North Carolina Workers' Comp Liability for Subcontractors

#What Is a Statutory Employer in North Carolina?

In North Carolina, when a principal contractor hires a subcontractor who fails to carry workers' compensation insurance, the principal contractor can become responsible for the subcontractor's injured employees. This makes the principal contractor a "statutory employer" for workers' compensation purposes.

This rule applies to any principal contractor, intermediate contractor, or subcontractor who sublets work. The liability for a subcontractor’s employees exists regardless of whether that subcontractor has fewer than three employees. The purpose is to create a chain of liability to ensure injured workers have a source of benefits.

#How Are Claims for Uninsured Subcontractors Handled?

When an injured employee of an uninsured subcontractor files a claim, it must be instituted against all parties who are potentially liable for payment. This ensures the North Carolina Industrial Commission can determine the full chain of responsibility.

The Commission's award will specify the order in which the liable parties must pay. This order always starts with the immediate employer. If the immediate employer cannot pay, liability moves up the chain to the next contractor.

A contractor who is forced to pay benefits under this rule has the right to get their money back. The law allows any principal contractor, intermediate contractor, or subcontractor who pays compensation to recover the amount from the person or corporation who should have been liable in the first place.

#Can a Contractor Avoid Liability by Checking Insurance?

A contractor can protect themselves from liability by obtaining a certificate of insurance from their subcontractor before subletting the contract. This is a critical step in risk management.

If the subcontractor's policy expires or is canceled before an injury occurs, the upstream contractor will not be held liable, provided they were unaware of the lapse in coverage. This defense relies on having obtained the certificate before work began.

#Who Needs Workers' Comp in North Carolina?

The North Carolina Workers' Compensation Act applies to private employments with three or more employees regularly employed in the same business. Corporate officers are included in this count.

Certain industries have different employee thresholds. For instance, any employment involving the use or presence of radiation requires coverage for one or more employees. The term "employer" is broad, including the state, political subdivisions, public corporations, and any person carrying on an employment.

#Who Counts as an Employee?

When determining if a business meets the three-employee threshold, corporate officers are always counted. However, the officers themselves may elect to be specifically excluded from receiving benefits under the corporation's policy.

Other business owners are treated differently. Sole proprietors, partners, and members of a limited liability company (LLC) are not automatically counted as employees. They can, however, choose to include themselves for coverage under their business's workers' compensation policy.

#What Are the Rules for Trucking Contractors?

North Carolina has specific workers' compensation rules for the trucking industry. The law requires coverage for certain owner-operators, even if they would otherwise be considered independent contractors. If an owner-operator does not have their own policy, the motor carrier they work for must provide the coverage.

This requirement applies regardless of whether the principal contractor, intermediate contractor, or subcontractor regularly employs three or more people. However, there is an exception. A motor carrier is not liable for an independent contractor who is individually licensed by the U.S. Department of Transportation and who personally operates the vehicle.

#Is Occupational Accident Insurance a Substitute?

Occupational accident insurance is not a lawful substitute for workers' compensation coverage in North Carolina. The North Carolina Workers' Compensation Act sets the legal standard for coverage, and alternative policies do not meet this requirement.

Furthermore, the North Carolina Industrial Commission does not have jurisdiction over disputes related to occupational accident insurance policies. Claims and coverage disagreements for these policies must be handled outside the state's workers' compensation system.