Last year, a News & Observer series revealed that many employers, even in high-hazard industries, fail to provide workers’ compensation coverage to those they employ. In response, N.C. Insurance Commissioner Wayne Goodwin chaired a bipartisan commission focused on figuring out how this was possible and how the state might stop it.
There appeared to be clear legislative resolve when then-Speaker Pro Tem Dale Folwell declared, “Our challenge is to make the cheating less rewarding.”
So why has the legislature, when faced with a clear course of action that amounts to simply strengthening enforcement of existing law and protecting residents from those who violate it, suddenly stopped paddling forward?
As the Goodwin Commission looked harder, it became clear that the workers’ compensation problem was but a symptom of a broader, more insidious issue of misclassification of employees as independent contractors. Employers do this so they don’t have to pay workers’ compensation and various taxes and so they can avoid a host of legal obligations to their employees.
The commission found that, “Employers who disobey the law are also likely to cheat the government, their employees and their competitors by failing to pay unemployment insurance taxes, Social Security taxes, and income taxes.” One building contractor testified that his honesty was killing his business because the state permitted others to roam a very competitive marketplace and bid and build free of these costs.
How a worker is classified is not an agreement between the worker and the employer. It is set in law and determined by the degree of control the employer has regarding the manner and method of work.
But misclassifying employees as contractors is easy because usually only the boss knows a worker’s status – until that worker needs workers’ compensation or unemployment insurance benefits, or he gets a call from the tax man or files for Social Security. That’s when he discovers that an employer misclassified him to avoid paying taxes and insurance premiums.
The commission’s first report, which came in February as the General Assembly began its work, suggested that legislators clearly define this practice as fraud for criminal prosecution and increase civil penalties. It also recommended the legislature authorize licensing boards to revoke the licenses of perpetrators, consider mandating workers compensation coverage for all employees, create a statutory definition of employment, provide more funds to the Industrial Commission for enforcement, bar violators or their sub-contractors doing business with state or local government and create a fund for the payment of claims by employees who should have been but were not covered by workers’ compensation.
So far, the legislature has only restored the public list of employers’ workers’ compensation carriers and is working on mandating that agencies share confidential data.
But the opportunity to act is still before them. Lawmakers can still take up Rep. Rick Glazier’s bill, House Bill 826, requiring employers to notify employees of their employer and work classification in writing. A second aspect of the bill raises the punishment and imposes a lien on those who would practice payroll fraud and wage theft.
Rep. Larry Hall’s proposal, House Bill 698, would set up the very fund requested by the commission to protect injured workers whose employers fraudulently failed to get insurance coverage. South Carolina has had such a system for many years.
Any time we can use disclosure to allow working folks to know their status and report violations, businesses will be more inclined to know and follow the law. Because there will be employers still willing to cut the corner, the state has a responsibility to make sure that victims are protected from family devastation.
As much time and energy that this General Assembly has spent making North Carolina “corporation friendly” at the considerable expense of low- and middle-income working families, one would hope that they could consider modest proposals that do no more than enforce the law and protect victims of those who would violate it.
Harry Payne is senior counsel for policy and law at the N.C. Justice Center. He is a former state labor commissioner and former chairman of the Employment Security Commission.