Employment Law: “You Don’t Know Like I Know”
You will never hear me say, “You called me too soon.”
As a lay person, you certainly have a better chance of complying with labor and employment law by the seat of your pants than, say, randomly solving Rubik’s Cube (1 in 43 quintillion by the way), but don’t bet the business. (Forty-eight years of doing this kind of work gives me the confidence to steal the phrase from Sam and Dave that is quoted in the title of this piece.)
Legal regulation of the employer-employee relationship has in fact been compared to Rubik’s Cube. The twists and turns begin when you employ at least one other person. The permutations multiply as legal thresholds are crossed with three, four, ten, 15, and 20 employees, and so on. Not knowing the significance of these numbers—for that matter not knowing who counts as an employee—can have dire consequences particularly to a business that is actively expanding.
You may think you are flying under the radar. Think again. You are engaged in commercial activity projecting a public persona and leaving a trail that will lead one government agency or another to your doorstep eventually.
Be skeptical of legal advice from the ubiquitous “somebody.” For example, three brothers, Wyatt, Virgil, and Morgan, incorporate their business, make themselves officers, and then do all the work. “Somebody” told them, “Oh, you’re all officers of the corporation, you don’t need to get workers’ compensation insurance.” Following that advice can result in a five-figure penalty imposed by the North Carolin Industrial Commission. The brothers count as employees under the North Carolina Workers’ Compensation Act even if each one is an officer who has the option to waive coverage for benefits.
There is always “somebody” who will tell Mom and Pop or Two Guys in a Garage that they have a single employee when their corporation actually has three, including them. In that case they too must comply with the Workers’ Compensation Act, which assuredly requires the covered employer to obtain insurance. Failure to do so creates exposure not only to the significant legal penalties that may be imposed by the North Carolina Industrial Commission but also to the potential for catastrophic losses if the employee sustains serious injury.
May I also offer my opinion that workers’ compensation insurance coverage is the cheapest money an employer can spend. With it you get professional claim adjustment, indemnification, and a defense. Did your employee throw his back out by bending over to pick up a pencil at work first thing this morning or by taking a vicious swing at the third strike pitch in a church league softball game last night. Not your problem if your premiums for worker’s compensation coverage are paid up.
Properly classifying workers as either employees or independent contractors is likewise subject to legal requirements that are not optional to the employer or the worker even if they are in perfect agreement between themselves. Wyatt, Virgil, and Morgan might engage the services of Doc, who does not want taxes taken out of his paycheck. He may agree in a solemn document that he is an independent contractor. However, the law, whether through the IRS, Department of Labor, Industrial Commission, or a court of law, will have the last say.
Misclassifying employees as independent contractors can expose the employer to substantial tax penalties as well as to bankrupting claims for back wages and overtime pay. The employer who says, I don’t have any employees, just independent contractors,” or relies on so-called “1099 employees” may reap benefits of a profitable business plan for a time, only to be overtaken eventually by staggering legal exposure.
In particular, wage and hour laws are exacting and specific. They not only contain minimum wage and overtime requirements but also record-keeping provisions that the employer must comply with. Well-intentioned short cuts may only increase the noncompliant employer’s liability. The North Carolina Wage and Hour Act also includes some very harsh penalties when an employer withholds a former employee’s last paycheck, even in cases of employee infidelity.
For a deeper dive into issues discussed above and related matters, please follow these links to more in-depth articles published in the Narron Wenzel website:
Labor and Employment Law Scorecard
This article explains the legal significance of having three employees, four employees, ten employees, etc. and the state and federal laws that apply at each level.
The “Right to Work” in at “At-Will State”
The “Right to Work” and the “At-Will Rule” are two separate legal doctrines. This article differentiates between the two and explains what each one means for practical application in the workplace.
Employer Rights in the Regulated Employment Regime
As an employer you do have rights vis a vis your employees. This article explains what you have a right to expect from them in terms of loyalty, diligence, due care and attention.
The Last Paycheck: Avoiding the Pitfalls
The issues touched on above that have to do with the wage and hour law’s restrictions on withholding pay are discussed in detail in this article.
Edifying reading, I hope, but not required. Call me, the sooner the better. And like Sam and Dave. I will be happy to say, “Hold On, I’m Comin’.”
Wm. Joseph Austin, Jr.
Employment Law from the Capital to the Coast since 1978