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North Carolina General Statute § 97-19.1 and the Expansion of Workers

North Carolina General Statute § 97-19.1 and the Expansion of Workers' Compensation Liability in North Carolina

The Transportation Newsletter
(January, 2015)

The issue of who is liable for workers' compensation coverage for drivers and/or independent contractors in the trucking industry has been a hot topic in North Carolina and is gaining renewed attention amidst the ever-expanding application of a statute specific to the trucking industry. North Carolina General Statute § 97-19.1 ("§ 97-19.1") sets forth the respective rights and liabilities of persons engaged in interstate or intrastate trucking applicable to a driver's status as an employee or independent contractor. A truck driver is deemed to be an independent contractor or employee based on the application of common law factors focusing on the degree of control by the principal contractor. However, by statute, any principal contractor who contracts with an individual in the interstate or intrastate carrier industry who operates a truck licensed by the Department of Transportation ("DOT") and who has not secured the payment of compensation for himself personally and for his employees shall be liable as an employer for the payment of compensation and other benefits on account of injury or death of the independent contractor due to an accident. The result is that § 97-19.1 purports to eliminate the distinction between an employee and independent contractor in the trucking industry and creates a situation in which a principal contractor may be required to provide workers' compensation coverage to individuals with whom they contract even if they are deemed to be independent contractors. The statute does provide some relief; it does not apply to the owner operator (independent contractor) operating their own truck licensed by DOT. The question of whether a driver is an employee or independent contractor has traditionally arisen in the context of a driver's relationship to a motor carrier. An expanding application of § 97-19.1 by the North Carolina Industrial Commission has changed that; the statute has not only been applied to motor carriers, but it is now being applied to other entities in the supply chain and it is anticipated that its application will continue to expand.

An example of the expansion of the application of § 97-19.1 by the North Carolina Industrial Commission (the "Commission"), the State agency responsible for administering North Carolina's Workers' Compensation Act, occurred when the Commission concluded that a freight broker was a principal contractor for the purpose of providing workers' compensation coverage to an employee of a motor carrier with whom the freight broker contracted.

Frances Atiapo, Employee, Plaintiff v. Goree Logistics, Inc., Owen Thomas, Inc., Employer, and Mandieme Diouf, Individually, Defendants, and the North Carolina Industrial Commission

The matter of Frances Atiapo, Employee, Plaintiff v. Goree Logistics, Inc. Owen Thomas, Inc., employer, and Mandieme Diouf, Individualy, Defendants (North Carolina Industrial Commission I.C. Nos. X57890 & PH-2819), heard by the full Commission, is an example of the ever-expanding application of § 97-19.1 within the North Carolina transportation industry. The underlying transaction that forms the basis of this case involves a fairly routine scenario. A shipper of blueberries contracted with Owen Thomas, a licensed freight broker, for the shipment of blueberries. Owen Thomas in turn entered into a written broker-carrier agreement with Goree Logistics, a duly licensed motor carrier. Atiapo was a commercial driver operating a tractor-trailer owned and registered to Goree Logistics; Atiapo operated the tractor-trailer under Goree Logistics' motor carrier authority. While delivering the subject load, Atiapo was involved in a motor vehicle accident. As a result of this accident, Atiapo was hospitalized and out of work for approximately 5 months. Goree Logistics did not maintain workers' compensation insurance and Owen Thomas did not maintain workers' compensation insurance to cover the employees of motor carriers with whom it contracted. The primary issue before the Commission was whether Goree Logistics and/or Owen Thomas was liable to provide Atiapo with workers' compensation coverage.

Goree Logistics as Employer

Goree Logistics maintained that Atiapo was an independent contractor; accordingly, Goree Logistics did not maintain workers' compensation insurance coverage for him. Goree Logistics presented evidence on the issue of "control" over Atiapo to demonstrate that Atiapo was in fact an independent contractor. The evidence presented showed that Goree Logistics provided Atiapo with a 1099 for 2011 and that Goree Logistics did not withhold any taxes from him.  In addition, Goree Logistics and Atiapo executed a written contract in which Atiapo stated that he was an independent contractor. However, this same agreement also set forth in an addendum twenty-five specific terms and conditions by which Atiapo was required to abide by and which evidenced a significant amount of control by Goree Logistics over Atiapo. Moreover, Atiapo did not have authority to operate as a motor carrier, but operated a commercial vehicle under Goree Logistics' authority. It was determined by the Commission that Atiapo was in fact an employee of Goree Logistics. In addition, even though Goree Logistics did not employ three or more individuals, which heretofore had exempted employers from the provisions of the Workers Compensation Act pursuant to N.C. General Statute §97-13, the Commission determined that § 97-19.1 imposed a separate and independent obligation on motor carriers to obtain workers' compensation insurance regardless of the number of employees. Thus, Goree Logistics, having previously believed it was not required to obtain workers' compensation insurance because it employed less than 3 individuals, was penalized $50 dollars a day for every day it "employed" Mr. Atiapo.

Owen Thomas as Principal Contractor

Owen Thomas was a federally licensed freight broker and did not maintain workers' compensation insurance covering employees of motor carriers with whom it contracted. Owen Thomas entered into a broker-carrier agreement with Goree Logistics.  Pursuant to this agreement, Goree Logistics was required to maintain workers' compensation insurance for its employees and to provide certificates of insurance to Owen Thomas upon request. As noted above, Goree Logistics deemed drivers to be independent contractors and, therefore, did not maintain workers' compensation insurance. Notwithstanding the characterization in the broker-carrier agreement that Goree Logistics was an independent contractor, the Commission focused on the fact that Owen Thomas contracted with Goree Logistics and retained a portion of what it received from the shipper for the contract. Based on this, the Commission concluded that Owen Thomas was a principal contractor and that § 97-19.1 applied, as opposed to N.C. General Statute § 97-19.

The Industrial Commission Imposes Liability On The Freight Broker

Pursuant to § 97-19.1(a), the Commission concluded that Owen Thomas was a principal contractor. As a principal contractor who entered into a contract with Goree Logistics, an entity who operates a tractor-trailer licensed by DOT, but who has not secured the payment of workers' compensation coverage for its employees as set forth in N.C. General Statute § 97-93. As such, Owen Thomas was found by the Commission to be liable pursuant to § 97-19.1 for the payment of compensation and medical benefits to Atiapo, an employee of Goree Logistics.

This case is currently under appeal, where the NC Court of Appeals will have the opportunity to say, "clearly, this is not what the legislature intended."

Contracting with independent contractors, typically owner operators, is common in the transportation industry. If it is established that the perceived independent contractors are in fact employees of the motor carrier, the failure to provide coverage could not only subject the employer to liability, but also the imposition of civil penalties.  In order to protect oneself, an employer and/or principal contractor should insure that those with whom they contract maintain their own workers' compensation insurance or, if you can find someone who will write it, an appropriate occupational accident/contingent liability policy combination.

The application of § 97-19.1 to freight brokers is a relatively recent development; however, it should serve as a warning to operators of commercial vehicles, or those who contract with operators of commercial vehicles, that the Commission will broadly apply the provisions of § 97-19.1. Employers or principal contractors must be mindful of how North Carolina treats such arrangements and take the necessary steps to ensure compliance with the North Carolina Workers' Compensation Act.

Click here to view the Winter 2015 Print Edition of the Transportation Newsletter.

Lisa Kaminski Shortt
T (336) 378-5535
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Marc C. Tucker
T (919) 755-8713
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