North Carolina Industrial Commission Penalty Assessment Orders: Common Civil and Criminal FAQs
By Joseph E. Houchin, Labor & Employment
Since approximately 2014, the North Carolina Industrial Commission has doggedly pursued businesses without workers’ compensation insurance in violation of NCGS § 97-94. Through software automation, the Industrial Commission is able to easily identify non-compliant employers and assess civil penalties and issue criminal charges. Recently, there have been a variety of changes in this area of the law, as well as modifications to the procedures used by the Industrial Commission in response to COVID-19.
The good news for employers is that following significant revisions to the statute in July 2018, these changes have generally been positive. In some situations, these changes have provided opportunities for significant relief to non-compliant businesses as compared to the Industrial Commission’s prior aggressive policies. This article addresses common questions by employers who have received a penalty assessment order from the Industrial Commission and discusses updated areas to the law and procedures for challenging the penalty.
Question: Am I required to have workers’ compensation insurance?
Answer: North Carolina employers with three or more employees must carry active workers’ compensation insurance. It is important to understand how this head-count is performed, which includes corporate officers even if those officers are eligible for exclusion under the policy. Failure to comply can lead to a civil penalty assessment and criminal charges. As revised, NCGS § 97-94 can result in a penalty of $20 to $100 per day if an employer fails to have the required insurance. The employer may not be penalized for non-compliance occurring more than three years prior to the date of the penalty assessment. Previously, the minimum penalty was $50 per day and there was no limitation on the look-back period.
Additionally, NCGS § 97-94 allows for misdemeanor and felony charges against business owners that either neglect or willfully fail to bring their business into compliance. While civil penalties are assessed administratively by the Industrial Commission, any criminal charges are prosecuted by the District Attorney’s Office for the prosecutorial district where the business is located.
Question: I received a notice of non-compliance from the Industrial Commission, but have not received a penalty. What now?
Answer: If you have received a notice or inquiry from an investigator with the NC Industrial Commission requesting information about your business’ workers’ comp coverage, it is advisable to get an experienced attorney involved immediately. Generally, if it is determined that your business has been noncompliant, a civil penalty is going to be assessed even if you are not advised of this risk following your cooperation with investigators. Be advised that NCGS § 97-94 requires that employers provide proof of coverage to the Industrial Commission upon request. An attorney can help determine how to comply with statutory requirements while managing risk.
Question: Is my business exempt from the workers’ compensation insurance requirement?
Answer: Maybe, although the statutory exceptions are narrow. As discussed above, employers with less than three employees (inclusive of corporate officers) may not be required to carry comp insurance. Additionally, subject to subtle nuances, domestic services as well as agricultural and sawmill operations with less than ten employees fall outside the definition of “employment” and applicable employers may not be required to carry workers’ compensation insurance. If you have received a civil penalty assessment from the Industrial Commission and believe the nature of your employment is exempt, discuss this potential defense with a qualified attorney, since dismissal of the penalty may be appropriate. Note that even if your business is exempt, it may still be a best practice and even advisable to carry workers’ compensation coverage and careful discussion with your attorney is recommended before deliberately choosing to forego coverage.
Questions: Why did I receive a penalty from the Industrial Commission? Can I really be charged criminally?
Answer: Employers are often surprised when an investigator from the Industrial Commission contacts the business and issues a criminal citation. Similarly, it is startling when a penalty assessment for tens of thousands of dollars arrives by certified mail. The obligation is on the Employer to ensure that the necessary workers’ compensation insurance is in place. It is a mistake to rely solely on your insurance agent to advise you of the business’ statutory requirements. Similarly, you will not receive notice from the State about your obligations until enforcement action is already underway. Often, the first time a business owner is made aware of the non-compliance – which can be unintentional – is when a civil penalty has been issued or a criminal citation is served. Speaking with an experienced attorney can help small businesses identify whether they are required to carry workers’ compensation insurance and avoid these costly problems.
In most instances, district attorneys in North Carolina will dismiss the criminal citation upon proof of compliance when the business owner appears in court. It is important not to miss the scheduled court date, or additional consequences can result. By hiring an attorney who can appear on your behalf, you can potentially avoid having to come to court yourself. Be advised that just because the criminal case has been dismissed, the business may later be issued a civil penalty that will need to be resolved separately.
Question: Can I reduce the penalty amount?
Answer: Likely yes. Helpful for most employers is the addition of an alternative penalty provision to the statute. Eligible employers that have never before been penalized under NCGS § 97-94 and have secured the necessary insurance coverage may file for rescission of the original penalty and application for an alternate penalty. The alternate penalty is calculated pursuant to a formula that accounts for the employer’s current premium amount, the number of covered employees, the average number of employees during the alleged period of non-compliance, plus an additional 10% penalty. In most cases, this alternate penalty calculation results in a dramatic reduction from the initial penalty amount. Although rare, the alternate penalty may not result in a reduction, or the business may not be eligible, in which case more creative litigation strategies will need to be explored.
It is important that timely, statutorily compliant filings be submitted to the Industrial Commission along with the required supporting documents. Upon receipt of a penalty assessment order, there is a 30-day deadline in which to request a hearing, and the opportunity may be lost if the deadline lapses without response. Proof of insurance coverage and payroll records must be provided as exhibits in the required format to avoid denial of the request or delay in the case. Additionally, an experienced attorney will be knowledgeable about what documents will be helpful in securing the most favorable alternate penalty possible.
Question: Do I need to hire an attorney?
Answer: Employers who have been charged criminally or issued a penalty assessment order by the Industrial Commission are encouraged to contact an attorney who has handled these types of cases. The process and formula used for calculating an alternate penalty can be confusing and discrepancies often result, which may necessitate a hearing before a Deputy Commissioner. By having experienced counsel, businesses can ensure that sensitive deadlines are met, and proper filings submitted, alternate penalty eligibility is identified, or remedial action is taken to become eligible, and you have an advocate to appear on behalf of the business in the event of a hearing.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2023.