GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2003
SENATE BILL 20
RATIFIED BILL
AN ACT TO REQUIRE LICENSURE OF PROFESSIONAL EMPLOYER
ORGANIZATIONS.
The General Assembly of North Carolina enacts:
SECTION 1. Article 89 of Chapter 58 of the General
Statutes is rewritten to read:
"Article 89.
"North Carolina Professional Employer Organization Act.
"Part 1. In General.
"§ 58-89-1. Title.
This Article shall be known and may be cited as the
"North Carolina Professional Employer Organization Act".
"§ 58-89-5. Definitions.
In this Article:
(1) "Applicant" means a person applying
for a license or a group license under this
Article.
(2) "Assigned employee" means an
employee who is performing services for a client
company under a contract between a licensee and a
client company in which employment responsibilities
are shared or allocated. "Assigned employee" does
not include a temporary employee. Individuals who
are directors, shareholders, partners, and managers
of a client company are assigned employees to the
extent the licensee and the client have agreed that
those individuals are assigned employees and
provided that those individuals meet the criteria
of this subdivision and act as operational managers
or perform reviews for the client company.
(3) "Audited GAAP financial statement"
means a financial statement that is audited by an
independent certified public accountant and
presented in accordance with generally accepted
accounting principles.
(4) "Client company" or "client"
means a person that contracts with a licensee and
is assigned employees by the licensee under that
contract.
(5) "Control", including the terms
"controlling", "controlled by", and "under common
control with" means the direct or indirect
possession of the power to direct or cause the
direction of the management and policies of a
person, whether through the ownership of voting
securities, by contract other than a commercial
contract for goods or nonmanagement services, or
otherwise. Control is presumed to exist if any
natural person directly or indirectly owns,
controls, holds with the power to vote, or holds
proxies representing ten percent (10%) or more of
the voting securities of any other person. This
presumption may be rebutted by a showing made in
the manner provided by rule of the Commissioner.
The Commissioner may determine, after furnishing
all persons in interest notice and opportunity to
be heard and making specific findings of fact to
support such determination, that control exists in
fact, notwithstanding the absence of a presumption
to that effect.
(6) "Financial responsibility" means the
current and expected future condition of financial
solvency sufficient to support a reasonable
expectation that an applicant or licensee can
successfully conduct its business without
jeopardizing the interests of its assigned
employees, client companies, or the public.
(7) "Good moral character" means a
personal history of honesty, trustworthiness,
fairness, a good reputation for fair dealings, and
respect for the rights of others and for state and
federal laws.
(8) "Hazardous financial condition" has
the same meaning as in G.S. 58-47-60(9).
(9) "Licensee" means a person licensed
under this Article to provide professional employer
services. The term includes a professional employer
organization group licensed under G.S. 58-89-35(b).
Unless specifically stated otherwise in this
Article, "licensee" includes persons who are
licensed under this Article pursuant to alternative
licensing procedures as set forth in G.S. 58-89-76.
(10) "Managed services" means services
provided by an organization that is the sole
employer of employees whom it supplies to staff and
manage a specific portion of a company's workforce
or a specific facility within a company on an
ongoing basis. The managed services organization
has responsibility for ensuring the capabilities
and skills of the employees it supplies or
provides, for all employer functions, for
supervisory responsibility over the employees, and
for management accountability of the facility or
function.
(11) "PEO agreement" means a written
contract by and between a client company and a
professional employer organization that
provides:
a. For the allocation and sharing between
the client company and the licensee of the
responsibilities of employers with respect to
the assigned employees, including hiring,
firing, and disciplining of employees; and
b. That the licensee and the client
company assume the responsibilities required
by this Article.
(12) "Person" has the same meaning as in
G.S. 58-1-5(9).
(13) "Personnel placement service" means a
job placement service offered through an
organization that assists persons seeking
employment to find a job with companies that are
seeking employees. Companies that hire persons
through a personnel placement service are the sole
employers of the persons hired, and the personnel
placement service does not have any responsibility
as an employer.
(14) "Professional employer services"
means an arrangement by which employees of a
licensee are assigned to work at a client company
and in which employment responsibilities are in
fact shared by the licensee and the client company
in accordance with G.S. 58-89-100, the employee's
assignment is intended to be of a long-term or
continuing nature, rather than temporary or
seasonal in nature, and a majority of the workforce
at a client company work site or a majority of the
personnel of a specialized group within that
workforce consists of assigned employees of the
licensee. "Professional employer services" does not
include services that provide temporary employees
or independent contractors, a personnel placement
service, managed services, payroll services that do
not involve employee staffing or leasing, the
sharing of employees by commonly owned companies
within the meaning of section 414(b) and (c) of the
Internal Revenue Code of 1986, as amended, or
similar groups that do not meet the requirements of
this subdivision.
(15) "Professional employer
organization" or "PEO" means a person that
offers professional employer services and includes
"staff leasing services companies", "employee
leasing companies", "staff leasing companies", and
"administrative employers" who offer or propose to
offer professional employer services in this
State.
(16) "Professional employer organization
group" or "PEO group" means a combination of
professional employer organizations that operates
under a group license issued under this Article or
is otherwise subject to group licensure
requirements under G.S. 58-89-35(b).
(17) "Temporary employees" means
persons employed under an arrangement by which an
organization hires its own employees and assigns
them to a client company to support or supplement
the client's workforce in a special work situation,
including:
a. An employee absence;
b. A temporary skill shortage;
c. A seasonal workload; or
d. A special assignment or project.
"§ 58-89-10. North Carolina Professional Employer
Organization Advisory Council.
(a) There is created the North Carolina
Professional Employer Organization Advisory Council to advise,
consult with, and make recommendations to the Commissioner on
the regulation of professional employer organizations, as
requested by the Commissioner. The Council shall consist of 11
members as follows:
(1) The Commissioner of Insurance or the
Commissioner's designee, ex officio.
(2) The Commissioner of Labor or the
Commissioner's designee, ex officio.
(3) The Chair of the North Carolina
Industrial Commission or the Chair's designee, ex
officio.
(4) Two members appointed by the Governor,
from a list of five persons recommended by the
North Carolina Industrial Commission.
(5) Two members appointed by the Governor
who are not involved directly or indirectly with
the professional employer services industry.
(6) One member of the General Assembly,
appointed by the General Assembly in accordance
with G.S. 120-121, upon the recommendation of the
President Pro Tempore of the Senate.
(7) One member appointed by the General
Assembly, upon the recommendation of the President
Pro Tempore of the Senate, who is a representative
of the professional employer services industry and
who is involved with a professional employer
organization that has 3,000 or more assigned
employees.
(8) One member of the General Assembly,
appointed by the General Assembly in accordance
with G.S. 120-121, upon the recommendation of the
Speaker of the House of Representatives.
(9) One member appointed by the General
Assembly, upon the recommendation of the Speaker of
the House of Representatives, who is a
representative of the professional employer
services industry and who is involved with a
professional employer organization that has less
than 3,000 assigned employees.
Initial terms begin January 1, 2005.
(b) Other than the initial members of the Council
and members of the Council serving ex officio, members of the
Council shall serve three-year terms. Initial members of the
Council shall serve staggered terms as follows:
(1) The following initial members shall
serve terms of three years:
a. One member appointed by the Governor
from the list recommended by the North
Carolina Industrial Commission.
b. The member of the General Assembly
appointed by the General Assembly upon the
recommendation of the President Pro Tempore of
the Senate.
c. One member appointed by the Governor
who is not directly involved with the
professional employer services industry.
d. The member appointed by the General
Assembly upon the recommendation of the House
of Representatives who is involved with a
professional employer organization.
(2) The following initial members shall
serve terms of two years:
a. One member appointed by the Governor
from the list recommended by the North
Carolina Industrial Commission.
b. The member of the General Assembly
appointed by the General Assembly upon the
recommendation of the Speaker of the House of
Representatives.
c. One member appointed by the Governor
who is not directly or indirectly involved in
the professional employer services
industry.
d. The member appointed by the General
Assembly upon the recommendation of the
President Pro Tempore of the Senate who is
involved with a professional employer
organization.
(c) The Commissioner of Insurance shall serve as
chair of the Council and shall call all meetings of the
Council.
(d) The Governor may remove any member of the
Council appointed by the Governor for misconduct, incompetence,
or neglect of duty. The General Assembly may remove any member
appointed by it for the same reasons. The appointing authority
making the original appointment shall appoint successors.
(e) All vacancies occurring on the Council shall
be filled, for the unexpired term, by the appointing authority
making the original appointment. Vacancies in appointments made
by the General Assembly shall be filled in accordance with
G.S. 120-122.
(f) The Department of Insurance shall furnish the
Council with meeting space and clerical and other services
required by the Council to conduct its business.
(g) The members of the Council shall not receive
compensation or per diem for their service on the Council.
"§ 58-89-15. Rules.
(a) The Commissioner may adopt rules
necessary to implement, administer, and enforce the provisions
of this Article.
(b) Each licensee and each person subject to
licensure requirements under this Article are subject to the
provisions of this Article and to the rules adopted by the
Commissioner.
(c) Nothing in this Article preempts the existing
statutory or rule-making authority of any other State agency or
entity to regulate professional employer services in a manner
consistent with the statutory authority of that State agency or
entity.
"§ 58-89-20. Interagency cooperation.
A State agency, in performing duties under other law
that affects the regulation of professional employer services,
shall cooperate with the Commissioner as necessary to implement,
administer, and enforce this Article.
"§ 58-89-25. Effect of other law on client companies and
assigned employees.
(a) This Article does not exempt a client
company of a licensee, or any assigned employee, from any other
license requirements imposed under local, State, or federal
law.
(b) An employee who is licensed, registered, or
certified under law and who is assigned to a client company is
considered to be an employee of the client company for the
purpose of that license, registration, or certification.
(c) A licensee is not engaged in the unauthorized
practice of an occupation, trade, or profession that is
licensed, certified, or otherwise regulated by a State agency or
other political subdivision of the State, including a county or
city, by entering into a PEO agreement with a client company and
assigned employees.
(d) With respect to a bid, contract, purchase
order, program, or agreement entered into with the State or a
political subdivision of the State, or State program or benefit
otherwise available to a client company, a client company's
status, certification, or qualification pursuant to the bid,
contract, benefit, program, agreement, or State program shall
not be affected because the client company has entered into an
agreement with a licensee or utilizes the services of a
licensee.
(e) Nothing in this Article or in any PEO
agreement or other professional employer services contract shall
affect, modify, or amend any collective bargaining agreement or
the rights or obligations of any client company, professional
employer organization, or any assigned employee under the
National Labor Relations Act, 29 U.S.C. § 151, et seq.
"§ 58-89-30. Other provisions of this Chapter.
G.S. 58-2-45, 58-2-50, 58-2-55, 58-2-60, 58-2-65,
58-2-69, 58-2-70, 58-2-75, 58-2-100, 58-2-155, 58-2-163,
58-2-180, 58-2-185, 58-2-200, and 58-3-100 shall apply to all
persons licensed under this Article and all persons subject to
licensure requirements under this Article.
"§ 58-89-31. Tax credits and other incentives.
For purposes of determination of tax credits and other
economic incentives provided by the State and based on
employment, covered employees are considered employees solely of
the client. A client shall be entitled to the benefit of any tax
credit, economic incentive, or other benefit arising as the
result of the employment of covered employees of the client.
Each professional employer organization must provide, upon
request by a client, employment information that is required by
any agency or department of the State responsible for
administration of any tax credit or economic incentive and that
is necessary to support a request, claim, application, or other
action by a client seeking the tax credit or economic
incentive.
"Part 2. License Requirements and Limitations.
"§ 58-89-35. License required; professional employer
organization groups.
(a) No person shall engage in or offer
professional employer services in this State unless the person
holds a license issued under this Article.
(b) Two or more professional employer
organizations that are controlled by the same ultimate parent,
entity, or persons may be licensed as a professional employer
organization group. A professional employer organization group
may satisfy the reporting and financial requirements of this
Article on a consolidated basis. As a condition of licensure as
a professional employer organization group, each professional
employer organization that is a member of the group shall
guarantee payment of all financial obligations of every other
member. Notwithstanding the definition of "person" in this
Article, whenever two or more entities combine to seek issuance
of a single license under this Article, the requirements for
group licensure under this subsection shall be met before
issuance of a license and any license issued will be a group
license issued pursuant to this subsection.
"§ 58-89-40. Qualifications for controlling person.
(a) To be qualified to serve as a controlling
person of a licensee under this Article, the controlling person
shall be at least 18 years of age, be of good moral character,
and have educational, managerial, or business experience
relevant to:
(1) Operation of a professional employer
organization; or
(2) Service as a controlling person of a
professional employer organization.
(b) This section does not apply to persons who are
licensed pursuant to the alternative licensing procedures set
forth in G.S. 58-89-76 or to entities that are controlling
persons.
"§ 58-89-45. Reserved.
"§ 58-89-50. Surety bond; letter of credit.
(a) An applicant for licensure shall file
with the Commissioner a surety bond in the amount of one hundred
thousand dollars ($100,000) in favor of the State of North
Carolina.
(b) The surety bond required by this section shall
be in a form acceptable to the Commissioner, issued by an
insurer authorized by the Commissioner to write surety business
in this State, and maintained in force while the license remains
in effect or any obligations or liabilities of the applicant,
licensee or PEO previously licensed by this State remain
outstanding.
(c) The surety bond required by this section may
be exchanged or replaced with another surety bond that meets the
requirements of this section if 90 days' advance written notice
is provided to the Commissioner.
(d) A licensee shall not require a client company
to contribute in any manner to the payment of the surety bond
required by this section.
(e) Notice of cancellation or nonrenewal of the
surety bond required by this section shall be provided to the
Commissioner in writing at least 45 days before cancellation or
nonrenewal.
(f) In lieu of the surety bond required by this
section, an applicant may submit to the Commissioner an
irrevocable letter of credit in a form acceptable to the
Commissioner issued by a financial institution, the deposits of
which are insured by the Federal Deposit Insurance Corporation,
or may maintain on deposit with the Commissioner an amount equal
to the amount required under subsection (a) of this section in
cash or in value of securities of the kind specified in
G.S. 58-5-20 and subject to the same conditions as the surety
bond.
(g) This section does not apply to persons who are
licensed pursuant to the alternative licensing procedures set
forth in G.S. 58-89-76.
"§ 58-89-55. Reserved.
"§ 58-89-60. License application.
(a) Every applicant for licensure shall file with
the Commissioner, on a form prescribed by the
Commissioner, the following information:
(1) The name, organizational structure,
and date of organization of the applicant, the
addresses of the principal office and of all
offices in this State, the name of the contact
person, the type of operations within this State,
and the taxpayer or employer identification
number.
(2) A list by jurisdiction of each name
under which the applicant has operated in the
preceding five years, including any alternative
names, names of predecessors, and, if known, names
of successor business entities. The list required
by this subdivision shall include the parent
company name and any trade name, trademark, or
service mark of the applicant.
(3) A list of all officers and controlling
persons of the applicant, their biographical
information, including their management background,
and an affidavit from each attesting to his or her
good moral character and management competence.
(4) The location of the business records
of the applicant.
(5) An attestation, executed by the chief
financial officer and chief executive officer of
the applicant, that the applicant is current as of
the date the application is submitted with respect
to all of its obligations for payroll,
payroll-related taxes, workers' compensation
insurance, and employee benefits. If any such
obligations are in dispute with a client as of the
date the application is submitted and the disputed
amount is material when considered in the context
of the applicant's most recent audited financial
statement, then the applicant shall disclose the
nature of the dispute causing the obligations to be
unpaid and the amount of money in controversy.
(6) Any other information the Commissioner
deems necessary and requires by rule to establish
that the applicant and the officers and controlling
persons are of good moral character, have business
integrity, and have financial responsibility.
(b) Every applicant shall file with the
Commissioner evidence of financial responsibility. Evidence of
financial responsibility includes an audited GAAP financial
statement, prepared as of a date not more than 90 days before
the date of application that demonstrates that the applicant or
licensee is not in a hazardous financial condition and attached
to which is a separate document signed by the chief executive
and the chief financial officer certifying that (i) each has
reviewed the financial statement; (ii) based on each signatory's
knowledge, the financial statement does not contain any untrue
or misleading statement of material fact or omit a fact with
respect to the period covered by the financial statement; and
(iii) based on each signatory's knowledge, the financial
statement fairly presents in all material respects the financial
condition of the licensee as of, and for, the period presented
in the financial statement.
Notwithstanding the requirements of this subsection, the
Commissioner may, in the Commissioner's discretion, accept an
audited GAAP financial statement that has been prepared more
than 90 days before submission to the Commissioner if the
Commissioner deems such acceptance appropriate. The Commissioner
may, in the Commissioner's discretion, impose conditions upon
such acceptance of financial statements prepared more than 90
days prior to submission.
(c) Every applicant shall submit to the
Commissioner the application fee pursuant to G.S. 58-89-65.
(d) Every applicant shall furnish the Commissioner
a complete set of fingerprints and a recent photograph in a form
prescribed by the Commissioner of each officer, director, and
controlling person. Each set of fingerprints shall be certified
by an authorized law enforcement officer.
Upon request by the Department, the Department of Justice
shall provide to the Department from the State and National
Repositories of Criminal Histories the criminal history of any
applicant and the officer, director, and controlling person of
any applicant. Along with the request, the Department shall
provide to the Department of Justice the fingerprints of the
person that is the subject of the request, a form signed by the
person that is the subject of the request consenting to the
criminal record check and use of fingerprints and other
identifying information required by the State and National
Repositories, and any additional information required by the
Department of Justice. The person's fingerprints shall be
forwarded to the State Bureau of Investigation for a search of
the State's criminal history record file, and the State Bureau
of Investigation may forward a set of fingerprints to the
Federal Bureau of Investigation for a national criminal history
record check. The Department shall keep all information obtained
pursuant to this subsection confidential. The Department of
Justice may charge a fee to offset the cost incurred by it to
conduct a criminal record check under this section. The fee
shall not exceed the actual cost of locating, editing,
researching, and retrieving the information.
In the event that an applicant has secured a professional
employer organization license in another state in which the
professional employer organization's controlling persons have
completed a criminal background investigation within 12 months
of this application, a certified copy of the report from the
appropriate authority of that state may satisfy the requirement
of this subsection. This subsection also applies to a change in
a controlling party of a professional employer organization. For
purposes of investigation under this subsection, the
Commissioner shall have all the power conferred by G.S. 58-2-50
and other applicable provisions of this Chapter.
(e) An application for licensure of a professional
employer organization group shall contain the information and
submissions required by this section for each member of the
group.
(f) No application is complete until the
Commissioner has received all information and submissions
required under subsections (a) through (e) of this section.
Subsections (a) through (e) of this section do not apply to
persons who are licensed pursuant to the alternative licensing
procedures set forth in G.S. 58-89-76.
(g) The Commissioner may deny the license of an
applicant under this Article if, after notice to the applicant
and an opportunity for a hearing, the Commissioner finds that a
controlling person has:
(1) Made any untrue material statement
regarding the background or experience of any
controlling person;
(2) Violated, or failed to comply with,
any professional employer services law or any rule
or order of the Commissioner or of any other State
official responsible for the regulation of
professional employer services;
(3) Obtained or attempted to obtain the
license through misrepresentation or fraud;
(4) Been convicted of a felony;
(5) Been found in a final judgment or
administrative proceeding to have committed fraud
or an unfair trade practice; or
(6) B een a controlling person in another
professional employer organization that has had its
license or registration suspended, terminated, or
revoked by any state.
(h) If the Commissioner finds that the applicant
has not fully met the requirements for licensure, the
Commissioner shall refuse to issue the license and shall notify
the applicant in writing of the denial, stating the grounds for
the denial. The application may also be denied for any reason
for which a license may be suspended or terminated under
G.S. 58-89-155. To obtain a review to determine the
reasonableness of the Commissioner's denial, the applicant shall
make written demand upon the Commissioner within 30 days after
notice is given under G.S. 150B-38(c). The review shall be
completed without undue delay, and the applicant shall be
notified promptly in writing as to the outcome of the review. If
the applicant disagrees with the outcome of the review and seeks
a hearing, under Article 3A of Chapter 150B of the General
Statutes, on the outcome of the review, the applicant shall make
a written demand upon the Commissioner for the hearing within 30
days after notice of the outcome of the review is given under
G.S. 150B-38(c).
(i) Removal, demotion, or discharge of a
controlling person in response to an order of the Commissioner
of the alleged unsuitability of that person is an affirmative
defense to any claim by that individual based on the removal,
demotion, or discharge.
(j) The Commissioner may, in the Commissioner's
discretion, waive the required evaluation of an officer,
director or controlling person if that officer, director or
controlling person has been evaluated previously under this
Article.
(k) After denial, suspension, or termination of a
license, and before issuing a new license or reinstating a
license, the Commissioner shall review and consider:
(1) The extent to which the applicant or
licensee has adequately corrected any problems;
and
(2) Whether the applicant or licensee has
demonstrated that the applicant or licensee had
exercised due diligence to avoid the reason or
reasons for the denial or termination.
The applicant or licensee bears the burden of proof with
respect to subdivisions (1) and (2) of this subsection.
"§ 58-89-65. Fees.
(a) Each applicant for a professional
employer organization license or limited professional employer
organization license shall pay to the Commissioner, before the
issuance of the license, a nonrefundable application fee of one
thousand dollars ($1,000).
(b) Each licensee shall pay to the Commissioner
when filing the information required under G.S. 58-89-70(d) an
annual filing fee of one thousand dollars ($1,000).
(c) Each applicant for alternative licensing under
G.S. 58-89-76 and each applicant for renewal of a license
provided under G.S. 58-89-76 shall pay to the Commissioner,
before issuance or renewal of the license, a fee of five hundred
dollars ($500.00).
(d) When the Commissioner finds that a licensee
has committed an act that is a ground for disciplinary violation
under G.S. 58-89-155 or that a licensee has committed a
prohibited act in violation of G.S. 58-89-170, and such decision
becomes final following the conclusion of all administrative or
judicial proceedings, the Commissioner may charge an applicant
or licensee reasonable fees to recover the Department's costs
associated with investigations, inspections, examinations, and
any other administrative or enforcement responsibilities created
under this Article.
(e) Fees collected by the Commissioner under this
Article shall be deposited in the Insurance Regulatory Fund
under G.S. 58-6-25 and shall be used to implement this
Article.
"§ 58-89-70. License issuance and maintenance.
(a) The Commissioner shall issue a license to
an applicant whom the Commissioner determines has satisfied the
requirements of this Article not later than the 90th day after
the date on which the completed application is filed with the
Commissioner. The Commissioner shall notify an applicant of any
deficiency in the application not later than the 60th day after
the date on which the Commissioner receives the application.
(b) A license issued by the Commissioner under
this Article shall remain in effect until revoked, suspended,
surrendered, or otherwise terminated.
(c) By obtaining licensure under this Article, the
controlling persons of a licensee certify, under penalty of law,
their compliance with the requirements of licensure and of
operation as a professional employer organization pursuant to
this Article.
(d) Within 120 days after the end of each fiscal
year, each licensee shall file with the Commissioner all of the
following information:
(1) Evidence of "financial responsibility"
as set forth in G.S. 58-89-60(b).
(2) Any information required by
G.S. 58-89-60(a) for which there has been a change
since the last or initial filing. Any change of
controlling persons may subject the licensee to a
background investigation of those controlling
persons as required by G.S. 58-89-60.
(3) The annual filing fee, pursuant to
G.S. 58-89-65.
(4) Any other information the Commissioner
determines is needed for the review of a
licensee.
(e) In order to maintain licensure, each licensee
may be required to file with the Commissioner no later than 45
days after the end of each quarter of the fiscal year:
(1) A financial statement for the
preceding quarter that is not audited but is set
forth in a format similar to the annual audited
GAAP financial statement; and
(2) An attestation, executed by the chief
financial officer and the chief executive officer
of the licensee, that the licensee is current with
respect to all of its obligations for payroll,
payroll-related taxes, workers' compensation
insurance, and employee benefits. If any of the
obligations listed in this subdivision are in
dispute with a client and the disputed amount is
material when considered in the context of the
licensee's most recent audited financial statement,
then the licensee shall disclose the nature of the
dispute causing the obligations to be unpaid and
the amount of money in controversy.
"§ 58-89-75. Limited license.
The Commissioner, by rule, shall provide for the
issuance of a limited license to a person who seeks to offer
limited professional employer services in this State.
"§ 58-89-76. Alternative licensing.
The Commissioner, by rule, may provide for the
acceptance of an affidavit by a bonded, independent, and
qualified assurance organization that has been approved by the
Commissioner certifying the qualifications of a professional
employer organization for licensing under this Article in lieu
of the requirements of G.S. 58-89-40 through G.S. 58-89-60. A
professional employer organization licensed under this section
shall be exempt from the provisions of G.S. 58-89-70(c), (d),
and (e).
"§ 58-89-80. License not assignable; change of name or
location.
(a) A licensee shall not conduct business
under any name other than that specified in the license. A
license issued under this Article is not assignable. A licensee
shall not conduct business under any fictitious or assumed name
without prior written authorization from the Commissioner. The
Commissioner shall not authorize the use of a name that is so
similar to that of a public office or agency or to that of
another licensee that the public may be confused or misled by
the name's use. A licensee shall not conduct business under more
than one name unless the licensee has obtained a separate
license for each name or the licensee is operating under a group
license pursuant to G.S. 58-89-35.
(b) Except as provided in this subsection, a
licensee may change the licensee's licensed name only once in a
calendar year by notifying the Commissioner and paying a fee for
the change of name. The fee for a name change shall be fifty
dollars ($50.00). A licensee may change the licensee's name
without the payment of the name change fee if the name change is
submitted with the information required by G.S. 58-89-70(d). If
a licensee has changed its name once during a calendar year, the
licensee shall not change its name again unless the name change
is approved by the Commissioner.
(c) A licensee shall notify the Commissioner in
writing within 30 days of any change in the status of the
licensee, including:
(1) Any change in the location of the
licensee's primary business office;
(2) The addition of or change in the
location of any other business offices
providing professional employer services in this
State; and
(3) A change in the location of business
records maintained by the licensee.
(d) A licensee may advertise in this State using
only the name that is on the license issued by the
Commissioner.
(e) Each written proposal provided to a
prospective client company and each PEO agreement between a
licensee and a client company or assigned employee shall clearly
identify the name of the licensee.
"§ 58-89-85. Supervision; rehabilitation;
liquidation.
If at any time the Commissioner determines, after
notice and an opportunity for the licensee to be heard, that a
licensee (i) has been or will be unable, in such a manner as may
endanger the ability of the licensee, to fully perform its
obligations pursuant to this Article or (ii) is bankrupt or in a
hazardous financial condition, the Commissioner may either (i)
commence a supervision proceeding pursuant to Article 30 of this
Chapter or (ii) apply to the Superior Court of Wake County or to
the federal bankruptcy court that has previously taken
jurisdiction over the licensee, if applicable, for an order
directing the Commissioner or authorizing the Commissioner to
rehabilitate or to liquidate a licensee in accordance with
Article 30 of this Chapter.
"§ 58-89-90. Reserved.
"Part 3. Licensee Duties and Responsibilities.
"§ 58-89-95. Agreement; notice.
(a) A licensee shall establish the terms of a
PEO agreement by a written contract between the licensee and the
client company.
(b) The licensee shall give written notice of the
agreement, by agreement or otherwise, as it affects assigned
employees to each employee assigned to a client company work
site. This written notice shall be given to each assigned
employee not later than the first payday after the date on which
that individual becomes an assigned employee.
(c) The licensee shall give each employee written
notice when the employee ceases to be an employee of the
licensee.
"§ 58-89-100. Contract requirements.
A contract between a licensee and a client company
shall provide:
(1) That the licensee reserves a right of
direction and control over employees assigned to a
client company's work sites. However, a client
company may retain such sufficient direction and
control over the assigned employees as is necessary
to conduct the client company's business and
without which the client company would be unable to
conduct its business, to discharge any fiduciary
responsibility that it may have, or to comply with
any applicable licensure, regulatory, or statutory
requirement of the client company. The PEO
agreement shall provide that employment
responsibilities not allocated to the licensee by
the PEO agreement or this section remain with the
client company.
(2) That the licensee assumes
responsibility for the payment of wages to the
assigned employees as agreed to in the PEO
agreement.
(3) That the licensee assumes
responsibility for the payment of payroll taxes and
collection of taxes from payroll on assigned
employees.
(4) That the licensee reserves a right to
hire, fire, and discipline the assigned
employees.
(5) That the licensee retains a right of
direction and control over the adoption of
employment policies and the management of workers'
compensation claims, claim filings, and related
procedures in accordance with applicable federal
laws and the laws of this State.
(6) That responsibility to obtain workers'
compensation coverage for assigned employees, from
an entity authorized to do business in this State
and otherwise in compliance with all applicable
requirements, shall be specifically allocated in
the PEO agreement to either the client company or
the licensee. If the responsibility is allocated to
the licensee under any such agreement, that
agreement shall require that the licensee maintain
and provide to the client company, at the
termination of the agreement if requested by the
client company, records regarding the loss
experience related to workers' compensation
insurance provided to assigned employees pursuant
to the agreement.
"§ 58-89-105. Employee benefit plans; required
disclosure; other reports.
(a) A licensee may sponsor and maintain
employee benefit plans for the benefit of assigned
employees.
(b) A client company may sponsor and maintain
employee benefit plans for the benefit of assigned
employees.
(c) If a licensee offers to its assigned employees
any health benefit plan that is not fully insured by an
authorized insurer, the plan shall:
(1) Utilize a third-party administrator
licensed or registered to do business in this
State;
(2) Hold all plan assets, including
participant contributions, in a trust account;
and
(3) Provide sound reserves for the plan as
determined using generally accepted actuarial
standards.
(d) For purposes of this section, a "health
benefit plan that is not fully insured by an authorized insurer"
includes any arrangement except an arrangement under which an
insurance company licensed to write insurance in this State has
issued an insurance policy that covers all of the obligations of
the health benefit plan.
"§ 58-89-110. Workers' compensation insurance.
(a) A licensee or the licensee's client
company shall provide workers' compensation insurance coverage
through a licensed insurance carrier or a licensed
self-insurance plan for the licensee's assigned employees as
provided in Chapter 97 of the General Statutes, the Workers'
Compensation Act. To the extent that the licensee secures and
maintains workers' compensation coverage for assigned employees,
the carrier may elect to provide such coverage to the licensee
pursuant to either the multiple coordinated policy method, as
set forth in subsection (b) of this section, or the single
policy method, as set forth in subsection (c) of this
section.
(b) If the licensee provides workers' compensation
coverage pursuant to the multiple coordinated policy method, the
licensee shall secure a separate policy for each client company
of the licensee. Each policy shall identify the name of the
client company and the licensee. The licensee shall be named as
the insured and identify the client company. The licensee shall
specify that it is the labor contractor for the client company
by using the designation "L/C/F" on the policy.
Each policy shall expire on the same date. The policy
shall not include coverage for nonleased employees of the client
company or employees solely employed by the licensee. Only the
licensee, as the first-named insured under such a policy, may
request the insurer to cancel the policy. Each policy shall be
sent to the licensee as the named insured.
The client company of a licensee shall have a continuing
obligation to provide coverage as required by Chapter 97 of the
General Statutes, the Workers' Compensation Act, for any
employees of the client company who are not assigned employees
and not otherwise covered under a policy described in this
subsection.
If a client company of a licensee leases employees from
more than one licensee, there shall be a separate policy for the
assigned employees of each licensee.
The workers' compensation carrier also shall issue a
policy covering the internal employees of the licensee unless
they are otherwise covered.
All policies written in accordance with this subsection by
the same insurance carrier that reference the same licensee as
labor contractor shall be combined for premium discount
purposes.
When policies written in accordance with this subsection
are written by the same insurance carrier, the carrier and
licensee may agree to a retrospective rating program or any
other permitted pricing program.
Whenever a policy written in accordance with this
subsection is cancelled, the insurance company writing the
policy shall provide individual notices of cancellation as
required by this Chapter to the licensee and the client company
of the licensee.
(c) If the licensee provides workers' compensation
coverage pursuant to the single policy method, the insurer shall
issue to the licensee a single policy covering all assigned
employees in this State in accordance with Chapter 97 of the
General Statutes, the Workers' Compensation Act, and any other
applicable laws or rating plans of this State.
As a condition of issuing a single policy, the licensee
shall provide to the insurer of the policy all of the following
information regarding each client company of the licensee with
assigned employees in this State:
(1) The correct legal name, any fictitious
names, and the federal identification number.
(2) The name and address of the president
and chief executive officer.
(3) The business mailing address.
(4) The business telephone number and
facsimile number.
The licensee shall also provide to the insurer the name
and address of the insurance agent or broker responsible for
securing the policy of insurance on behalf of the licensee.
The insurer shall issue to each client company of the
licensee a certificate of insurance on the single policy. The
certificate of insurance shall require that the insurer provide
notice of cancellation to the licensee and the client company of
the licensee.
Whenever a policy written in accordance with this
subsection is cancelled, the insurance company writing the
policy shall provide individual notices of cancellation as
required by this Chapter to the licensee and the client company
of the licensee.
If the insurer fails to provide individual notices of
cancellation to the licensee and the client company, the insurer
shall remain liable on the risk for losses incurred by the
client company that would have been covered by the workers'
compensation policy prior to the attempted cancellation.
(d) A license shall not be issued to any
professional employer organization unless the organization first
files with the Commissioner evidence of workers' compensation
coverage for all assigned employees in this State, including
those leased from or coemployed with another person, and that
the premium paid by the licensee is commensurate with exposure
and anticipated claim experience for all employees covered under
policies in the name of the licensee.
(e) Each licensee shall maintain and make
available to its workers' compensation carrier on an annual
basis the following information:
(1) The correct name and federal
identification number of each client company.
(2) A listing of all covered employees
provided to each client company, by classification
code.
(3) The total eligible wages, by
classification code, and the premiums due to the
carrier for the employees provided to each client
company.
(4) Sufficient information to permit the
calculation of an experience modification factor
for each client company upon termination of the
professional employer relationship. Information
accruing during the term of the leasing arrangement
that is used to calculate an experience
modification factor for a client company upon
termination of the leasing relationship shall
continue to be used in the future experience
ratings of the licensee.
(f) Every Form 19 "Employer's Report of Employee's
Injury or Occupational Disease to the Industrial Commission"
filed with the Industrial Commission shall identify by name and
address both the licensee and the client company employing the
employee who is the subject of the Form 19.
(g) A licensee shall, within 30 days of initiation
or termination of the licensee's relationship with any client
company, notify its workers' compensation carrier, the
Commissioner, and the North Carolina Industrial Commission of
both the initiation and termination of the relationship. If the
client company terminates the relationship between the licensee
and the client company, the notice required by this subsection
shall be given within 10 days of the licensee's actual knowledge
of the termination.
(h) If the professional employer services
arrangement with a client company is terminated, the client
company shall be assigned an experience modification factor that
reflects its experience during the experience period specified
by the approved experience rating plan, including, if
applicable, experience incurred for assigned employees under the
PEO agreement.
(i) A client company shall not enter into a PEO
agreement or be eligible for workers' compensation coverage in
the voluntary market if the client-workers' company owes its
current or prior carrier any premium for workers' compensation
insurance, or if the client company owes its current or prior
professional employer organization amounts due under the PEO
agreement, except for premiums or amounts due that are subject
to dispute. For the purposes of this section and compliance with
other laws and rules, a licensee may rely on a statement by the
client company that the client company has met any and all prior
premium or fee obligations, unless the licensee has actual
knowledge to the contrary.
(j) This section shall not prevent a client
company of a licensee from providing workers' compensation
insurance coverage for assigned employees coemployed by the
client company and the licensee through a policy of insurance
issued by a licensed insurance carrier in the name of the client
company as the insured.
(k) Irrespective of whether the licensee or client
company maintains the policy of workers' compensation insurance
for the covered employees pursuant to the PEO agreement, the
licensee and the client company shall be entitled to the
exclusivity of the remedy under both the workers' compensation
and the employer liability provision of the workers'
compensation policy or plan that either party has secured and
shall both be afforded the protections provided under Chapter 97
of the General Statutes. The licensee shall be entitled, along
with the client company, to the exclusivity of the remedy under
both the workers' compensation and employers' liability
provision of the workers' compensation policy or plan that
either party has secured.
(l) All assigned risk policies for client
companies of the same licensee shall be assigned to one workers'
compensation carrier in the State and in other states to the
extent possible.
"§ 58-89-112. Liabilities.
Subject to any contrary provisions thereof, the PEO
agreement shall be interpreted for purposes of insurance,
bonding, and employer's liability as follows:
(1) A licensee is not liable for the acts,
errors, or omissions of a client company or of any
assigned employee or for the quality, adequacy, or
safety of the goods or services produced or sold in
the client company's business. A client company is
not liable for the acts, errors, or omissions of a
licensee or of any employee of a licensee. Nothing
in this section limits any contractual liability
between a licensee and the client company or limits
any liability or responsibility under this
Article.
(2) Employees assigned to a client company
by a licensee are the employees of the client
company for the purposes of general liability
insurance, automobile insurance, fidelity bonds,
surety bonds, and liquor liability insurance
carried by the client company unless the employees
are included by specific reference in the
applicable PEO agreement, insurance contract, or
bond.
"§ 58-89-115. Benefit plan notice.
(a) With respect to any insurance or benefit
plan provided by a licensee for the benefit of its assigned
employees, a licensee shall disclose all of the following
information to the Commissioner and each client company:
(1) The type of coverage.
(2) The identity of each insurer for each
type of coverage.
(3) The amount of benefits provided for
each type of coverage and to whom or on whose
behalf benefits are to be paid.
(4) The policy limits on each insurance
policy.
(5) Whether the coverage is fully insured,
partially insured, or fully self-funded.
(b) With respect to any insurance or benefit plan
provided by a licensee for the benefit of its assigned
employees, a licensee shall provide to the insurer the name and
address of the insurance agent or broker responsible for
securing the policy of insurance on behalf of the licensee.
(c) Whenever any insurance policy or benefit plan
is cancelled, the insurance company writing the policy shall
provide a notice of cancellation as required by this
Chapter.
(d) The licensee shall notify the client company
and the Commissioner in writing about a discontinuance and
replacement, if any, of any health plan or workers' compensation
insurance coverage no later than 10 business days after the
discontinuance.
(e) The Commissioner, by rule, may require a
licensee to file other reports that are reasonably necessary for
the administration and enforcement of this Article.
"§ 58-89-120. Unemployment taxes; payroll.
A licensee is the employer of an assigned employee for
purposes of Chapters 95, 96 and 105 of the General
Statutes. Nothing in this section shall otherwise affect the
levy and collection of unemployment insurance contributions or
the assignment of discrete employer numbers pursuant to G.S. 96-
9(c)(4) and the definitions set forth in G.S. 96-8(4), 96-8(5),
and 96-8(6). The Employment Security Commission shall cooperate
with the Commissioner in the investigation of applicants
and licensees and shall provide the Commissioner with access to
all relevant records and data in the custody of the Employment
Security Commission.
"§ 58-89-125. Posting requirements.
(a) Each licensee shall post the license
issued under this Article in a conspicuous place in the
licensee's principal place of business in this State.
(b) Each licensee shall display, in a place that
is in clear and unobstructed public view, a notice stating that
the business operated at the location is licensed and regulated
by the Commissioner and that any questions or complaints may be
directed to the Commissioner.
"§ 58-89-130. Contractual duties.
Each licensee is responsible for the licensee's
contractual duties and responsibilities to manage, maintain,
collect, and make timely payments for all of the following:
(1) Insurance premiums.
(2) Benefit and welfare plans.
(3) Other employee withholding.
(4) Any other expressed responsibility
that is within the scope of the PEO agreement and
that fulfills the duties imposed under this
Article.
"§ 58-89-135. Compliance with other laws.
Each licensee shall comply with all appropriate State
and federal laws relating to reporting, sponsoring, filing, and
maintaining benefit and welfare plans.
"§ 58-89-140. Required information.
Each licensee shall:
(1) Maintain adequate books and records
regarding the licensee's duties and
responsibilities, including accounting and
employment records relating to all PEO agreement
activities, for a minimum of three years.
(2) Maintain and make available at all
times to the Commissioner the following
information, which shall be treated as proprietary
and confidential and which is exempt from
disclosure to persons other than other governmental
agencies that have a reasonable, legitimate purpose
for obtaining the information:
a. The correct name, address, and
telephone number of each client company.
b. Each client company contract or PEO
agreement.
c. A listing of each client company by
classification code as described in the
"Standard Industrial Classification Manual"
published by the United States Office of
Management and Budget.
"§ 58-89-145. Examinations.
(a) The Commissioner may conduct an
examination of a licensee as often as the Commissioner considers
appropriate.
(b) An examination under this Article shall be
conducted in accordance with the Examination Law of this
Chapter, G.S. 58-2-131 through G.S. 58-2-134.
(c) In lieu of an examination of any foreign or
alien person licensed under this Article, the Commissioner may,
in the Commissioner's discretion, accept an examination report
on the licensee prepared by the appropriate regulator for the
licensee's state of domicile.
(d) When making an examination under this Article,
the Commissioner may retain attorneys, appraisers, independent
actuaries, independent certified public accountants, or other
professionals and specialists as examiners, the reasonable cost
of which shall be borne by the licensee that is the subject of
the examination.
"§ 58-89-150. Agent for service of process.
Each resident licensee shall maintain a registered
agent for the service of process in this State. The Commissioner
shall be each nonresident licensee's agent for service of
process as provided in Article 16 of this Chapter.
"Part 4. Penalties and Sanctions.
"§ 58-89-155. Grounds for disciplinary action.
(a) The Commissioner may take disciplinary
action against a licensee or any person subject to licensure
requirements under this Article on any of the following
grounds:
(1) Being convicted or having an officer
or controlling person of the licensee convicted
of:
a. Bribery, fraud, or intentional or
material misrepresentation in obtaining or
attempting to obtain a license;
b. A crime that relates to the operation
of a professional employer organization or the
ability of the licensee or any officer or
controlling person of the licensee to operate
a professional employer organization;
c. A crime that relates to the
classification, misclassification, or
underreporting of employees required by State
law;
d. A crime that relates to the
establishment or maintenance of a
self-insurance program, whether health
insurance, workers' compensation insurance, or
other insurance;
e. A crime that relates to fraud, deceit,
or misconduct in the operation of a
professional employer service; or
f. A crime that involves dishonesty or
breach of trust.
(2) Engaging in professional employer
services or offering to engage in the provision of
professional employer services without a
license.
(3) Failure to provide notice in writing
of the discontinuance and replacement, if any, of
any insurance coverage, to the Commissioner and
client company within 10 business days of the
discontinuance of any insurance coverage pursuant
to G.S. 58-89-115.
(4) Failure to provide the notice required
by G.S. 58-50-40.
(5) Failure to satisfy any of the
requirements for licensure in this Article.
(b) For purposes of this section, a conviction
includes an adjudication of guilt, a plea of guilty, and a plea
of nolo contendere.
"§ 58-89-160. Sanctions.
(a) On a finding that a ground for disciplinary
action exists under G.S. 58-89-155, the Commissioner may suspend
or terminate a license, impose a civil penalty, and seek an
order of restitution under G.S. 58-2-70.
(b) On termination of a license, the licensee
shall immediately return the terminated license to the
Commissioner.
(c) Any disciplinary action taken, any temporary
or permanent termination of a license, or any determination that
an officer or controlling person is unqualified shall be made by
the Commissioner subject to Article 3A of Chapter 150B of the
General Statutes.
"§ 58-89-165. Injunctions; civil remedies; cease and
desist orders.
(a) In addition to the penalties and other
enforcement provisions of this Article, if any person violates
this Article or any rule implementing this Article, the
Commissioner may seek an injunction in a court of competent
jurisdiction and may apply for temporary and permanent orders
that the Commissioner determines are necessary to restrain the
person from committing the violation.
(b) The Commissioner may issue, in accordance with
G.S. 58-63-32, a cease and desist order upon a person that
violates any provision of this Article, any rule or order
adopted by the Commissioner, or any written agreement entered
into with the Commissioner. The cease and desist order may be
subject to judicial review under G.S. 58-63-35.
(c) When the Commissioner finds that an activity
in violation of this Article presents an immediate danger to the
public that requires an immediate final order, the Commissioner
may issue an emergency cease and desist order reciting with
particularity the facts underlying the findings. The emergency
cease and desist order is effective immediately upon service of
a copy of the order on the respondent and remains effective for
90 days. If the Commissioner begins nonemergency cease and
desist proceedings, the emergency cease and desist order remains
effective, absent an order by a court of competent jurisdiction
in accordance with G.S. 58-63-35.
(d) In addition to the penalties and other
enforcement provisions of this Article, any person who violates
this Article is subject to G.S. 58-2-70.
(e) The Commissioner is not required to post a
bond for injunctive relief under this section.
"§ 58-89-170. Prohibited acts.
No person shall do any of the following:
(1) Engage in or offer professional
employer services without holding a license under
this Article as a professional employer
organization.
(2) Use the name or title "staff leasing
company", "employee leasing company", "licensed
staff leasing company", "staff leasing services
company", "professional employer organization", or
"administrative employer" or otherwise represent
that the person is licensed under this Article
unless the person holds a license issued under this
Article.
(3) Represent as the person's own the
license of another person or represent that a
person is licensed if the person does not hold a
license.
(4) Give materially false or forged
evidence to the Commissioner in connection with
obtaining or maintaining a license or in connection
with disciplinary proceedings under this
Article.
(5) Use or attempt to use a license that
has been suspended or terminated.
"§ 58-89-175. Criminal penalty.
A person who violates G.S. 58-89-170 commits a Class H
felony. Any officer or controlling person who willfully violates
any provision of this Article may be subject to any and all
criminal penalties available under State law.
"§ 58-89-180. Application to unlicensed professional
employer organizations.
Notwithstanding any other provision of law, each provision
in this Article applies to persons subject to licensure under
this Article, whether licensed under this Article or not."
SECTION 2. The Department of Insurance shall
report to the 2005 General Assembly on the implementation,
administration, and enforcement of Article 89 of Chapter 58 of
the General Statutes, as enacted in Section 1 of this act. In
its report, the Department shall recommend any statutory changes
required to regulate professional employer organizations and
enforce Article 89 of Chapter 58 of the General Statutes.
SECTION 3. A person registered to engage in and
offer professional employer services in this State, pursuant to
G.S. 58-89-15, on the last day prior to the effective date of
this act may continue to operate pending approval of the
person's application for a license as long as the application is
filed with the Commissioner no later than April 1, 2005. If the
application for licensure is denied, the person shall cease
offering professional employer services in this State. A person
not registered to engage in and offer professional employer
services in this State, pursuant to G.S. 58-89-15, on the last
day prior to the effective date of this act shall not engage in
or offer professional employer services in this State until the
person has been issued a license under this act.
SECTION 4. If any section or provision of this
act is declared unconstitutional, preempted, or otherwise
invalid by the courts, it does not affect the validity of the
act as a whole or any part other than the part so declared to be
unconstitutional, preempted, or otherwise invalid.
SECTION 5. This act becomes effective January 1,
2005, and applies to any contracts entered into, any business
conducted, and any actions taken on or after that date.
In the General Assembly read three times and ratified
this the 16th day of July, 2004.
_____________________________________
Beverly E. Perdue
President of the Senate
_____________________________________
Richard T. Morgan
Speaker of the House of
Representatives
_____________________________________
Michael F. Easley
Governor
Approved __________.m. this ______________ day of
___________________, 2004