Professional Service Agreement

Independent Contractor Misclassification Bill Signed into Law in North Carolina

August 21, 2017

North Carolina Governor Roy Cooper signed into law the Employee Fair Classification Act, a measure that creates a separate division within the state’s industrial commission to take reports from the public on independent contractor misclassification and investigate them.

Specifically, SB 407 establishes an "Employee Classification Section" within North Carolina’s Industrial Commission to investigate reports of misclassification. The new body will coordinate the recovery of back taxes, wages, benefits, penalties, and related funds owed as a result of an employer’s having misclassified an employee as an independent contractor. It also will coordinate the prosecution of employers that fail to pay penalties assessed based on a finding of misclassification. It will provide information about misclassification to the North Carolina Department of Labor, the state’s Division of Employment Security and Department of Revenue, and the North Carolina Industrial Commission to facilitate investigation of potential violations of Chapter 95, 96, 97, 105, or 143 of the General Statutes. The new entity is charged with developing strategies for facilitating information sharing between state agencies "in order to proactively identify possible instances of employee misclassification."

Notice and reports. In addition, the Employee Classification Section will create a publicly available notice that includes the definition of employee misclassification, and develop methods and strategies "to educate employers, employees, and the public about proper classification of employees and the prevention of employee misclassification." It also has been directed to publish an annual report to the governor on its administration of the misclassification provision, including the number of reports of misclassification received from the public, the amount of monies assessed and back wages and penalties collected, and the number of cases referred out to state agencies.

"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," Cooper said, in signing the measure.