Cranfill Sumner & Hartzog LLP

A Hot Question for 2018 due to The North Carolina Employee Fair Classification Act

Employee misclassification is not a new issue. However, the North Carolina Employee Fair Classification Act (EFCA), N.C. Gen. Stat. § 143-761 et seq., effective December 31, 2017, enacted to assist employees misclassified as independent contractors, brings the issue to the forefront of relevant issues for 2018. The EFCA will make it easier for employees and state agencies to bring claims for employee misclassification against employers.

The EFCA establishes a new division of the North Carolina Industrial Commission called the Employee Classification Section (ECS). The ECS will work with state agencies such as the Industrial Commission, Department of Labor, Department of Revenue, and Division of Employment Security in a coordinated effort to investigate and prevent employee misclassification. The head of each relevant State agency will designate an employee to serve as liaisons to the ECS.

The ECS will assist all relevant State agencies in the recovery of any back taxes, wages, benefits, penalties, or other monies owed as a result of an employer engaging in employee misclassification; help coordinate the prosecution of employers who fail to pay civil penalties assessed for employee misclassification; and provide education on proper employee classification and the prevention of employee misclassification.

Under the EFCA, employers are required to post information summarizing the major provisions of the EFCA in their establishments. The updated 2018 Labor Law posters include an additional section in the North Carolina Minimum Wage section about the EFCA.

Most importantly, the EFCA does not change the law on the definitions of “employees” versus “independent contractors.” The amount of control a business exercises over a worker generally determines classification. However, remember that classification is dependent upon context and different legal standards apply to different employment law areas.

While classifying a worker as an independent contractor comes with many benefits for employers, such as not having to provide certain company benefits, workers’ compensation, pay payroll taxes, unemployment insurance, and healthcare, in the wake of the EFCA, it is more important than ever to properly classify workers. In 2018, the consequences of misclassification are more readily discoverable and costly for employers now.

Practice Tips: Moving forward, be mindful of how your employees are classified. How much control do you exert over your independent contractors? If it is a lot of control, chances are they really should be classified as employees. Finally, make sure to order a 2018 North Carolina & Federal Labor Law poster that includes the required EFCA information to post in your establishment to ensure compliance with the new law and to protect yourself against posting fines.

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