Allegations of Being Uninsured Arrive in the Mail for “Neglect to Secure Workers’ Compensation Insurance” in North Carolina Under N.C. Gen. Stat. §97-93; & §97-94. What Now?!
Penalty Assessments & Uniform Citations against Allegedly Uninsured/non-insured Businesses at the North Carolina Industrial Commission (NCIC) and District Court Levels.
So, you received a citation. Now what?
What does it mean for you; for your business; or for the person who was specifically served versus the company you are simply trying to manage and build?
I begin by stating, ‘you are not alone.’ There are a multitude of efforts undertaken when starting and building a business, and not every business person is savvy to every element and action required in that space.
This is written with company leaders and agents, family business owners and operators, as well as entrepreneurs in mind. If there is a need for an efficient and plain language explanation of what these citations and penalties mean for the business and its workers, I hope this meets the need. By the end of the read, my hope is that I have provided some peace of mind while laying bare a path forward so you can get back to the business of being in business.
The Statute.
Put plainly, N.C. Gen. Stat. §97-93, requires “employers” to carry workers’ compensation insurance, and to post notice to their employees at their business location, an acknowledgement that the business is subject to the North Carolina Workers’ Compensation Act.
An “Employer” in North Carolina, is any person, business, or entity with three (3) or more employees who are regularly engaged in conducting the work of the business. Before you go looking for ‘daylight’ in that definition to distinguish your business as not an ‘employer,’ officers, managers, and executives of all types are included in that count. If there are three people working to further the business’ interests, that business is an employer, and the State of North Carolina requires that workers’ compensation insurance is available and remain in place. That is the case whether or not, in the application process for said insurance, the officer, manager, or executive elects to exclude themselves from the coverage available.
The Citation.
This is notice that the State of North Carolina has brought criminal charges against the named Defendants listed on the citation. The trial date listed on the citation is crucially important, as it is the date the named Defendant(s) will appear in criminal court (at a preliminary hearing setting) to address the charges and otherwise set the matter for a more complete criminal trial.
It is likely the business’ registered agent has been served with the citation, and is personally named as a Defendant. This is because that is the individual listed with the North Carolina Secretary of State within the business’ annual and/or initial filings.
The State views the registered agent as an appropriate Defendant at the citation stage of the claim because of what N.C. Gen. Stat. §97-93’s sister statute outlines as the punishment for failing to comply with the requirement to obtain/maintain appropriate insurance.
The punishment.
N.C. Gen. Stat. §97-94, is an appropriately sobering read. That statute overtly states that any person within the business who had the authority to bring the ‘employer’ into compliance with the requirement to obtain and maintain the required insurance, “shall” be guilty of either a Class H Felony (if found willful in the failure), or a Class 1 misdemeanor (if found merely neglectful in the failure).
Side Bar: when a statute utilizes the word ‘shall’ it removes a great deal of ‘discretion’ from any moment one might have in front of a judge/adjudicator dealing with the questions and evidence in dispute. Think of it as a pre-determined outcome to the question of how harsh the penalty should be in the event it is found that there was not insurance in place. If there was not, the Defendant will experience the applicable punishment. Period.
What to do (criminal side).
Now that the weight of the moment is laid bare, let us go over the response to it. Without question, you need to make note of the trial date / location, and you need to attend to that date, time, and appearance (whether on your own, or with the assistance of counsel). I would add, however, there are some actions to be taken in advance of that appearance in court that will almost certainly assist the moment, if not alleviate the need for the appearance altogether.
First and foremost, bring the company into compliance by obtaining the appropriate workers’ compensation coverage. As a place to start, you can accomplish this through an insurance agent/broker. You will want to retain the email/mail communications, insurance application, and policy material arising from that effort, as those materials will assist you in addressing the citation issues.
Communicate your compliance with the State. The citation lists the name of the investigator, and there will be, ultimately, an attorney/prosecutor for the State assigned the claim. Take the time to reach out to these offices to express that you received the citation and address questions with them surrounding the situation (noting within those conversations that the business was, or now is, in compliance).
Side-bar: I have been handling these moments with businesses for years, and can unequivocally express gratitude for the availability, grace, and understanding those on the State-side of these moments lend to these disputes. When addressed with respect and humility, I have never experienced anything but coordination and cooperation from the State’s actors and agencies.
Outcomes (criminal / citation side).
The presentation of evidence to the investigator and/or the Attorney General’s office at or before your appearance in court may net you a full resolution of the matter without further criminal penalty (the court’s file lists the resolved status as ‘disposed’). I will underscore this is not a guaranteed outcome. If this is not your company’s first time facing these citations/moments, the question of ‘neglect’ versus ‘willful’ failure to carry insurance may very well inspire the State to review the moment via a hearing appearance or subsequent trial. Even so, bringing the company into compliance, and presenting that information/evidence is the right move for the business and its employees.
Civil Side.
You are not done. N.C. Gen. Stat. §97-94 indicates that the North Carolina Industrial Commission can levy a penalty against the business for any period of non-compliance / non-coverage. Whether or not the criminal side has been resolved, at some point, the business, through its registered agent, will receive a “Penalty Assessment Order.”
As with the criminal side, every experience I have in dealing with the individuals levying and administering these penalties has proven professional – in that they are incredibly patient, available, and collaborative. If you reach out to the North Carolina Industrial Commission, the investigator and/or ‘opposing counsel’ from the Attorney General’s Office, I recommend taking a calm respectful tact, as they are there implementing a statutorily mandated penalty for what appears to them as a failure to take care of employees. I have never been disappointed in learning my way toward a resolution of the penalty by way of cooperatively speaking with these folks.
The penalty (civil side).
It can be harsh. That statute has gone through some changes and is a bit clunky in its reading. However, it boils down to this – In addition to being 100% liable for any damages to an employee arising from a compensable injury during the period of non-compliance, for every day that the business is out of compliance, a minimum of $1.00 per employee per day will be charged against the company. For the smallest of at-risk businesses, that might seem to mean $3.00 per day of non-compliance (and for the largest, it might seem to mean an egregiously larger per-day penalty). However, the statute clarifies that the minimum per-day charge (over and above the charge applied by counting the employees at risk) is $50.00, while the maximum penalty is $100.00 per day).
In that way, 1 year of non-compliance will, at minimum, cost the company $7,300.00, and the maximum, $36,500.00. Again, those are the non-compliance penalties which are levied over and above the company and its management being 100% personally liable for any amount of compensation due injured employees during any period of non-compliance.
What to do (civil / dollar-penalty side).
The Penalty order you received spells out your options fairly clearly, so I will only briefly state that you can:
1) pay the penalty as levied/ordered (within the 30 day deadline to do so);
2) request a hearing to argue over whether there was or was not a period of non-compliance at all; or
3) request the opportunity to have an ‘alternative penalty’ assessment done
I am not your attorney, yet. So, I cannot advise you at this reading which of these options is optimal for your business. I can note, however, that if you elect option 2 (the hearing), you are not arguing over the value of the penalty. Remember, at that stage of the game, while you are in front of an adjudicator, their discretion to apply the values which are statutorily mandated, has been removed. Option 2 is about whether or not there was or was not appropriate insurance in place.
As to option 3, that process is taken in two phases, and the Assessment Order you received, as well as a follow-on order that will come of pursuing option 3, walk you through the steps.
In its simplest form, Phase 1 (of option 3) involves following the instructions within the Assessment order to notify the NCIC that you are requesting the alternative penalty assessment option. In doing so, you will note that the Assessment Order ALSO requires that you communicate notice of compliance with the coverage requirements to Compliance Section of the NCIC. This means sending notice to two groups – the Compliance Section point of contact listed in the Order, as well as the Clerk of the Industrial Commission.
Side Bar: Electing option 3 (the alternative penalty option), means acknowledging that the business was out of compliance with the statute for the period of time identified by the Assessment Order. You are no longer arguing over ‘whether’ that period of non-compliance existed, or even the extent of that period. You are merely requesting that the calculated penalty be based on more specific numbers associated with the business’ efforts during the asserted non-compliance period.
Material you will need (civil / dollar-penalty side)
Phase 2 of option 3 involves serving the NCIC and the assigned attorney for the State, the business’ evidence and proposed calculation of the alternative (hopefully reduced) penalty. Calculating the alternative penalty is not overly intuitive. You will need the following:
— Evidence of a current policy in place with appropriate coverage;
The actual and full policy.
Evidence for the annual premiums charged for that appropriate coverage;
Set out within the policy’s ‘declarations page.’
Evidence of the number of employees for which that appropriate insurance policy provides coverage
This may mean presenting material detailing the communications and/or application surrounding your efforts to obtain the insurance policy
This may mean presenting payroll records for the period just before and beyond the policy going into effect.
This may mean having your insurance agent provide you material establishing up to date payments on the policy premiums as measured by the number of employees covered.
Evidence for the number of employees who worked with your company for each and every annual quarter of non-compliance.
Tax records showing overall employee tax values are not sufficient.
You may need to provide quarter by quarter payroll records identifying each employee paid during each respective quarter (with their SSN) to establish who was and was not earning for the business during each quarter.
The completed alternative penalty worksheet
This will arrive with the Assessment Order, or subsequent Order which expresses that the business is availed of the Alternative Penalty Assessment process.
I have found that writing a narrative for the submission to the NCIC will assist in describing how you applied the evidence identified above, to the Penalty-Worksheet, to arrive at the updated penalty value you are seeking.
Outcomes (civil side).
If I have accomplished my goal in making this process more plain, you will reach this paragraph with the ability to compare the cost of the original penalty assessed, with the possible alternative penalty that could be sought (were you to acknowledge that there was, in fact, a period of non-compliance and be willing to work toward a possible lesser penalty).
Once submitted, the alternative penalty worksheet will be considered by the NCIC and/or the Assistant Attorney General assigned to the matter, and another Order will be issued. If successful in applying for the alternative penalty, that follow-on Order is likely to ‘rescind’/cancel the original penalty order, and assign a new penalty value.
Pay the penalty, and the matter will be resolved. Failure to pay the penalty, will result in further penalty and problems.