Opinion: Misclassification of Workers Hurts Honest Businesses Too

At The Lee Law Offices, P.A., we pride ourselves on fighting tirelessly for the rights of workers who are injured on the job and then denied just compensation based on misclassification of their status as an employee.
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Companies do this far too often in an attempt to save on workers’ compensation insurance premiums and payouts. By classifying a worker as an “independent contractor” rather than an “employee,” some businesses seek to cut corners. Those injured workers must then take it to court to prove their status and entitlement to compensation for lost wages and medical bills.

But it’s not only workers who are harmed by this practice. Honest, law-abiding companies also pay the price, as noted in a recent opinion-editorial piece published in The Charlotte Observer. The author, Leonard T. Jernigan, Jr., teaches workers’ compensation law at N.C. Central University School of Law.

The crux of the argument is this: The state requires companies to carry workers’ compensation insurance in order to protect their workers and save taxpayers from being burdened with the cost of work-related injuries. But because of a loophole in the law that allows companies to avoid paying for coverage to independent contractors, many intentionally wrongly classify their workers as such rather than “employees” to avoid paying the fees.

The end result is that companies that play by the rules – those that properly classify workers and pay their insurance premiums in order to ensure their workers are covered – are at a financial disadvantage by the strong presence of companies that don’t. What especially compounds the problem is the fact the state is lax on going after violators.

Last year, the Charlotte Observer and the Raleigh News & Observer combined efforts to launch an exhaustive investigation of the problem of worker misclassification in North Carolina. What they found was that nearly $470 million in state and federal taxes was being lost annually in the state. Worse, thousands of workers who should have been covered by workers’ compensation were not.

Lawmakers responded to this revelation by introducing a number of bills with the intended purposes of cutting down on this illegal practice. The problem, Jernigan astutely notes, is that these measures do not go far enough. In fact, they allow those who cheat the system repeatedly to walk away with little more than a wrist slap.

The primary issue is the proposed response – or rather lack thereof – when a company is found in violation. There is no requirement under any of the proposed measures that these companies be issued a “stop work order” until they are in compliance and all qualified workers have coverage.

In fact, there isn’t any penalty whatsoever until an offending company is caught a second time. When they are caught, the penalty is only $1,000 per worker, which does not provide much financial incentive to follow the law.

Further, there is no indication in any of the proposed measures that there will be criminal penalties for these violations, despite the fact that misclassification of workers is essentially a form of fraud.

As Jernigan notes, the General Assembly appears on the service to be addressing this issue, but in fact is “doing little more than paying lip service” to a major problem that requires real solutions.

If you have been injured at work, contact the Lee Law Offices at 800-887-1965.

Additional Resources:
New rules won’t stop worker misclassification cheats, July 2, 2015, Opinion, By Leonard Jernigan, Special to the O rver

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OSHA: 12 Workers Killed Each Day in U.S. During 2013, July 11, 2015, Greensboro Workers’ Compensation Attorney Blog

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