North Carolina Confronts Misclassification: What Your Organization Needs to Know About the Employee Fair Classification Act


From LexologyMichael D. McKnight discusses the new North Carolina Employee Fair Classification Act and offers recommendations for employers.  Michael writes:

Requirements of the Employee Fair Classification Act

Enacted by the North Carolina General Assembly in August of 2017, the EFCA permanently establishes the Employee Classification Section within the Industrial Commission and the information-sharing practices created in Executive Order No. 83. In addition to continuing to take complaints regarding employee misclassification from the public, as of December 31, 2017, the Section will be required by statute to “provide all relevant information pertaining to each instance of reported employee misclassification” to the following agencies: the North Carolina Department of Labor, the Division of Employment Security within the Department of Commerce, the North Carolina Department of Revenue, and the North Carolina Industrial Commission. The Section also shares information with the U.S. Department of Labor pursuant to an agreement which will be permitted to continue under the EFCA. The Section may also “share information with other State and federal agencies as permitted or required by law.”

The Section is also required to create a “publicly available notice that includes the definition of employee misclassification” which is defined by the EFCA as “avoiding tax liabilities and other obligations imposed by Chapter 95, 96, 97, 105, or 143 of the General Statutes by misclassifying an employee as an independent contractor.” The provisions of the General Statutes incorporated into the definition of “employee misclassification” relate to the following subjects: state wage and hour laws (Chapter 95); unemployment benefits (Chapter 96); workers’ compensation benefits (Chapter 97); revenue and taxes (Chapter 105); and occupational licensing (Chapter 143).

The EFCA defines the key term “employee” by incorporating definitions from the above-listed provisions of the General Statutes. As a result, unlike previous versions of this legislation that were considered by the legislature in 2015 and 2016, the EFCA provides no single definition or test for who is an “employee” and who is not. This means that an individual or entity that has been found to have misclassified an employee as an independent contractor under any of the above provisions of North Carolina law has engaged in “employee misclassification” under the EFCA if the individual or entity avoided “tax liabilities and other obligations” as a result of the misclassification.

Although the EFCA levies no additional penalties and creates no cause of action against an individual or entity that engaged in employee misclassification not already found in North Carolina, the EFCA nevertheless links employee misclassification with occupational licensing. Starting December 31, 2017, the EFCA will require every state occupational licensing board or commission to include “on every application for licensure, permit, or certification, or application for renewal of the same” (1) a certification that the applicant for the license “has read and understands the public notice statement” defining “employee misclassification” and (2) a “[d]isclosure by the applicant of any investigations for employee misclassification and the result of the investigations for a time period determined by the occupational licensing board or commission.”

While the EFCA does not require an occupational licensing board to deny a license or otherwise penalize an employer that is found to have engaged in employee misclassification, it does require the denial of a license to “any applicant who fails to comply with the certification and disclosure requirements” in the EFCA. It also contains no restrictions on the ability of occupational licensing boards and commissions to deny licenses because of incidents of misclassification.

Finally, starting December 31, 2017, the EFCA will require all employers to display an additional poster in “every establishment” they operate stating the following in “plain language”: (1) that workers defined as “employees” under the EFCA be treated as employees; (2) that any employee who believes that he or she has been misclassified as an independent contractor may report the suspected misclassification to the Employee Classification Section; and (3) the contact information for the Employee Classification Section where suspected misclassification may be reported.

Read the full story at North Carolina Confronts Misclassification: What Your Organization Needs to Know About the Employee Fair Classification Act – Lexology

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