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Employee Fair Classification Act becomes law: New division to coordinate investigation of complaints

North Carolina Gov. Roy Cooper has signed into law the Employee Fair Classification Act, establishing a new section within the State Industrial Commission to receive complaints and co-ordinate misclassification investigations and possible prosecutions.

The legislation follows media publicity and complaints that some businesses were undercutting their competition by invalidly classifying people who should be considered employees as independent contractors.

The new law doesn’t change the definition of misclassification, but provides a central place to co-ordinate the investigation and review of misclassification complaints.

The employment classification section’s website says:

Upon receiving the complaint for employee misclassification the Director will provide this information to the 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 where each separate agency shall conduct independent investigations to determine whether violations of their operating statutes has occurred. If determined there has been a violation of any operating agency statute, each agency will ensure the necessary enforcement actions under the respective statutes.

The agency has the responsibility of reporting to the Director once the investigation is complete of the outcome and any fines/penalties, if any, that have been assessed. In addition, if any of the above listed agencies receive complaints directly for employee misclassification, the agency is responsible for reporting this information to the Director. The Director will then distribute this information to each agency where independent investigations of each agency statutes and determination if there has been any violation of such statutes. It is the responsibility of each agency to report to the Director on a Quarterly Basis the outcome of all claims for worker misclassification.

In a commentary about the new law, Parker Poe Adams and Bernstein writes:

While the legislation was prompted by labor practices within  the construction industry, it will impact a wide range of North Carolina businesses. Many companies mistakenly believe that a worker who prefers to be paid as a contractor can waive his or her right to coverage under the state’s employment laws. True independent contractors are limited to workers with a high degree of control over the means and methods by which the work is accomplished. Workers are legally presumed to be employees unless this strict test is met by the company.

North Carolina companies using contract labor should carefully review the basis for their classifications and conclusions that the contractors meet this legal test. Under this new law, employers that misclassify their workers will face an increasing chance of multiple government investigations and the costs, legal expenses, and disruption that accompany such claims.

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