A prior post contained the first of this two-part installment about the North Carolina Industrial’s Commission’s efforts during the past couple of years to deter employers subject to the Workers’ Compensation Act from failing to carry workers’ compensation insurance. This second and final installment of the series further explores the issue and information presented in the first installment and explains the effects of the Commission’s efforts on North Carolina businesses, including those in the trucking and transportation industry.

Historically, the Industrial Commission acted somewhat passively in its enforcement of N.C. Gen. Stat. 97-93(a)(1)(3), which requires employers with three or more employees to carry workers’ compensation insurance or apply for a self-insured license.

Specifically, the Commission would typically address the issue if brought to its attention in the context of a specific claim against an uninsured employer by a specific employee for a specific injury. However, in the past couple of years, the Commission has taken a more active role in enforcing N.C. Gen. Stat. 97-93(a)(1)(3), as reflected by the 2014 establishment of “The Non-Compliant Employer Targeting System” (NETS) and at the direction of former Governor Pat McCrory, via Executive Order No. 83.

NETS, a fraud alerting tool established by the Commission in 2014 and made possible by the Government Data Analytics Center, allows authorized users to search information from other state agencies that might prove useful in investigating whether an employer has complied with the Workers’ Compensation Act. From the data obtained, NETS produces a list of potentially non-compliant employers and ranks them in terms of noncompliance. The use of NETS has resulted in the prosecution of violators of the Act without the Commission being alerted by a Workers’ Compensation claim. According to a report released by the NCIC, 18 criminal charges were filed against non-compliant employers in 2013-2014, whereas that figure increased to 100 charges in 2014-2015. Based on the same report, the Commission collected $341,922 in Compliance/Fraud penalties and fees in 2014, well below the $1,495,963 collected in 2016. According to the report, the Commission has brought more than 1,300 businesses into compliance with the Act using NETS.

As explained in the previous installment, former Governor Pat McCrory enacted Executive Order No. 83 (hereafter “Order”) in an effort to minimize misclassification of employees by employers trying to avoid certain obligations imposed on them by state and federal law. The Order established an Employee Classification Section within the Industrial Commission. According to the Industrial Commission’s website, this Section serves as part of the “Compliance and Fraud Investigative Division,” which identifies and prosecutes employers that do not comply with the Workers’ Compensation Act. Prior to the Order, the Division had two units: (1) the Compliance Unit and 2) the Fraud Investigative Unit. The Compliance Unit handles civil cases involving employers who fail to comply with the Act by conducting investigations and holding penalty hearings in conjunction with workers’ compensation hearings. The Compliance Unit also works alongside the Attorney General’s Office to enforce and collect penalties. The Fraud Investigative Unit is a law enforcement agency responsible for conducting criminal investigations of uninsured employers for use in criminal proceedings.

As a result of the Order, the Division has a third unit, the Employee Classification Section, which is designed to collaborate with other state agencies to identify businesses that misclassify employees as independent contractors or otherwise violate agency operating statutes. The difference between the previously established units and the Employee Classification Section is that the Employee Classification Section proactively identifies noncompliant businesses as opposed to reacting to a noncompliant business in the context of a claim for a specific injury.

The Employee Classification Section also serves as the primary point of contact for businesses and citizens to report suspected instances of misclassification of employees. Upon receipt of such report, the Section, led by Director Bradley Hicks, will investigate to determine whether the suspected non-compliant employer violated any provision of the Workers’ Compensation Act.

Significantly, Mr. Hicks will send all reports of suspected non-compliance to three other government agencies – The North Carolina Department of Labor; North Carolina Department of Commerce – Division of Employment Security; and the North Carolina Department of Revenue. Similarly, if a potential misclassification is reported to one the aforementioned agencies, that agency will send the report to the Industrial Commission. Each of these agencies will conduct its own independent investigation to identify violations of its operating statutes. Therefore, an employer that misclassifies its employees may be in violation of multiple laws, which would likely result in the assessment of more substantial penalties and fees.

On August 31, 2016, the NC Industrial Commission entered into an Agreement with the Wage and Hour Division of the United States Department of Labor designed to protect the rights of employees and lawful businesses. The three-year Memorandum of Understanding Agreement cites several objectives, including reducing worker misclassification, reducing questionable workers’ compensation practices, and creating educational and outreach materials offering guidance to employers and employees on these issues.

Members and participants in the trucking industry routinely undertake the identification of truck drivers, in particular, as employees versus independent contractors.  Now, more than ever, proper identification is imperative to avoiding civil penalties and even criminal charges. Employers are not alone with this issue;  the NC Court of Appeals has even found a broker liable for injuries to a driver, concluding the broker was a contractor for purposes of N.C. Gen. Stat. 97-19.1. See Atiapo v. Goree Logistics, Inc., 770 S.E.2d 684 (2015).

As evidenced by the more proactive approach increasingly employed by the North Carolina State Government in recent years, a specific injury or claim is no longer necessary to the discovery and prosecution of non-compliance with the Workers’ Compensation Act and other labor laws on these issues.  If you have questions about any of these issues or compliance with the law, please reach out to the lawyers in our firm’s Trucking and Transportation Practice Group – we are glad to help!

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Matthew Glidewell

The information published in Hedrick Gardner Alerts is general in nature and not intended to take the place of legal advice on any particular matter. © 2017 Hedrick Gardner Kincheloe & Garofalo LLP