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NC Gov Issues Surprise Misclassification EO; Onlookers Want Stronger Protections Still

Pat mccrory misclassification

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North Carolina Governor Pat McCrory has signed an executive order that directs the state Industrial Commission to establish an investigative unit for claims of employee misclassification. It will direct the unit to coordinate with other state agencies in order to enforce existing laws related to the abuse of independent contractor status. 

The move is a semi-surprise from McCrory, whose labor rights record is not particularly polished. It comes in response to the legislature’s failure to pass a bill which would have created a special team of misclassification investigators at the Department of Revenue.  Despite bipartisan support, the bill collapsed in the final hours of session over language that would have excluded newspaper carriers.

Widespread misclassification plagues North Carolina, a fact that was thankfully brought to light by the Charlotte News & Observer’s 2014 exposé, “Contract to Cheat.” The report found that misclassification in the Tarheel State results in $457 million in annual, uncollected federal and state taxes.  

In a written statement that accompanied the Executive Order, McCrory wrote:

“When unethical employers improperly classify their employees as independent contractors, they not only put our state’s workforce at risk, but also put ethical businesses at a competitive disadvantage and rob taxpayers of significant revenues.  The Employee Classification Section will work with other state agencies to ensure that every potential violation of our state’s laws will be thoroughly investigated.”

For those on the forefront of the issue, the E.O. is not strong enough to declare victory. It imposes no new penalties on those who misclassify their employees as independent contractors. Rep. Gary Pendleton, who sponsored the bill that stalled in the final hours of the legislative session, said he was hoping his bill would come back up in the first week of the next session. 

“The executive order can’t do anything but help, but it’s a stopgap,” Pendleton said. “We will need to go further.”

Doug Burton, owner of Whitman’s Masonry Company in Raleigh, shares Pendleton’s sentiment. Burton, who took his fight to the General Assembly throughout the year, argues that it has been difficult to compete against companies that cheat their workers out of employment status and thus cut labor costs.  Speaking to the News & Observer, Burton conceded that the E.O. is a good start:

“I hope it’s not the end, strong penalties would send a message to employers who cheat, but if it helps serve the purpose of ridding the state of North Carolina of misclassification, I’m all for it.”

Burton has been among the harshest critics of misclassification in the state, labeling it as fraud:

“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.”

The misclassification iron should remain hot throughout the upcoming year as it is a central focus of the statewide race for Labor Commissioner.  Former Raleigh Mayor Charles Meeker has announced his intention to run against current Commissioner Cherie Berry, citing her inability to combat misclassification as a major factor.  In his announcement, Meeker said:

“The North Carolina labor department needs to do a better job than it’s doing right now particularly as to worker safety, doing something about the misclassification of employees as independent contractors, and finally seeing to it that employees who work are paid the wages that are owed.”


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