GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	1 

HOUSE BILL 48

Short Title:  Employee Leasing Act.	(Public)

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Sponsors: Representative Ives.

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Referred to:  Business and Labor.

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January 30, 1995

A BILL TO BE ENTITLED
AN ACT TO REQUIRE THE LICENSURE OF EMPLOYEE LEASING FIRMS.
The General Assembly of North Carolina enacts:
Section 1.  Effective January 1, 1996, Chapter 95 of the General Statutes is amended by adding the following new Article to read:
"ARTICLE 23.
"Employee Leasing Act.
"§ 95-260.  Short title; findings.
(a)	This act shall be known and may be cited as the North Carolina Employee Leasing Act.
(b)	The General Assembly finds that it is in the public interest to establish standards for the licensing and operation of firms engaged in the business of leasing employees.
"§ 95-261.  Definitions.
As used in this Article, unless the context clearly requires otherwise, the term:
(1)	'Applicant' means an individual, person, corporation, partnership, or other entity seeking the granting or renewal of a license under this Article.
(2)	'Client' means a person who obtains all or any part of its workforce from another person through an employee leasing arrangement.
(3)	'Commissioner' means the Commissioner of Labor or the Commissioner's designee.
(4)	'Controlling person' means the person having a majority ownership interest in each and every one of the employee leasing firms within an employee leasing firm group.
(5)	'Employee leasing arrangement' means an arrangement, by contract or otherwise, whereby:
a.	An employee leasing firm assigns employees to perform services for a client;
b.	The arrangement is intended to be, or is, ongoing rather than temporary in nature; and
c.	Employer responsibilities, including the right of direction and control of the employees, are borne solely by the employee leasing firm or are shared by the employee leasing firm and the client.
	The term 'employee leasing arrangement' shall not include arrangements for services to be performed by temporary employees or by persons determined to be independent contractors with respect to the user of such services.
(6)	'Employee leasing firm' means any person engaged in providing services of employees pursuant to one or more employee leasing arrangements.
(7)	'Employee leasing firm group' means two or more employee leasing firms, the majority ownership of which is held, directly or indirectly, by the same person.
(8)	'Licensee' means a person licensed under this Article as an employee leasing firm or employee leasing firm group.
(9)	'Person' means an individual, association, partnership, corporation, or other entity.
(10)	'Temporary employee' means a person employed either through another person or directly by an employer to support or supplement an employer's existing workforce in special situations such as employee absences, temporary skill shortages, seasonal workloads, and special assignments and projects with the expectation that the temporary position will be terminated upon the completion of the task, function, or purpose for which the temporary employee's services were engaged.
"§ 95-262.  Rules.
The Commissioner shall, in accordance with Chapter 150B of the General Statutes, adopt rules to carry out the purposes of this Article.
"§ 95-263.  Exemptions.
This Article shall not apply to labor organizations or to any political subdivision of this State or the United States, or to any programs or agencies thereof.
"§ 95-264.  License required.
No employee leasing firm or employee leasing firm group shall conduct business in this State or enter into a contractual relationship with a client relating to business conducted in this State by the client without first obtaining a license therefor from the Commissioner.  Licenses shall be renewed annually.
"§ 95-265.  Application and requirements for license; licensure of nonresident persons.
(a)	Every applicant for an initial license and every applicant for renewal of a license shall file with the Commissioner a completed application on a form prescribed by the Commissioner.
(b)	An applicant who is not a resident of this State or not incorporated or otherwise organized in this State must, prior to applying for a license under this Article, be licensed as an employee leasing firm or as an employee leasing firm group in the state in which it is a resident or in which it is incorporated or otherwise organized, if the resident state requires licensure. The Commissioner may adopt rules allowing employee leasing firms organized in other states to obtain a license for operations within this State and providing for the grant of licenses by reciprocity. The Commissioner may issue a restricted license to an employee leasing firm or employee leasing firm group resident or domiciled in another state for limited operation within this State under the following conditions:
(1)	If the applicant's state of domicile or residence provides for licensing of employee leasing companies, then the applicant must be licensed and in good standing in its state of domicile or residence, and the applicant's state of domicile or residence must provide for granting a privilege for restricted licensing to employee leasing companies or groups resident or domiciled in this State similar to that provided under this act; and
(2)	The applicant does not maintain an office in this State, does not maintain a sales force or have a sales representative in this State, and that does not in any way solicit clients resident or domiciled in this State; and
(3)	The applicant does not have more than 100 leased employees working in this State.
(c)	Applicants shall meet the following standards:
(1)	If an individual, the applicant shall have reached the age of majority.
(2)	The applicant and every person named in the application as an officer, director, shareholder, or partner of the applicant shall be of good moral character and show evidence of business integrity and financial responsibility.
(d)	The application shall include the following information:
(1)	The name of the applicant and its principal place of business in this State, together with the addresses of all other offices within this State through which the applicant intends to conduct business.  If the applicant's principal place of business is located in another state, the address of this business shall be provided.
(2)	If the applicant is a corporation, the names and home addresses of each officer, director, and shareholder who owns a five percent (5%) or greater interest in the corporation.
(3)	If the application is a partnership, the names and home addresses of each of the partners, indicating whether the partner is a general or limited partner.
(4)	If the applicant is a controlling person of an employee leasing firm group, the applicant shall include for each employee leasing firm within the group the information required in subdivisions (2) and (3) of this subsection.  The applicant shall also include a guarantee, on a form approved by the Commissioner, executed by each employee leasing firm within the group guaranteeing payment of all financial obligations with respect to wages, employment taxes, insurance premiums, and employee benefits of each other employee leasing firm within the group.
(5)	The trade names under which the applicant conducts business in this State and a list, by jurisdiction, of each trade name under which the applicant conducts or has conducted business at any time in the preceding five years in this State or any other state.
(6)	The applicant's taxpayer identification number.
(7)	A list of the names and addresses of clients with whom the applicant has entered into an employee leasing arrangement as of the date of the application and to whom the applicant provides leased employees within this State.  This list of clients shall be treated as the confidential property of the applicant and shall not be distributed or disclosed to anyone other than authorized employees of this State.
(8)	Any other information that the Commissioner may require.
(e)	Licenses issued under this Article are at all times the property of the Commissioner.  A licensee shall immediately return the license to the Commissioner upon the Commissioner's demand made in accordance with this Article.
"§ 95-266.  Fees.
(a)	The fee for an initial license shall be five hundred dollars ($500.00) for employee leasing firms and one thousand dollars ($1,000) for employee leasing firm groups.  The fee for annual renewal of a license shall be two hundred fifty dollars ($250.00) for employee leasing firms and one thousand dollars ($1,000) for employee leasing firm groups.
(b)	Fees for an initial license or renewal license shall be submitted with the application and shall be made payable to the State of North Carolina. Fees are nonrefundable except in cases where the Commissioner has denied application for the license or renewal thereof. Fees collected by the Commissioner in accordance with this section shall be deposited to the General Fund.
"§ 95-267.  Grounds for denial of licensure; appeals.
(a)	The Commissioner shall deny an application for licensure and a license shall not be issued:
(1)	Where the applicant, or any person named in the application, has made a material misrepresentation in the application; or
(2)	Upon finding that any person named in the application is not of good moral character or has not shown evidence of business integrity or financial responsibility, or that the applicant has not complied with the provisions of this Article.
(b)	The Commissioner shall find facts to substantiate denial of the issuance of a license.  An applicant may appeal the denial in accordance with Chapter 150B of the General Statutes.
"§ 95-268.  Suspension or revocation of license.
(a)	The Commissioner may suspend for up to 12 months, or may revoke or refuse to renew, any license issued under this Article if the Commissioner finds one or more of the following causes exist:
(1)	Any cause for which issuance of the license could have been refused had it existed at the time of issuance and been known to the Commissioner;
(2)	Violation of or noncompliance with any applicable provision of this Article or of any order of the Commissioner under this Article;
(3)	Obtaining or attempting to obtain a license through misrepresentation or fraud;
(4)	The licensee or any individual named in the license is convicted of a felony; or
(5)	Failure to provide a written response to a written inquiry from the Commissioner within 30 days after receipt of the inquiry.
(b)	The license of a partnership, corporation, or controlling person may be suspended, revoked, or may not be renewed, if cause, as provided in subsection (a) of this section, is attributed to any individual named in the application.
(c)	Upon suspension or revocation of a license, the Commissioner shall immediately notify the licensee by first-class mail addressed to the licensee at its last address of record with the Commissioner.  The licensee may appeal the suspension or revocation in accordance with Chapter 150B of the General Statutes.
(d)	When the suspension or revocation of a license becomes final, the Commissioner shall immediately notify the following persons of the suspension or revocation:
(1)	Each client of the licensee, by mail;
(2)	The Employment Security Commission;
(3)	The office of the Attorney General of North Carolina;
(4)	The North Carolina Industrial Commission; and
(5)	The Secretary of State of North Carolina.
(e)	When a license has been revoked under this Article, the Commissioner shall not issue another license to the same person earlier than three years from the date of the revocation.
"§ 95-269.  Rights and responsibilities of licensees.
(a)	A licensed employee leasing firm or employee leasing firm group shall perform the following general responsibilities as a licensee:
(1)	Have a written contract between the client and the employee leasing firm setting forth the responsibilities and duties of each party.  The contract shall disclose to the client the services to be rendered including costs and the respective rights and obligations of the parties.  The contract shall also provide that the employee leasing firm, at a minimum:
a.	Reserves a right of direction and control over leased employees assigned to the client;
b.	Sets the rate of pay for leased employees, whether or not through negotiation with the client;
c.	Assumes responsibility for the payment of payroll taxes from its own accounts and for collection and payment of withholding taxes from wages of leased employees; and
d.	Retains authority to hire, fire, and reassign leased employees.
(2)	Give written notice of the general nature of the relationship between the employee leasing firm and the client to each leased employee assigned to the client.
(3)	Maintain and make available for the Commissioner's inspection all records concerning the licensee's conduct of business under its license.  All of these records shall be maintained for a period of three years after termination of the employment relationship or employee leasing arrangement, or for a longer period as may be required by any other federal, State, or local law.
(b)	A licensed employee leasing firm shall be deemed to be an employer of its leased employees and, as such, shall perform the following responsibilities in conformance with all applicable federal, State, and local laws:
(1)	Pay wages and collect, report, and pay employment taxes from its own account;
(2)	Pay unemployment taxes as required by North Carolina law.  During the term of the leasing arrangement, the employee leasing firm is liable for the payment of unemployment tax contributions, penalties, and interest on wages paid to leased employees who are assigned to a client.  The employee leasing firms shall report and pay all contributions under its State employer identification number, using its contribution rate; and
(3)	Ensure that all of its employees are covered by workers' compensation insurance provided in conformance with the laws of this State through a policy or plan maintained by either the employee leasing firm or the client; provided, however, for purposes of risks insured pursuant to this State's assigned risk plan, the Commissioner may adopt rules necessary to regulate the workers' compensation coverage provided through the assigned risk plan.
(c)	An employee leasing firm may sponsor and maintain employee benefit and welfare plans for its leased employees, provided that such plans, if limited to the employees of the employee leasing firm, shall not be deemed to be multiple employer welfare arrangements within the meaning of applicable law.  All employee benefit and welfare plans maintained by the employee leasing firm shall be organized and operated in accordance with applicable federal and State laws.  Nothing in this Article requires an employee leasing firm to provide particular benefits to its leased employees under an employee benefit or welfare plan, or to provide comparable benefits to leased employees located at different work sites.
"§ 95-270.  Employee leasing firm advisory council established; membership, terms, meetings.
(a)	There is established the North Carolina Employee Leasing Firm Advisory Council.  The Council shall be composed of five members appointed by the Commissioner.  Each member shall be of good moral character and shall be domiciled in this State for at least three years immediately preceding appointment to the Council.  At least three of the persons appointed to the Council shall have occupied for not less than three years immediately preceding appointment, and shall occupy at the time of appointment, executive or managerial positions in the employee leasing industry in this State.  Members of the Council shall receive no salary for their service, but shall receive per diem and necessary travel and subsistence expenses in accordance with G.S. 138-5.
(b)	Two of the persons initially appointed to the Council shall serve three-year initial terms, two shall serve two-year initial terms, and one shall serve a one-year initial term.  Thereafter, all terms shall be for three years.  Each Council member shall serve until the appointment and qualification of the member's successor.  Vacancies occurring for any cause shall be filled by appointment for the balance of the unexpired term.  The Commissioner may remove any member of the Council for misconduct, incompetence, neglect of duty, or other good cause.
(c)	The Council shall meet at least once in each calendar quarter of each year.  Council meetings shall be open and subject to Article 33C of Chapter 143 of the General Statutes.  Three members of the Council shall constitute a quorum to conduct business.  The Council shall elect from its members, each for a term of one year, a chair and vice-chair.  The Council may appoint committees necessary to carry out its duties.  The Commissioner or a designee thereof shall serve ex officio as the secretary of the Council, but shall not be a member of the Council.
"§ 95-271.  Duties of Council.
(a)	The Council shall do the following:
(1)	Inquire into the nature of the employee leasing industry, and make recommendations that are important and necessary to maintain the welfare of the citizens of this State, the public health, and the progress of the employee leasing industry.
(2)	Assist the Commissioner in the formulation, adoption, amendment, or repeal of rules authorized under this Article.  The Commissioner and a majority of a properly constituted quorum of the Council shall review rules adopted, amended, or repealed, before they become effective.
(3)	Collect information and data necessary for the proper administration of this Article.
(4)	Consider and make recommendations to the Commissioner with respect to all matters relating to the employee leasing industry in this State, including, but not limited to, license applications and complaints against employee leasing firms.
(5)	Publish findings and make necessary recommendations to the Commissioner, and take other actions necessary to implement its responsibilities under this Article.
"§ 95-272.  Penalties.
(a)	Any person who engages in the business of or acts as an employee leasing firm or an employee leasing firm group without first obtaining a license from the Commissioner, or who otherwise violates this Article, shall be liable for a civil penalty for each offense of not less than two hundred fifty dollars ($250.00) nor more than five thousand dollars ($5,000).
(b)	The Commissioner may bring an action in the superior courts of this State to enjoin from doing business any person who engages in the business of or acts as an employee leasing firm or an employee leasing firm group without having first obtained a license therefor.
"§ 95-273.  Other law applies.
(a)	Nothing in this Article exempts a client of an employee leasing firm, or an employee leased to a client by an employee leasing firm, from any other State, local, or federal license, certification, or registration requirements.  If an individual who is a leased employee is required by law to be licensed, certified, or registered in order to perform the job to which the employee is assigned by the client, it shall be the client's responsibility to ensure that the leased employee is properly licensed, certified, or registered, and the leased employee shall be an employee of the client for purposes of the license, certification, or registration.
(b)	Nothing in this Article shall impose liability on an employee leasing firm or employee leasing firm group for the general debts, obligations, loss of profits, business goodwill, or other consequential, special, or incidental damages sustained by its client, for which the employee leasing firm or employee leasing firm group would not otherwise be liable."
Sec. 2. This act is effective upon ratification.