Within a year, employers who thumb their noses at labor laws may finally have something to fear in North Carolina.
A bill that creates a special team of enforcers to find and crack down on scofflaw businesses received tentative approval from the state House on Wednesday.
The measure helps address labor schemes examined last September in a five-part series in The News & Observer and The Charlotte Observer. The practice, known as misclassification, is particularly prevalent in the construction industry.
Employers have been skirting labor and tax laws by treating workers who should be employees as independent contractors. The cheating companies don’t withhold taxes from paychecks, allowing them to underbid law-abiding employers by roughly 20 percent. The scheme also puts workers in a vulnerable position; they often toil without the protections of unemployment benefits and workers’ compensation insurance.
The practice, the newspapers estimated, cost $467 million a year in lost state and federal tax revenue in North Carolina from the construction industry alone.
Rep. Gary Pendleton, a freshman representative and Wake County Republican, shepherded the reform in the House. He asked his colleagues to help root out businesses willing to break the law to save money.
“Protect those employers who act within the law from rogue employers,” Pendleton said. “They’ve done a good job of putting a lot of ethical employers out of business.”
The Employee Fair Classification Act, House Bill 482, passed on its second reading, 93-20. It is expected to receive its final blessing there Thursday. It would then be sent to the Senate with a request to adopt the House’s version. The Senate passed a similar bill unanimously earlier in the session, and would either have to accept differences in the House version or negotiate about the changes.
Labor and business backing
An odd coalition of business and labor interests has rallied around the bill, saying the state must level the playing field for honest employers and protect workers. The N.C. Chamber and N.C. Home Builders Association stood in support alongside the N.C. Justice Center and N.C. Advocates for Justice.
Lawmakers typically find themselves pushing for bills that either shield business or protect workers. Wednesday’s debate captured the bill’s ability to do both. Representatives explained how the bill would help protect workers unwittingly pulled into an underground economy, while others said their efforts would prop up the businesses they had failed for so long through lax enforcement.
“This bill creates an enforcement mechanism we have not previously had to find and penalize those who willfully violate,” said Rep. Dan Bishop, a Charlotte Republican and sponsor of the bill.
Only one naysayer spoke Wednesday: Rep. Dana Bumgardner, a Republican from Gaston County. He didn’t like the idea of inviting people to tattle on their competitors to the Department of Revenue.
“It doesn’t take much imagination to see that if two people are going out for the same job,” Bumgardner said, “the loser can be angry about it and can email the DOR and say, ‘You know what? My competitor is misclassifying his workers, and I want y’all to investigate him. This is just a bad road to go down.”
FedEx sought an exemption
The legislation set off fireworks over the past few days as a team of lobbyists tried to alter or derail it. Pendleton said the out-of-state lobbyists were hired by FedEx, a multinational package carrier.
Earlier this session, FedEx officials had sought a special exemption allowing their carriers to be independent contractors, a model they have used for decades. The House Judiciary Committee blocked the exemption.
An amended set of factors used to determine whether a worker is an independent contractor was adopted Tuesday. A few elements of it were a nod to FedEx, which uses independent contractors who furnish many of their tools and equipment as carriers.
“Our efforts are intended to ensure that law-abiding, entrepreneurial businesses in North Carolina have the opportunity to compete without unnecessary restrictions. More effective enforcement of the current law can accomplish this aim,” said Perry Colosimo, a spokesman from FedEx Ground.
About 12 years ago, newspapers won an exemption that allows delivery carriers to be treated as independent contractors for purposes of workers’ compensation insurance. The Senate version would strike that exemption; the House version would leave it as is.
On Wednesday, noting a language change one representative sought, Rep. Chuck McGrady, a Henderson County Republican, nodded to FedEx’s intense interest in misclassification.
“Maybe we can work this through so even UPS or FedEx is happy,” McGrady said.
Locke: 919-829-8927 or @MandyLockeNews
The Employee Fair Classification Act
▪ A five-person unit of investigators would be created at the state Department of Revenue.
▪ Companies that repeatedly misclassify employees could be fined up to $2,000 per worker.
▪ Employers licensed by the state could lose their license if they misclassify.
▪ Companies that misclassify workers would be shut out of public contracts.