There’s been a great deal of justifiable  attention given over the last several months to the issue of “misclassification” — the wrongful treatment of employees by employers as “independent contractors.” As Raleigh’s News & Observer demonstrated in a damning series last year entitled “Contract to Cheat”:

“It’s a tactic that costs taxpayers billions of dollars each year. Yet when it comes to public projects, government regulators have done nearly nothing about it, even when the proof is easy to get.

The workers don’t have protections. The companies don’t withhold taxes. The regulators don’t seem to care.”

This year, North Carolina legislators introduced legislation to attack the problem, but as Raleigh attorney Leonard Jernigan explained in a Progressive Voices essay for N.C. Policy Watch recently, the legislation has been watered down to the point at which it will have little real impact.

“The bills, for instance, do not provide for ‘stop work’ orders that would force companies to halt work on projects until they obtain insurance for their workers.

What’s more, cheating employers are not punished at all until they are caught the second time. And even then, the penalty is a paltry $1,000 fine per employee regardless of how big the business is, how long the cheating has gone on and how much harm may have been caused or the competitive advantage gained over honest employers.

Last and perhaps even more importantly, there is no criminal penalty attached to misclassification fraud. These companies are not confused about the status of their employees. The cheating is blatant and intentional. It’s simply outrageous that an out-of-state company can come in and cheat honest businesses and North Carolina taxpayers out of millions of dollars and no one is even threatened with jail.”

Today at 1:00 p.m., the House Judiciary II Committee will take up the misclassification legislation and, if things go well, consider some toughening amendments to put some actual teeth in it. Let’s hope that, at a minimum, committee members add the “stop work” provision and some real penalties — which at this point — are laughably inadequate.


Wake County businessman Doug Burton had had enough of the unfair competition that North Carolina continues to sanction with its failure to pass meaningful laws to crack down on the wrongful treatment on employees as “independent contractors.”

In an excellent op-ed in this morning’s edition of Raleigh’s News & Observer, he lays out the increasing dire problem:

“Treating employees as independent contractors when in fact they are regular employees is a fraudulent business practice that has become an epidemic. Some call this “misclassification,” but it is in fact fraud that lets these cheating businesses – many from out of state – off the hook for basic protections, including minimum wage, overtime pay, workers’ compensation, health and safety protections, unemployment insurance, federal and state tax withholding, social security withholdings and matching and more.

This fraud is a growing problem that harms workers, puts a strain on government resources and provides an unfair advantage when these unscrupulous employers compete with law-abiding businesses. I see it every day. Other legitimate business owners see it, too, when they are regularly underpriced for jobs and there is no other explanation for such bids other than cheating. When cheating businesses classify employees as independent contractors to reduce labor costs, legitimate business and workers alike lose out.”

He goes on to explain why current proposals in the General Assembly are a start but fail to go anywhere close to far enough: Read More


Medicaid expansionIn case you missed them while scraping your windshield earlier today, there are two new lead stories  over on the main Policy Watch site today that will be worth a few minutes of your time.

This morning’s Weekly Briefing is an open letter to the one man in North Carolina politics with the clout (and, one hopes, the human decency) to set politics aside and guarantee access to health care for hundreds of thousands of people like Dana Wilson.

Meanwhile, this afternoon’s Fitzsimon File examines what was certainly the strangest claim in GovernorWorkers comp McCrory’s State of the State speech and its apparent origins with a little known administration official who seems to be keeping some odd and perhaps worrisome ties to the private sector.


Employers reduce labor costs by misclassifying workers who should be on their payroll as employees, and instead calling them independent contractors. This employer payroll fraud was exhaustively documented by Mandy Locke and her team of reporters in the News & Observer’s series “Contract to Cheat” last fall. It costs the state millions of dollars in unpaid payroll taxes, leaves our unemployment insurance system without revenue to cover unemployed workers, and deprives workers of health insurance,

One of the most damaging consequences of employer payroll fraud is that injured workers are without workers’ compensation insurance. By purchasing so-called “ghost worker” policies, employers can avoid providing real coverage to their workers. Too often, this practice takes place in dangerous industries like construction, which just last year experienced 19 worker fatalities in North Carolina.

Tracking down what appears to be a negligible problem with worker’s comp claims is a misdirected effort. There are many things the General Assembly could do to combat payroll fraud, including worker’s compensation fraud, including increasing penalties for employers who violate the law, beefing up state agency enforcement and collaboration, and providing better enforcement tools such as stop work orders.



As we noted in this space yesterday morning, there were some things to like in Gov. Pat McCrory’s State of the State speech Wednesday evening. For the most part, the Governor sounded more like good ol’ Moderate Mayor Pat rather than the champion of reactionary change who signed some of the nation’s most extreme legislation during his first two years in office.

Still, there were moments when Ebenezer Scrooge McCrory was on display — perhaps most notably when he talked about unemployment insurance and workers’ compensation. In both segments, the Governor’s message was as clear as it was callous and offensive: the Governor believes (and his policies are premised on the notion) that large numbers of North Carolina workers are lazy and don’t want to work.

How else to explain his crowing about having enacted the harshest unemployment insurance cuts in U.S. history and then repeatedly professing a desire to create jobs for all who “want to work”? And if one had any idea that these repeated references were simply an awkward if unnecessary nod to retired folks and, perhaps, the disabled, these were pretty thoroughly trashed when the Governor went off on a lengthy diatribe about how his “examination of workers compensation estimates that 40 percent of workers costs are related to abuse or outright fraud.”

Say what, Governor? Do you really believe that large numbers of people don’t want to work and that that’s why some were surviving on unemployment insurance during the Great Recession? Do you really believe that two out of five worker’s comp claims are bogus?

If so, perhaps you should have checked ahead of time with Rep. Jason Saine. Saine, of course, is the GOP state lawmaker who only managed to get off unemployment insurance by getting elected to the House of Representatives.

Or, perhaps he could have talked with one of the state’s most respected and experienced worker’s comp lawyers — Raleigh’s Leonard Jernigan. As reported this morning: Read More