North Carolina’s state government took an important first step this week toward recognizing and addressing the problem of misclassification, which occurs when employers wrongly classify employees as independent contractors. On August 11, Governor Cooper signed The Employee Fair Classification Act (SB 407). The Act codifies the Employee Classification Section in the NC Industrial Commission, established by Governor McCrory via Executive Order in 2015. The section was originally created in response to series of articles in the News and Observer that highlighted the costs of worker misclassification on employee wages and benefits as well as the harm to state coffers and to competing businesses that classify their workers appropriately.
While the new law is a good first step, many more are needed to address the problem, since the work of the Employee Classification Section remains hamstrung. Three obvious ones top the list:
- North Carolina does not currently recognize worker misclassification as per se illegal, and there are no penalties to deter employers from wrongly classifying employees as independent contractors. This needs to change
- In other states, agencies or task forces established to combat misclassification have the power to issue stop work orders to employers violating misclassification law. North Carolina should adopt such a rule.
- Additionally, there is no current legal framework in North Carolina to prohibit state or local governments from contracting with businesses that misclassify their workers.Again, we should move in this direction.
The bottom line: The new law is a good start, but only one small step. North Carolina needs more comprehensive protections for workers and businesses to deter and stop employee misclassification and state leaders should redouble their efforts in this area.