North Carolina’s New Employee Misclassification Law: What Will Be the Practical Effect?
Effective December 31, 2017, the North Carolina Employee Fair Classification Act, signed into law on August 11th, creates the Employee Classification Section of the North Carolina Industrial Commission. This new Section will be authorized to receive and investigate reports by employees claiming to be misclassified as independent contractors, and to share information with other state agencies, including the Department of Labor, the Division of Employment Security, the Department of Revenue and the Industrial Commission. This authority and information exchange may enable the State to more effectively go after employers who are engaging in such misclassification in order to avoid paying payroll taxes, providing workers’ compensation benefits or meeting other obligations under state law. For example, state licensing boards will be required to ask applicants to disclose, for a period of time yet to be determined, any investigation(s) for employee misclassification to which they have been subject and the outcome of such investigation(s). An applicant’s failure to comply will result in denial of the license or permit at issue.
Although the legislation does not revise the existing definitions of “employee” or “independent contractor” under state law, it will require employers to post a notice in the workplace stating that workers must be treated as employees unless they are independent contractors and that those who believe they have been misclassified have the right to report the alleged misclassification to the Employee Classification Section. The notice also must provide the physical and e-mail addresses and telephone number where alleged misclassifications may be reported.
When signing the Act into law, North Carolina Governor Roy Cooper noted, “This law is an important step in helping workers who are treated unfairly as independent contractors when they are actually employees, and by leveling the playing field for companies who are obeying the law and doing things the right way.” As the old saying goes, the proof is in the pudding. What practical impact the law will have remains to be seen.