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NC Industrial Commission Continues to Target Small Businesses Through Civil Penalty Statute

Dysart Willis has remained committed to the representation of North Carolina businesses facing civil penalties from the Industrial Commission. As previously reported here, the Industrial Commission has been engaged in the active enforcement of NCGS § 97-94 for several years with a recent shift towards a less forgiving and more punitive approach. This statute allows for a civil penalty of between $50 and $100 per day against employers that fail to carry workers' compensation insurance.

The need for enforcement of NCGS § 97-94 is unchallenged. There is great public need for NC companies to secure workers' compensation insurance in order to protect employees that might be injured on the job. The Industrial Commission, tasked with ensuring compliance, is right to devote its resources to bring employers into compliance.

Unfortunately, the broad language of NCGS § 97-94 does not provide much allowance for employers who unknowingly find themselves in violation. Additionally, the penalty scheme of the statute does not require that the Industrial Commission provide timely notice or, unlike many civil penalties, place a cap on the daily penalties that can accrue. In our firm's representation of dozens of business who have faced or are facing penalties from the Industrial Commission, employers commonly cite the same reasons for noncompliance: 1) bad advice from either their insurance agent or payroll vendor; 2) the employer was unaware that the workers' comp policy had been cancelled until notified by the State of noncompliance; and 3) the business knowingly cancelled the policy for financial reasons but did not realize it was statutorily required. These reasons unfortunately provide little, if any, legal defense at a hearing to the penalty assessment which usually frequently amounts to tens of thousands of dollars.

There are currently hundreds of employers impacted by this situation with thousands more that may receive a penalty assessment order from the Industrial Commission in the future. Of the employers that Dysart Willis has represented, almost all are small business without the resources to pay these unreasonably high penalties. Further, most employers facing these penalties were unknowingly in violation of the statute, never had a workers' comp claim against their business, and immediately corrected the error upon notification. Neither the statute or the current attitude of the Industrial Commission provides little sympathy for this reality.

Non-litigation resolution of these cases requires strict adherence to the Industrial Commission's self-imposed rules for reduction of the penalty. These rules, imposed within the last several months, require that the employer produce voluminous detailed and sensitive financial records including tax returns and bank statements. Despite the fact that enforcement of NCGS § 97-94 is tasked to the NC Attorney General's Office, these records are required to be produced to the Industrial Commission for review. Such records are arguably unrelated to the issue of insurance compliance. Instead, this demand for financial documents could be characterized as an overreach by the Industrial Commission to determine how much money the employer has and can pay. Further problematic, this policy suggests unfair treatment of successful businesses with the resources to pay a penalty as compared to failing businesses without assets.

To date, the Industrial Commission has openly refused to indicate what financial information it weighs when issuing a settlement offer for a reduced penalty amount. Additionally, there does not appear to be any sort of formula, pattern, or consistency to the settlement amounts offered to various businesses. Most frustrating is that the settlement offer is often not supported by the financial health of the business as reflected in the financial records the Industrial Commission claims to have reviewed. Without much room for negotiation, this means an employer can face the choice of going to a hearing with little chance of success or accepting a settlement they ultimately may not be able to pay and subject themselves to civil contempt proceedings.

The end-game here for the Industrial Commission is puzzling. The systematic targeting of small businesses and unforgiving stance suggests that the agency is intent on either driving these employers out of business or building a revenue stream on the backs of these vulnerable companies. For a State that claims to be business-friendly, the Industrial Commission's policies suggest otherwise.

Based on these problems with the Industrial Commission's enforcement of these penalties, Dysart Willis was recently forced to file a federal lawsuit challenging the constitutionality of the State's practices. Federal litigation is never undertaken without significant analysis, however, based on the Industrial Commission's unreasonable and inflexible stance, it became necessary to seek answers and protect our clients' rights against unconstitutional action by the State. This litigation is currently stayed while the administrative process plays out at the agency and state level.

If your business has received a Penalty Assessment Order from the Industrial Commission, contact Dysart Willis to speak with our attorneys to discuss your case and how we can help.


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