2022 North Carolina Labor & Employment Year End Review

Charlotte, N.C. (January 10, 2023) - This alert contains a summary of the major labor and employment law updates in North Carolina from the previous year, including the state’s Wage and Hour Act, its Occupational Safety and Health Act, and two key state Supreme Court decisions involving attorney-client privilege during workplace investigations and the limits of employee handbooks.

Wage & Hour Act Update

Employers should be reminded that several changes to the North Carolina Wage and Hour Act became effective on June 30, 2021. Non-compliance with these provisions can create exposure to civil penalties, liquidated damages, and attorneys’ fees.

N.C. Gen. Stat. § 95.25.7 – This provision of the Wage and Hour Act, regarding payment to separated employees, now requires that employees whose employment is discontinued for any reason must be paid all wages due on or before the next regular payday, either through the regular pay channels or by trackable mail if requested by the employee in writing.
N.C. Gen. Stat. § 95-25.13 – This provision of the Wage and Hour Act, regarding notification, posting, and records, clarifies that employers must do all of the notification and furnishing itemized by this provision, including that:
- notification of wages at the time of hiring must be in writing;
- employees must be notified of any changes to wages in writing (not posted notices); and
- notifications of changes in wages be provided at least one pay period prior to the change.
N.C. Gen. Stat. § 95.23A – This provision of the Wage and Hour Act, regarding civil penalties for violation of the Act’s record-keeping requirements, was amended to clarify that the civil penalty of $250 to $2,000 is assessed per violation, not per investigation.

Occupational Safety and Health Act of North Carolina Update

A change to the North Carolina Occupational Safety and Health Act became effective on June 30, 2021. Specifically, N.C. Gen. Stat. § 95-133(b)(13), regarding the Director’s authority to obtain medical records, now identified the state’s Department of Labor Occupational Safety and Health (OSH) Division as a “health oversight agency” under 45 C.F.R. § 164-501, and authorizes HIPAA covered entities, the Department of Health & Human Services, trauma hospitals, and EMS providers to disclose protected health information to OSH as necessary for law enforcement, judicial, and administrative purposes. These records must be kept separately from investigative files, are not public records, and may not be released to any employer under investigation except as necessary to support the issuance of an OSH citation (i.e., at a hearing on a contested case).

Attorney-Client Privilege Protection: A Note of Caution Regarding Investigation of Alleged Violations of Company Policies, Including Policies Prohibiting Sexual Harassment or Discrimination

Buckley, LLP v. Series 1 of Oxford Ins. Co., NC, LLC, No. 219A21, 876 S.E.2d 248, 2022 N.C. LEXIS 780 (N.C. Aug. 19, 2022) (per curiam), aff’g 2020 NCBC LEXIS 136 (2020).

On December 15, 2017, a law firm’s executive committee learned that a senior partier was accused of sexual harassment by multiple employees, and informed both in-house and outside counsel. The firm’s policy required an investigation, and on December 21, 2017, the firm hired an outside law firm to conduct an “internal review of a personnel matter” and to “provide legal counsel and assistance.” On December 29, 2017, the firm purchased coverage from the defendant for losses associated with the departure of key revenue-generating partners.

On February 25, 2018, the senior partner who was the subject of the harassment accusations retired in lieu of participating in the investigation and signed a retirement agreement effective February 26, 2018. On March 17, 2018, the firm notified the defendant of its claim arising from the senior partner’s departure and submitted a claim submission stating the departure was voluntary. There was a dispute over coverage and the firm sued.

During discovery, the firm sought production of communications reflecting the defendant’s internal deliberations (including documents and communications of in-house counsel, who also performed claims review). The defendant sought production of documents and communications between the firm and outside counsel concerning the investigation and whether the firm believed the senior partner subject to the investigation would eventually have to leave the firm. Both sides objected, asserting attorney-client privilege.

North Carolina’s Business Court reviewed the rules regarding privilege claims, discussed the differences between non-privileged business advice and privileged legal advice, and concluded that the courts, when evaluating a claim of privilege over communications intertwining business and legal advice, must consider whether the primary purpose of the communication was to seek or provide legal advice. The Business Court stated, “[c]orporate documents prepared for simultaneous review by legal and nonlegal personnel are often held to be not privileged because they are not shown to be communications made for the primary purpose of seeking legal advice.”

The Business Court reviewed each set of communications in camera and concluded that the defendant’s in-house counsel’s communications were not privileged when she was acting in a business role (reviewing and processing insurance claims). The court also concluded that the firm’s communications that were solely or primarily in furtherance of its investigation, including investigatory reports and materials, were not privileged, even though performed by lawyers, where the investigation was required by the firm’s policy and was initiated and pursued in the ordinary course of the firm’s business. Only those communications reflecting a primary purpose of giving or receiving legal advice are privileged and properly withheld. Finally, the Business Court rejected the firm’s claim of work product since there was no evidence that the firm anticipated litigation, or that the investigation or communications would have been done differently had litigation not been anticipated.

On direct appeal to North Carolina’s Supreme Court, the state’s highest court affirmed, agreeing that the primary purpose of the communication was determinative, and observing, “in today’s business world, investigations of alleged violations of company policy, including policies prohibiting sexual harassment or discrimination, are ordinary business activities and, accordingly, the communications made in such investigations are not necessarily ‘made in the court of giving or seeking legal advice for a proper purpose.’”

Buckley serves as a warning that employers should carefully consider privilege implications involved in the structure and conduct of internal investigations conducted as a matter of company policy

A Reminder on the Limits of Employee Handbooks: Waivers Strictly Construed and Subject to Court Discretion

Brown v. Caruso Homes, Inc., No. COA22-226, 2022 N.C. App. LEXIS 668 (October 4, 2022):

In this case, the plaintiff sued the defendant for wage and hour violations and demanded a jury trial as to all issues so triable. The defendant answered and, among other things, asserted that the plaintiff waived her right to jury trial when she signed an employee handbook containing such a waiver. The parties’ case management order specified a non-jury trial, which the plaintiff asserted was a compromise due to the pandemic.

After several pandemic-related continuances, the trial court administrator set the matter for a potential jury trial, the defendant filed a motion for non-jury trial, and the Superior Court denied that motion. The defendant appealed, but the Court of Appeals affirmed, finding the right to a jury trial was “sacred” and “highly favored” such that waivers of this right would be strictly construed, and would not be inferred or presumed. The plaintiff demanded a jury trial, did not waive her right during the litigation, and the Superior Court had discretion under Rule 39(b) to order a jury trial on its own initiative, even if the plaintiff waived her right to a trial by jury.

For more information on these laws and cases, contact the author of this alert. Visit our Labor & Employment Practice page for additional alerts in this area.

Author:

Philip Hinson, Partner

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Philip Hinson
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