Recent developments in the North Carolina Industrial Commission’s efforts to deter employers subject to the North Carolina Workers’ Compensation Act from failing to carry workers’ compensation insurance are worthy of attention by all North Carolina employers. The developments may be of specific interest to those in the Trucking and Transportation sector due to the varied contractual arrangements in the industry that could require compliance with the North Carolina Workers’ Compensation Act and its requirements pertaining to workers’ compensation insurance coverage. This is the first of a two-part article on this topic, and this installment will discuss: (1) the applicable law requiring some employers to carry workers compensation insurance or qualify as a duly self-insured employer and the ramifications for failure to do so; (2) how the Industrial Commission has historically addressed employers that fail to comply with these requirements; and (3) the recent catalyst that has caused the Industrial Commission’s enforcement of these requirements and prosecution of non-compliant employers to become more active.
The North Carolina Workers’ Compensation Act (hereafter “Act”), states that any employer with three or more employees is subject to the provisions of the Act. N.C.G.S. § 97-2(1). Additionally, the Act requires that employers subject to the Act carry workers’ compensation insurance or apply to the Commissioner of Insurance for a license to be self-insured. N.C.G.S. § 97-93(a)(1)(3). And N.C.G.S. § 97-94 provides for the assessment of penalties against employers subject to the Act for failure to procure workers’ compensation insurance or qualify as a duly self-insured employer; these penalties are both civil and criminal in nature, and can include fines of up to $100 per day for every day an employer fails to comply with the Act in these regards and criminal charges as serious as a felony. Notably, N.C.G.S. § 97-94 even allows an injured employee to sue a noncompliant employer outside the Workers’ Compensation Act “at the election of the injured employee.”
Motor carriers and others in the trucking industry are not exempt from these provisions, and one section of the Act specifically applies these requirements to certain members of the industry. N.C.G.S. § 97-19.1 states, in pertinent part, that any principal contractor, intermediate contractor, or subcontractor that contracts with a driver operating a truck, tractor, or truck tractor trailer licensed by the United States Department of Transportation shall be liable under the Act as the driver’s employer unless the driver has workers’ compensation insurance or is otherwise duly self-insured. As discussed in a prior article, the North Carolina Court of Appeals held in 2015 that a freight broker was liable under this section of the Act for injuries to a driver because the broker was a contractor for purposes of N.C.G.S. § 97-19.1. See Atiapo v. Goree Logistics, Inc., _ N.C. App. _, 770 S.E.2d 684, 2015 N.C. App. LEXIS 219 (2015). The Atiapo Court further held that the driver and its principal were subject to penalties pursuant to N.C.G.S. § 97-94.
The broker and contractor in Atiapo came under scrutiny by the North Carolina Industrial Commission and Courts because the injured driver instituted and litigated a workers’ compensation claim against them. Prosecution of employers for violations of these provisions of the Act historically occurred under such circumstances – that is, relatively passively and only when brought to the attention of the Industrial Commission in the context of a specific claim against an employer by a specific employee for a specific injury. But the Commission has of late taken a more active role in enforcing these sections of the Act at the direction of the North Carolina Governor’s Office.
On December 18, 2015, former Governor Pat McCrory handed down Executive Order No. 83, “Employee and Employer Fairness Initiative.” Executive Order No. 83 (hereafter “Order”), was premised on the ideas that “certain businesses engage in ‘employee misclassification’ by improperly classifying their employees as independent contractors which enables these businesses to avoid the liabilities and obligations imposed by state and federal law” and this “misclassification: (1) deprives North Carolina employees of their lawful rights and protections; (2) affords unethical business owners with a competitive advantage at the expense of lawful businesses; and (3) divests the state and general public of significant tax revenues.” The Order established “The Employee Classification Section” and specifically empowered the Chairman of the Industrial Commission to appoint a Director of that “Section.” The Order also charged the Section with duties including receiving complaints of employee misclassification; investigating complaints of employee misclassification; assessing back taxes, wages, benefits, penalties, etc. against businesses found to have misclassified employees; and educating “the public about proper classification of employees and the prevention of employee misclassification.” Given the direct charge made to the Industrial Commission Chair and the requirements of the Industrial Commission annunciated by Executive Order No. 83, the Commission has a central role in enforcing the Order. In the next installment of this series, we will explore how the Industrial Commission has assimilated these responsibilities into its broader operations, the effects on North Carolina business and industry generally, and the effects and potential effects on the trucking industry in particular. If you have questions prior to the next installment, please do not hesitate to contact any of our firm’s Trucking and Transportation Practice Group members.
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