrutiny could lead to expensive legal costs and disruptions in the workplace as plaintiffs’ attorneys across the state file complaints with the EDC to gain leverage in their workers’ compensation claims. Employers should therefore use caution when making employee classification determinations in North Carolina.