H482 Article Update

On Wednesday, June 17, 2015, the House Committee for Commerce and Job Development heard and voted on the committee substitute for House Bill H482, the Employee Fair Classification Act.  As stated in the previous blog post on this issue, the House Bill created a task force, and the Senate version created a division within a pre-existing Department of State Government, the Office of State Budget and Management.  The committee substitute for H482 has changed that.

What exactly has changed from the original House Bill?  Essentially, the new House Bill looks very similar to the Senate Bill.  Discussed below are the specific changes from the original to the committee substitute, which is now being pursued in the House of Representatives.

The definition of Employee is now 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 definition of employee does not include an independent contractor or an individual or entity where the individual or entity provides transportation services and trucking equipment as an owner-operator under written contract as referenced in 49 C.F.R. Part 376 et seq. to a common carrier, or exempt hauler.

The bill now creates the Employee Classification Division, not a task force focused on investigating and educating on employee misclassification. The Employee Classification Division is located within the Department of Revenue and the Secretary of the Department of Revenue now appoints the Director of the Division.  Rather than being its own entity, it is now located within an existing Department of State Government.

The Division is no longer in charge of establishing training modules and materials pertaining to the investigation and enforcement of incidents of employee misclassification for use by State agency investigators and law enforcement agencies. Instead, the Division is dedicated fully to investigation, implementation, and prevention of employee misclassification.

The House Bill now contains language regarding general contractors, plumbing and heating contractors, electrical engineers, vendors, applicants, and owners. Regarding General Contractors under Chapter 87 of the North Carolina General Statutes, a general contracting license may be revoked upon a finding that “a penalty was imposed pursuant to G.S. 143-765(b)[, the statutes regarding employee misclassification penalties,] 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 licensing board for general contractors shall publish guidelines governing the suspension and revocation of licenses including references to the prohibition of employee misclassification where they also state that employee misclassification violations are grounds for license revocation.

Regarding plumbing and heating contractors under G.S. 87-23, the licensing board may revoke any plumbing, heating, or fire sprinkler contractor, or any combination thereof, “if a penalty was imposed pursuant to G.S. 143-765(b)[, the statutes regarding employee misclassification penalties,] 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.”

Regarding electrical engineers under G.S. 87-43, the statute prohibits specifically willfully engaging in employee misclassification in violation of 143-765(b) where there was no good faith argument that the individual was an independent contractor. The licensing board may also conduct audits of pay and project records of licensee firms in order to establish compliance with worker classification laws.

Regarding G.S. 143-59.2(a) for vendors a vendor is deemed ineligible if within five years prior to the date of the solicitation of a bid, the vendor has been assessed a civil penalty pursuant to G.S. 143-765(b)[, the statutes regarding employee misclassification penalties,] 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.

Regarding G.S. 153A-134 and G.S. 160A-194 for applicants, an applicant that is subject to regulation and licensure by a county or a city must certify to the city or county of application that the applicant has read and understands the employee misclassification notice as required under G.S. 143-763(a)(7). Finally, regarding G.S. 153A-460 and G.S. 160A-420 for owners, an owner must certify to the county or city of application that the owner has read and understands the employee misclassification notice as required under G.S. 143-763(a)(7).

Essentially, the committee version of H482, which is being pursued, is closer aligned to the Senate Bill as far as its effects on the construction industry than it is to the original House Bill. The definition of independent contractor and the provisions regarding civil penalties appear to be the same as the original. However, now, on top of the civil penalties for violation of employee misclassification prohibitions, general contractors may lose their licenses and/or be fined up to five thousand dollars for violation of a provision of the licensing requirements, now including willfully misclassifying employees. Similarly, electrical engineers and heating and plumbing contractors, too, may lose their licenses on top of the civil penalties imposed by the Division.

The legislation appears to give more power to the licensing boards to have access to project and pay records of these licensees to better find out whether there are instances of employee misclassification. Similarly applicants and owners must now give notice and acknowledge their understand and have read the new employee misclassification guidelines, further confusing the role of general contractors who may also serve as either an owner or an applicant, or both.

It is important to note that the bill sponsor, Representative Pendleton, represented to the Committee on Commerce and Job Development that Senator Newton stated that he wished for the Senate Bill to die in committee, and the House Bill to be the bill pursued for dealing with employee misclassification. Senator Newton is the sponsor for the Senate Bill.  The committee substitute to H482 is currently in the House Judiciary II Committee and will be heard at one of their future meetings. The Judiciary II committee meets on Tuesdays at 1:00 pm.


New Pending Employee Misclassification Legislation – What S694 and H482 Say And What It Could Mean for You

By: Regan Gatlin

A growing reality among employers across the state, and across the nation, is employee misclassification.  This could spawn from a variety of different factors, such as the confusion in the law as to what exactly is the difference between an employee and an independent contractor, the multitude of regulations that apply to either classification, a desire to avoid certain economic liabilities, and even an honest mistake.  The likely purpose for employee misclassification is probably a mixture of the abovementioned factors, and more.

In an attempt to remedy this confusion, provide for better regulations of employees and independent contractors, and further regulate employers, two bills have been introduced in the North Carolina General Assembly focusing on employee misclassification.  The House Bill, H482, was proposed in April of 2015 and has only encountered its First Reading. (House Committee on Commerce and Job Development will meet on Wednesday, June 17, 2015 at 11:00 AM to discuss this bill, among others.) H482 creates the Employee Misclassification Task Force whose Director is appointed by the Governor for the purpose of identifying, investigating, and educating employers and employees on employee misclassification.  

The Senate Bill, S694, was proposed in late March of 2015 and has made its way through committees, two amendments, and through its First, Second, and Third Readings.  S694 passed the North Carolina Senate and is now to be considered by the House of Representatives of North Carolina in the House Committee on Rules, Calendar, and Operations.  S694 creates the Employee Classification Division housed under the Office of State Budget and Management, whose Director is appointed by the State Budget Director.  The Division would have essentially the same duties and powers as the task force created by H482; investigating, identifying, and educating employers and employees on employee misclassification; but would not act on its own.  Instead, the Division would be housed under a pre-existing office of state government.

The Senate Bill, unique from the House Bill, contains a section that discusses particular sanctions for General Contractors, under Chapter 87 of the General Statutes, electrical contractors, vendors, and owners. With regard to general contractors, a General Contractor who misclassifies employees may be refused a license or lose their license, may be audited, and may be assessed additional penalties for newly discovered instances of misclassification.  For electrical contractors, the Board of Examiners of Electrical Contractors may audit pay and project records of licensee firms to prevent employee misclassification.  For vendors, the bill establishes that if a vendor has been assessed a civil penalty for misclassifying employees within the last five years prior to the date of a bid solicitation, the vendor will be regarded as ineligible for contracting.  Regarding works in progress, the bill requires the owner to certify to the county and city that they have read and understood the employee misclassification notice created under this statute.

Both bills establish a definition for employee misclassification as avoiding tax liabilities and other obligations imposed under the general statutes by misclassifying an employee as an independent contractor.  Not only do both pieces of legislation establish the definition for employee misclassification, they go further into identifying the definition of an independent contractor – or coming closer to providing such a definition.  They establish civil penalties for employers who misclassify their workers as $1,000 per misclassified worker for each instance of misclassification after the first finding within the previous three years, along with any other back wages, back taxes, or benefits that are ordered to be paid by the employer to the misclassified worker.  And, they also further state that while there is an opportunity for employers to have temporary amnesty, those employers must self-report instances of their own past employee misclassification to be exempt from civil penalties.

Both bills include the factors established in a 1944 North Carolina Supreme Court case, Hayes v. Board of Trustees of Elon College, for an independent contractor. Those factors include: (1) whether the worker is engaged in their own independent business; (2) whether the worker has independent use of his or her own skill, knowledge, or training; (3) whether the worker is doing specified pieces of work at fixed prices or is doing work for a lump sum or on a quantitative basis; (4) whether the worker is subject to discharge by adopting their own style of doing work; (5) whether the worker is in the regular employ of the employer/contracting party; (6) whether the worker is free to use assistants as they see fit; (7) whether the worker has full control over those assistants; and (8) whether he selects his or her own time or has a set schedule by the employer/contracting party.

While the bills essentially do the same thing, they both, it seems, cannot exist at the same time.  The issue legislators will be faced with is the decision between the two bills and which entity will be best for the State of North Carolina.  While both pieces of legislation establish new requirements for employers, employees, state agencies, and state investigators, S694 establishes further specific regulations for general contractors, electrical contractors, vendors, and owners. 

What could this mean for you?  Any employer, if these bills are passed, will have more regulations imposed on them regarding how they classify their workers.  Employers will need to clearly establish the duties of their workers.  All employers will need to become well versed and remain updated on the policies; such as tax laws, disability laws, and laws regarding benefits to employees; to determine whether they now, or will in the future, be subject to those regulations and be required to provide more, or less, to their workers.

If you’re a general contractor, with the Senate Bill, your license could be at stake if found to have misclassified workers.  This bears the question of whether it would be beneficial to self-report past misclassifications or risk having your license revoked. This question is prevalent because, while there is the opportunity for temporary amnesty by self-reporting, it is unclear whether temporary amnesty would apply to civil penalties only, such as the $1,000 penalty maximum or the paying back taxes, or if the temporary amnesty also covers preventing a license revocation under N.C.G.S. § 87-23.  If temporary amnesty does not include license revocation and you do not self-report and the licensing board audits your records and finds that you have misclassified workers, you may still have your license revoked.  The same question applies to electrical contractors as to whether the temporary amnesty would prevent their licenses from being revoked.

If you’re a vendor, with the Senate Bill, your eligibility to contract and bid is at stake.  It is unclear from the temporary amnesty portion of the statute whether the temporary amnesty would apply to just civil penalties, or whether it would also prevent a vendor from being placed on ineligible vendor status by self-reporting past employee misclassification.

These are all questions that need to be addressed before either bill is signed into law and a division or task force is created.



What the Legal Workforce Act Would Mean for Employers

The U.S. House of Representatives Judiciary Committee passed the Legal Workforce Act on March 3 of this year.  The bill is designed to implement new regulations on employers as part of an overall reform of national immigration policy. Whether Congress will pass the bill as drafted is uncertain, but it is projected to reach the House floor for a vote during the Spring or Summer of 2015.  While not yet law, employers would be wise to familiarize themselves with its regulations. 

  • The E-Verify system would be replaced by the “Employment Eligibility Verification System” (EEVS) and its use would become mandated nationwide.
  • Employers and individuals would have to attest, under penalty of perjury, to the individual’s employment eligibility.
  • EEVS would be required to give employers temporary verification of employment eligibility within 3 days of hire and final verification within 10 days.
  • Certain employees who were not verified through E-Verify would have to be re-verified through EEVS.
  • How long a company has to comply with the Legal Workforce Act would depend on the size of the company.
  • New penalties would be imposed on employers for violations, and a ground for a good faith defense would be established.
  • Provisions for preemption by state or local law would be established.

Attestation of employment eligibility is a central requirement.  Employers would have to gather the individual’s social security number and additional documentation such as a passport, permanent resident card, State-issued driver’s license, military identification card, or other similar documentation. Then, the employer must complete a form for the Department of Homeland Security.  After completion of the form and extension of the job offer, the employer would have to enter the individual’s information into the EEVS system and await verification.  When the employer received final confirmation or non-confirmation from EEVS, they would have to record the appropriate code on the Homeland Security form.  In the event of a final non-confirmation, the employer would have to either immediately terminate the employee or notify the Department of Homeland Security. 

The employer would have to notify the individual of any tentative non-confirmation to allow the individual the opportunity to challenge the finding.  Should the individual decide not to challenge the finding, the employer may terminate or rescind their offer of employment. 

The bill would also require the employer to maintain a record of the individual's eligibility documentation for at least three years after hire to be made available to certain government officials upon request.  The bill allows perjury charges to be brought against any employer who falsifies an individual’s employment eligibility status. 

Individuals would have to attest to their eligibility status in a similar fashion.  Under penalty of perjury, the individual would attest to their status as a U.S. citizen, lawful permanent resident, or lawfully authorized alien by completing a form for the Department of Homeland Security. 

The bill mandates the re-verification of certain employees not verified through E-Verify.  Within six months of enactment, of Federal, State, or local government employees, those requiring a Federal security clearance or TWIC card, and those working in the U.S. under a Federal contract would have to be re-verified through EEVS if they were not verified through the E-Verify system. 

With the exception of agricultural employers, a company’s size is the factor that determines how long a company has to comply with the Legal Workforce Act.  The chart below lists company size relative to time to comply with law:                           

10,000 or more employees:             6 months

500 – 9,999 employees:                  12 months

20 – 499 employees:                       18 months

1 – 19 employees:                           24 months

Agricultural employers:                    36 months

The bill would impose civil and criminal penalties on employers who violate the bill’s requirements.  Civil penalties range from $2,500-$5000 for the first and second unauthorized aliens, unless the employers has a history of violations.  If the employer has such a history, they may receive penalties of $10,000-$25,000 per unauthorized alien.  Criminal penalties include fines of $5,000 for each unauthorized alien, imprisonment for up to 18 months, or both. 

Employers experienced with the E-Verify system may be apprehensive about compliance with the new EEVS system that would be created by the Legal Workforce Act.  In anticipation of errors, the bill would allow for a good faith defense that may lessen or eliminate potential penalties.  In short, employers would be considered to have complied with the requirements in good faith if they can show that a good faith attempt was made.  Examples of circumstances that would weaken an employer’s good faith defense would be violations of significant proportions, failure to take corrective action voluntarily or over 30 days after the Department of Homeland Security has notified of non-compliance, or repeated non-compliant behavior.

While the bill, as drafted, has met resistance from legislators representing states dominated by agriculture, it is expected to pass in the House.  Without addressing concerns raised by legislators who represent heavily agricultural states, the bill’s success in the Senate remains uncertain. 

The bill’s full text is available at:


OSHA Issues New Confined Spaces Regulations

On May 4, 2015, the U.S. Department of Labor published its final rules updating the safety standards for construction work in confined spaces.  These rules, which become effective on August 3, 2015, cover requirements for crawl spaces and attics, pits, sewer systems, and other areas.

Under the standards, a "confined space" is defined as having limited means of entry and/or exit, being large enough for a worker to enter it, and not being intended for regular or continuous occupancy.  Some confined spaces -- known as "permit spaces" -- will have additional specific requirements for training and safety measures before workers may be allowed to enter the space.  Permit spaces may have hazardous atmosphere, an engulfment hazard, or other serious hazard such as exposed wiring, that can interfere with a worker's ability to leave the space without assistance.  The new rule requires employers to have a written safety program if any workers will be entering permit spaces.

This new construction standard for confined spaces is more stringent than the existing general industry rule.  According to US DOL, there are five new requirements specific to construction:  (1) more detailed provisions requiring coordinated activities when there are multiple employers at the worksite; (2) requiring a competent person to evaluate the work site and identify confined spaces and permit spaces; (3) requiring continuous atmospheric monitoring whenever possible; (4) requiring continuous monitoring of engulfment hazards; and allowing for suspension of a permit, rather than cancellation, in the event of changes from the entry conditions list on the permit or an unexpected event requiring evacuation of the space.

The full text of the final rule is available, along with a useful FAQs page on the USDOL site.


Voices from Industry, Education, and Legislature Continue Discussion of UAS/Drones in NC

Last summer, Safran Law Offices brought together expert voices to initiate a conversation across the State, insurance providers, the academic community, and the construction industry about the emerging roles and developments in UAS/Drone technologies.

We were very excited to attend an event that continued this conversation.

Speakers included NCGA Representative John A. Torbett of Gaston County, Tyler Collins, Director of Business from PrecisionHawk, Bobby Walston, Division of Aviation Director for the NCDOT, Stephanie Hawco, Director of Public Affairs from the NC Office of the State Chief Information Officer, and our good friend, Kyle Snyder of NextGen Air Transportation Institute.

There were several discussion points worth highlighting here.

Representative Torbett reiterated that the primary role of government is to protect its citizens and their privacy, and praised the FAA for being diligent in accomplishing this even if it appears slow to those of us excited about this technology. Rep. Torbett also affirmed his commitment to moving North Carolina forward as a leader in this technology and a home for the industry developing around it. 

Kyle Snyder gave everyone an update on the things NGAT is cooking up, including highlighting industry partnerships they have forged and a collaborative consortium they are finalizing with many other institutions and teams. 

Kyle did make a direct suggestion to people beginning to assemble teams in advance of forthcoming commercial operations. Each team, in his expert opinion, should include: an Operator (to pilot the UAS), an Observer (to maintain line-of-sight with the UAS and any obstacles at all times), and a Data Analyst (to interpret any video or thermal or literally any other data that will be collected during a flight).

Tyler Collins largely discussed the complicated Federal Export Regulations that, in his opinion, are driving competition in the UAS industry away from the US. On the other hand, the US has both the most complex and safest airspace in the world, so the slow decelopment is understandable, if frustrating. He also highlighted a developing solution to the complex airspace problem facing UAS, a Low Altitude Tracking and Avoidance Systam (LATAS), a fascinating technology with more information forthcoming.

We thank NGAT and Brooks Pierce for a warm reception and a fine program.

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