House Bill 482-Fourth Edition

GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2015

H 4

HOUSE BILL 482

Committee Substitute Favorable 6/17/15

Committee Substitute #2 Favorable 8/4/15
Fourth Edition Engrossed 8/12/15

Short Title: Employee Misclassification Reform.		(Public)
Sponsors:
Referred to:

April 2, 2015

A BILL TO BE ENTITLED

AN ACT to enact the employee fair classification act.

The General Assembly of North Carolina enacts:

PART I. EMPLOYEE FAIR CLASSIFICATION ACT

SECTION 1.1. Chapter 143 of the General Statutes is amended by adding a new Article to read:

"Article 81.

"Employee Fair Classification Act.

"§ 143‑760. Title.

This Article shall be known and may be cited as the "Employee Fair Classification Act."

"§ 143‑761. Definitions; scope.

(a) The following definitions apply in this Article:

(1) Employ. – As defined by G.S. 95‑25.2(3). For the purposes of this Article, an entity or individual shall not be deemed to be an employer of an individual hired or otherwise engaged by or through the entity or individual's independent contractor.

(2) Employee. – Any individual that is defined as an employee by either G.S. 95‑25.2(4), 96‑1(10), 97‑2(2), or 105‑163.1(4). The term does not mean an individual who is an independent contractor.

(3) Employee Classification Division or Division. – The Employee Classification Division within the Department of Revenue.

(4) Employee misclassification. – Avoiding tax liabilities and other obligations imposed by Chapter 95, 96, 97, or 105 of the General Statutes by misclassifying an employee as an independent contractor.

(5) Employer. – Any individual or entity that employs one or more employees as defined by G.S. 97‑2(3).

(6) Secretary. – The Secretary of the Department of Revenue.

(b) Nothing in this Article shall be construed or is intended to change the definition of "employer" or "employee" under any other provision of law.

"§ 143‑762. Establishment of Employee Classification Division; appointment of director; salaries; other staff.

(a) The Employee Classification Division is established within the Department of Revenue.

(b) The Secretary shall appoint a director of the Division to serve at the Secretary's pleasure with such authority as the Secretary deems necessary to direct and oversee the Division in carrying out the purposes of this Article. The director shall be exempt from the State Human Resources Act and shall devote his or her entire time to the duties of the Division. The director may delegate any duties and responsibilities as may be necessary to ensure the proper management of the Division. The director's salary shall be set by the General Assembly.

(c) The Secretary may employ clerical staff, investigators, and other staff within the Division as is necessary for the Division to perform its duties under this Article. Notwithstanding Chapters 126, 143A, and 143B of the General Statutes or any other provision of law, the director may hire or fire personnel and transfer personnel within the Division. The Division shall be provided with adequate offices in which the Division's records shall be kept and its official business transacted during regular business hours. The Division shall also be provided with necessary office furniture, stationery, and other supplies.

(d) The Office of the State Chief Information Officer shall ensure that the Division is provided with all necessary access to the Government Data Analytics Center and all other information technology services.

"§ 143‑763. Division powers and duties.

(a) The Division shall have the following duties:

(1) Be available during business hours to receive reports of employee misclassification by telephonic, written, or electronic communication.

(2) Investigate reports of employee misclassification and coordinate with and assist all relevant State agencies in recovering any back taxes, wages, benefits, penalties, or other monies owed as a result of an employer engaging in employee misclassification.

(3) Assess administrative civil penalties for instances of employee misclassification as set forth in G.S. 143‑765.

(4) Coordinate with relevant State agencies and District Attorneys' offices in the prosecution of employers and individuals who fail to pay civil assessments or penalties assessed as a result of the employer's or individual's involvement in employee misclassification.

(5) Provide all relevant information pertaining to each instance of reported employee misclassification to the North Carolina Department of Labor, the North Carolina Division of Employment Security, and the North Carolina Industrial Commission to facilitate investigation of potential violations of Chapter 143, 95, 96, 97, or 105 of the General Statutes.

(6) Create a publicly available notice that includes the definition of employee misclassification and indicates the civil penalties provided for in G.S. 143‑765.

(7) Develop methods and strategies for information sharing between State agencies in order to proactively identify possible instances of employee misclassification.

(8) Develop methods and strategies to educate employers, employees, and the public about proper classification of employees and the prevention of employee misclassification.

(b) The director shall appoint an informal advisory council to advise the director on issues within the jurisdiction of the Division. The members of the advisory council shall include, at a minimum:

(1) The following officers or the officer's designee:

a. Commissioner of Labor.

b. Secretary of Revenue.

c. Chairman of the Industrial Commission.

d. Assistant Secretary of Commerce for the Division of Employment Security.

e. State Budget Director.

(2) A representative of workers in this State.

(3) A representative of employers in this State.

The members of the council shall not receive compensation, per diem, or expense reimbursement from the State Treasury for their service on the advisory council.

(c) No later than October 1 of each year, the Division shall publish annually to the Office of the Governor and to the Joint Legislative Commission on Governmental Operations a report of the administration of this Article, together with any recommendations as the Division deems advisable. This report shall include, at a minimum, the number of reports of employee misclassification received, the number and amount of back taxes, wages, benefits, penalties, or other monies assessed, the amount of back taxes, wages, benefits, penalties, or other monies collected, and the number of cases referred to each State agency.

(d) The Division shall adopt rules in accordance with Article 2A of Chapter 150B of the General Statutes and that are not inconsistent with this Article for the purpose of carrying out the provisions of this Article and establishing the processes and procedures to be used under this Article.

"§ 143‑764. Determination of independent contractor status.

(a) The following factors shall be considered in determining whether an individual is an independent contractor for purposes of this Article:

(1) Whether the individual is engaged in an independent business, calling, or occupation.

(2) Whether the individual is to have the independent use of his or her special skill, knowledge, or training in the execution of the work.

(3) Whether the individual is doing a specified piece of work at a fixed price or for a lump sum or upon a quantitative basis.

(4) Whether the individual is not subject to discharge because he or she adopts one method of doing the work rather than another.

(5) Whether the individual is not in the regular employ of the other contracting party.

(6) Whether the individual is free to use such assistants as he or she may think proper.

(7) Whether the individual has full control over such assistants.

(8) Whether the individual selects his or her own time, subject to customer requirements.

(9) Whether the individual has a substantial investment in any equipment or tools required to perform the contracted work.

(10) Whether the individual has the opportunity for profit or loss.

(b) The presence of one or more of the foregoing factors is not controlling, nor is the presence of all of the foregoing factors required in determining whether an individual is an independent contractor. Acts taken to comply with laws or regulations shall not be considered as evidence contrary to an independent contractor determination.

(c) The provisions of this section are intended to codify the holding in Hayes v. Board of Trustees of Elon College, 224 N.C. 11 (1944) and its progeny.

"§ 143‑765. Employee misclassification prohibited; civil penalties; repeated instances of misclassification.

(a) Employee misclassification is prohibited.

(b) Any employer who is found by the Division to have engaged in willful employee misclassification after being assessed any back taxes, wages, benefits, penalties, or other monies by any State agency as a result of misclassifying one or more employees within the previous three calendar years shall be assessed a civil penalty of no greater than one thousand dollars ($1,000) per misclassified employee for any future instances of employee misclassification. In determining the amount of the penalty to be assessed, the Division shall consider the degree of willfulness or negligence by the employer in engaging in the employee misclassification. The penalty herein provided shall be assessed by the Division administratively. Any employer found by the Division to have engaged in employee misclassification or any other violation of this Article may, within 60 days of receiving written notification of a final finding by the Division, appeal the final finding and any accompanying penalty or other sanction by either (i) commencing a contested case under Chapter 150B of the General Statutes or (ii) filing a petition with the Superior Court of Wake County or of such county where the events giving rise to the finding arose. The procedure shall be the same as in all other contested cases or civil actions, except that the review of the Division's findings and any accompanying penalties or sanctions shall be de novo for both factual findings and questions of law. Enforcement of the penalty shall be made by the Office of the Attorney General. The clear proceeds of penalties provided for in this subsection shall be remitted to the Civil Penalty and Forfeiture Fund in accordance with G.S. 115C‑457.2.

(c) Nothing in this section shall be construed to create a private right of action, at law or in equity, for the activities prohibited by this Article.

"§ 143‑766. Temporary amnesty program.

(a) The Division shall establish and administer a temporary amnesty program for the purpose of encouraging voluntary self‑reporting by employers currently engaging in employee misclassification. Every employer participating in the temporary amnesty program shall be immune from the civil penalties provided for in G.S. 143‑765 for past instances of employee misclassification that are voluntarily self‑reported by the employer in accordance with the procedures of the temporary amnesty program.

(b) The Division shall establish procedures for participation in the temporary amnesty program. These procedures shall require, at a minimum, that a participating employer:

(1) File an application with the Division on a form prescribed by the Division on or before October 1, 2016. This form shall require, at a minimum, the employer's name, physical address, mailing address, telephone number, Social Security number or taxpayer ID number, and disclosure of all actual or potential instances of employee misclassification. If available, this form shall require the employer's registered agent, drivers license number, license number(s), and issuing agency of all licenses issued by a State licensing board.

(2) Comply with any and all determinations made or directives issued by the Division pertaining to the employer's application and compliance with this Article.

(c) Nothing in this section shall be construed to limit the liability of a participating employer in any civil or criminal matter not provided for by this Article.

"§ 143‑767. Occupational licensing boards and commissions; notice requirement; applicant certification.

(a) Every State occupational licensing board or commission that is authorized to issue any license, permit, or certification shall include on every application for licensure, permit, or certification, or application for renewal of the same, a certification that the applicant has read and understands the employee misclassification notice set forth in G.S. 143‑763(a)(7).

(b) Every applicant for a license, permit, or certification issued by a State occupational licensing board or commission shall truthfully certify on the appropriate application that the applicant has read and understands the employee misclassification notice set forth in G.S. 143‑763(a)(7).

(c) An occupational licensing board or commission shall deny the license, permit, or certification application of any applicant who fails to comply with the certification requirement set forth in subsection (b) of this section.

"§ 143‑768. Confidentiality; access to records.

The records of the Division that are not civil penalty assessments or final orders relating to an appeal of a civil penalty assessment, insofar as they refer to reported violations, investigations, or other enforcement actions taken by the Division, are not public records under G.S. 132‑1 but may be shared by the Division with State and federal agencies as permitted or required by law."

SECTION 1.2. G.S. 97‑5.1 is repealed.

SECTION 1.3. G.S. 105‑259(b) is amended by adding a new subdivision to read:

"(49) To furnish to the North Carolina Department of Labor, the North Carolina Division of Employment Security, and the North Carolina Industrial Commission employee misclassification information pursuant to G.S. 143‑763(a)(5) unless prohibited by law."

SECTION 1.4. G.S. 143‑760, 143‑761, and 143‑762 are effective when the act becomes law. The remainder of this section becomes effective January 1, 2016, and applies to instances of employee misclassification occurring on or after that date.

PART II. MISCLASSIFICATION NOTICE ADDED TO NCDOL POSTERS

SECTION 2.1. G.S. 95‑25.15(c) reads as rewritten:

"(c) A poster summarizing the major provisions of this Article shall be displayed in every establishment subject to this Article. This poster shall also include notice indicating the following:

(1) Any worker who is defined as an employee by either G.S. 95‑25.2(4), 143‑761(2), 96‑1(10), 97‑2(2), or 105‑163.1(4) shall be treated as an employee unless the individual is an independent contractor.

(2) Any employee who believes that he or she has been misclassified as an independent contractor by their employer may report the suspected misclassification to the Employee Classification Division within the Department of Revenue.

(3) The physical location, mailing address, telephone number, and e‑mail address where alleged incidents of employee misclassification may be reported to the Employee Classification Division within the Department of Revenue."

PART III. SANCTIONS AND OTHER REQUIREMENTS CONCERNING EMPLOYEE MISCLASSIFICATION

SECTION 3.1. G.S. 87‑11 reads as rewritten:

"§ 87‑11. Revocation of license; charges of fraud, negligence, incompetency, etc.; hearing thereon; reissuance of certificate.

(a) The Board shall have the power to refuse to issue or renew or revoke, suspend, or restrict a certificate of license or to issue a reprimand or take other disciplinary action if a general contractor licensed under this Article is found guilty of any fraud or deceit in obtaining a license, or gross negligence, incompetency, or misconduct in the practice of his or her profession, or willful violation of any provision of this ~~Article.~~Article, or if a penalty was imposed pursuant to G.S. 143‑765(b) that has been upheld upon final adjudication, the violation giving rise to the penalty was willful, and there was no good‑faith argument that the individual was an independent contractor. The Board shall also have the power to revoke, suspend, or otherwise restrict the ability of any person to act as a qualifying party for a license to practice general contracting, as provided in G.S. 87‑10(c), for any copartnership, corporation or any other organization or combination, if that person committed any act in violation of the provisions of this section and the Board may take disciplinary action against the individual license held by that person.

(a1) Any person may prefer charges of fraud, deceit, negligence, or misconduct against any general contractor licensed under this Article. The charges shall be in writing and sworn to by the complainant and submitted to the Board. The charges, unless dismissed without hearing by the Board as unfounded or trivial, shall be heard and determined by the Board in accordance with the provisions of Chapter 150B of the General Statutes.

(b) The Board shall adopt and publish guidelines, consistent with the provisions of this Article, governing the suspension and revocation of licenses. These guidelines shall include references to the prohibition of employee misclassification under Article 81 of Chapter 143 of the General Statutes and state that engaging in employee misclassification is grounds for revocation of a license issued under this Article.

(c) The Board shall establish and maintain a system whereby detailed records are kept regarding complaints against each licensee. This record shall include, for each licensee, the date and nature of each complaint, investigatory action taken by the Board, any findings by the Board, and the disposition of the matter.

(d) The Board may reissue a license to any person, firm or corporation whose license has been revoked: Provided, five or more members of the Board vote in favor of such reissuance for reasons the Board may deem sufficient.

The Board shall immediately notify the Secretary of State of its findings in the case of the revocation of a license or of the reissuance of a revoked license.

A certificate of license to replace any certificate lost, destroyed or mutilated may be issued subject to the rules and regulations of the Board.

(e) The Board shall be entitled to recover its reasonable administrative costs associated with the investigation and prosecution of a violation of this Article or rules or regulations of the Board up to a maximum of five thousand dollars ($5,000) for any licensee or qualifying party found to have committed any of the following:

(1) Fraud or deceit in obtaining a license.

(2) Gross negligence, incompetency, or misconduct in the practice of general contracting.

(3) Willful violation of any provision of this Article."

SECTION 3.1A. G.S. 87‑23 reads as rewritten:

"§ 87‑23. Revocation or suspension of license for cause.

(a) The Board shall have power to revoke or suspend the license of or order the reprimand or probation of any plumbing, heating, or fire sprinkler contractor, or any combination thereof, who is guilty of any fraud or deceit in obtaining or renewing a license, or who fails to comply with any provision or requirement of this Article, or the rules adopted by the Board, if a penalty was imposed pursuant to G.S. 143‑765(b) that has been upheld upon final adjudication, the violation giving rise to the penalty was willful, and there was no good‑faith argument that the individual was an independent contractor, or for gross negligence, incompetency, or misconduct, in the practice of or in carrying on the business of a plumbing, heating, or fire sprinkler contractor, or any combination thereof, as defined in this Article. Any person may prefer charges of such fraud, deceit, gross negligence, incompetency, misconduct, or failure to comply with any provision or requirement of this Article, or the rules of the Board, against any plumbing, heating, or fire sprinkler contractor, or any combination thereof, who is licensed under the provisions of this Article. All of the charges shall be in writing and investigated by the Board. Any proceedings on the charges shall be carried out by the Board in accordance with the provisions of Chapter 150B of the General Statutes.

(b) The Board shall adopt and publish guidelines, consistent with the provisions of this Chapter, governing the suspension and revocation of licenses.

(c) The Board shall establish and maintain a system whereby detailed records are kept regarding complaints against each licensee.

(d) The Board may conduct audits of the pay records and project records of licensee firms in furtherance of this Article or the Employee Fair Classification Act, Article 81 of Chapter 143 of the General Statutes."

SECTION 3.1B. G.S. 87‑42 reads as rewritten:

"§ 87‑42. Duties and powers of Board.

In order to protect the life, health and property of the public, the State Board of Examiners of Electrical Contractors shall provide for the written examination of all applicants for certification as a qualified individual, as defined in G.S. 87‑41.1. The Board shall receive all applications for certification as a qualified individual and all applications for licenses to be issued under this Article, shall examine all applicants to determine that each has met the requirements for certification and shall discharge all duties enumerated in this Article. Applicants for certification as a qualified individual must be at least 18 years of age and shall be required to demonstrate to the satisfaction of the Board their good character and adequate technical and practical knowledge concerning the safe and proper installation of electrical work and equipment. The examination to be given for this purpose shall include, but not be limited to, the appropriate provisions of the National Electrical Code as incorporated in the North Carolina State Building Code, the analysis of electrical plans and specifications, estimating of electrical installations, and the fundamentals of the installation of electrical work and equipment. Certification of qualified individuals shall be issued in the same classifications as provided in this Article for license classifications. The Board shall prescribe the standards of knowledge, experience and proficiency to be required of qualified individuals, which may vary for the various license classifications. The Board shall issue certifications and licenses to all applicants meeting the requirements of this Article and of the Board upon the receipt of the fees prescribed by G.S. 87‑44. The Board shall have power to make rules and regulations necessary to the performance of its duties and for the effective implementation of the provisions of this Article. The Board may conduct audits of the pay records and project records of licensee firms in furtherance of this Article or the Employee Fair Classification Act, Article 81 of Chapter 143 of the General Statutes. The Board shall have the power to administer oaths and issue subpoenas requiring the attendance of persons and the production of papers and records before the Board in any hearing, investigation, or proceeding conducted by it. Members of the Board's staff or the sheriff or other appropriate official of any county of this State shall serve all notices, subpoenas, and other papers given to them by the Chairman for service in the same manner as process issued by any court of record. Any person who neglects or refuses to obey a subpoena issued by the Board shall be guilty of a Class 1 misdemeanor. The Board shall have the power to acquire, rent, encumber, alienate, and otherwise deal with real property in the same manner as a private person or corporation, subject only to approval of the Governor and the Council of State. Collateral pledged by the Board for an encumbrance is limited to the assets, income, and revenues of the Board. The Board shall keep minutes of all its proceedings and shall keep an accurate record of receipts and disbursements which shall be audited at the close of each fiscal year by a certified public accountant, and the audit report shall be filed with the State of North Carolina in accordance with Chapter 93B of the General Statutes."

SECTION 3.1C. G.S. 87‑47(a1) reads as rewritten:

"(a1) The following activities are prohibited:

(1) Offering to engage or engaging in electrical contracting without being licensed.

(2) Selling, transferring, or assigning a license, regardless of whether for a fee.

(3) Aiding or abetting an unlicensed person, partnership, firm, or corporation to offer to engage or to engage in electrical contracting.

(4) Being convicted of a crime involving fraud or moral turpitude.

(5) Engaging in fraud or misrepresentation to obtain a certification, obtain or renew a license, or practice electrical contracting.

(6) Engaging in false or misleading advertising.

(7) Engaging in malpractice, unethical conduct, fraud, deceit, gross negligence, gross incompetence, or gross misconduct in the practice of electrical contracting.

(8) Willfully engaging in employee misclassification in violation of G.S. 143‑765(b) where there was no good‑faith argument that the individual was an independent contractor."

SECTION 3.2. G.S. 143‑59.2(a) reads as rewritten:

"(a) Ineligible Vendors. – A vendor is not entitled to enter into a contract for goods or services with any department, institution, or agency of the State government subject to the provisions of this Article if any officer or director of the vendor, or any owner if the vendor is an unincorporated business ~~entity,~~entity; within five years prior to the date of the bid solicitation, has been assessed a civil penalty pursuant to G.S. 143‑765(b) that has been upheld upon final adjudication, the violation giving rise to the penalty was willful, and there was no good‑faith argument that the individual was an independent contractor; or within 10 years immediately prior to the date of the bid solicitation, has been convicted of any violation of Chapter 78A of the General Statutes or the Securities Act of 1933 or the Securities Exchange Act of 1934."

SECTION 3.3. G.S. 153A‑134 is amended by adding a new subsection to read:

"(d) An applicant subject to regulation and licensure by a county under this section shall certify to the county on the relevant application that the applicant has read and understands the employee misclassification notice required under G.S. 143‑763(a)(7)."

SECTION 3.4. G.S. 160A‑194 is amended by adding a new subsection to read:

"(d) An applicant subject to regulation and licensure by a city under this section shall certify to the city on the relevant application that the applicant has read and understands the employee misclassification notice required under G.S. 143‑763(a)(7)."

SECTION 3.5. G.S. 153A‑360 reads as rewritten:

"§ 153A‑360. Inspections of work in progress.

(a) As the work pursuant to a permit progresses, local inspectors shall make as many inspections of the work as may be necessary to satisfy them that it is being done according to the provisions of the applicable State and local laws and local ordinances and regulations and of the terms of the permit. In exercising this power, each member of the inspection department has a right, upon presentation of proper credentials, to enter on any premises within the territorial jurisdiction of the department at any reasonable hour for the purposes of inspection or other enforcement action. If a permit has been obtained by an owner exempt from licensure under G.S. 87‑1(b)(2), no inspection shall be conducted without the owner being personally present, unless the plans for the building were drawn and sealed by an architect licensed pursuant to Chapter 83A of the General Statutes.

(b) Each owner shall certify to the county on the relevant application that the owner has read and understands the employee misclassification notice required under G.S. 143‑763(a)(7)."

SECTION 3.6. G.S. 160A‑420 reads as rewritten:

"§ 160A‑420. Inspections of work in progress.

(a) As the work pursuant to a permit progresses, local inspectors shall make as many inspections thereof as may be necessary to satisfy them that the work is being done according to the provisions of any applicable State and local laws and of the terms of the permit. In exercising this power, members of the inspection department shall have a right to enter on any premises within the jurisdiction of the department at all reasonable hours for the purposes of inspection or other enforcement action, upon presentation of proper credentials. If a permit has been obtained by an owner exempt from licensure under G.S. 87‑1(b)(2), no inspection shall be conducted without the owner being personally present, unless the plans for the building were drawn and sealed by an architect licensed pursuant to Chapter 83A of the General Statutes.

(b) Each owner shall certify to the city on the relevant application that the owner has read and understands the employee misclassification notice required under G.S. 143‑763(a)(7)."

PART IV. APPROPRIATIONS

SECTION 4.(a) There is appropriated from the General Fund to the Department of Revenue the sum of two hundred ninety‑three thousand dollars ($293,000) for the 2015‑2016 fiscal year and the sum of two hundred ninety‑three thousand dollars ($293,000) for the 2016‑2017 fiscal year to establish up to five new positions in the Employee Classification Division of the Department of Revenue to carry out the duties of the Division pursuant to G.S. 143‑763. The Department of Revenue shall consult with the Industrial Commission, the Office of State Budget and Management, the Division of Employment Security of the Department of Commerce, and the Department of Labor in hiring staff for this function.

SECTION 4.(b) There is appropriated from the General Fund to the Employee Classification Division of the Department of Revenue the sum of seventeen thousand five hundred dollars ($17,500) for the 2015‑2016 fiscal year for nonrecurring costs associated with the positions authorized by this section.

PART V. SEVERABILITY

SECTION 5. If any section or provision of this act is declared unconstitutional or invalid by the courts, it does not affect the validity of this act as a whole or any part other than the part so declared to be unconstitutional or invalid.

PART VI. EFFECTIVE DATE

SECTION 6. Except as otherwise provided, this act becomes effective January 1, 2016.