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Employment relationship

State-specific laws
What state-specific laws govern the employment relationship?

In general, employment relationships are terminable at will, and the employer or the employee is entitled to terminate the employment relationship for any lawful reason. However, exceptions exist:

  • employers and employees can contract into a not at-will employment relationship;
  • a position may be made not at-will by statute; and
  • there is a common law claim for wrongful termination in violation of public policy.

Please note that one of the implications of House Bill 2 was the elimination of the state law “wrongful discharge in violation of public policy” cause of action that had allowed employees to sue former employers for discriminatory firings for up to three years after their termination dates. On July 1 2016 the legislature restored the wrongful discharge claim eliminated by House Bill 2. House Bill 169, “An Act to Restore the State Tort Claim for Wrongful Discharge,” restored a fired employee’s right to sue alleging he or she was illegally fired based on race, religion, color, national origin, age, sex, or disability. The new law restored all previous aspects of the wrongful discharge claim except that now the cause of action has a one year statute of limitations, reduced from the previous three year period.

In addition, a number of statutes address the employment relationship, including the following.

(a) North Carolina Wage and Hour Act

The North Carolina Wage and Hour Act requires North Carolina employers to honor employees’ rights to:

  • minimum wages;
  • overtime;
  • wage payments and benefits, including vacation, holiday, and sick pay; and
  • fair working practices (for youths and minors).

(b) Occupational Safety and Health Act of North Carolina

Operating in concert with the Federal Occupational Safety & Health Administration, the Occupational Safety and Health Division of the North Carolina Department of Labor is divided into five main bureaus—the Agricultural Safety and Health Bureau; the Compliance Bureau; the Consultative Services Bureau; Education, Training, and Technical Assistance; and Planning, Statistics, and Information Management—and seeks to ensure safe and healthy working conditions for employees in North Carolina.

(c) North Carolina Equal Employment Practices Act

Operating in concert with federal statutes, the North Carolina Equal Employment Practices Act makes it illegal for any employer with 15 or more employees to discriminate against an employee or job applicant on the basis of race, religion, color, national origin, age, sex, or disability.

(d) Retaliatory Employment Discrimination Act

The Retaliatory Employment Discrimination Act gives aggrieved employees—and the Department of Labor acting on its own volition—the authority to seek civil damages or injunctive relief when an employer discharges, suspends, demotes, relocates, or takes action adverse to the employment interests of an employee when that employee files or threatens to file a claim or complaint or takes other protected actions. Examples of protected activities include an employee exercising or threatening to exercise his or her rights under:

  • North Carolina’s Workers’ Compensation Act;
  • the Wage and Hour Act;
  • the Occupational Safety and Health Act; or
  • the Mine Safety and Health Act.

(e) North Carolina Persons with Disabilities Protection Act

The North Carolina Persons with Disabilities Protection Act makes it unlawful for a business with 15 or more employees to discriminate against any individual on the basis of a disability.

Who do these cover, including categories of workers?

North Carolina’s employment laws govern all employees, but do not generally apply to persons properly classified as independent contractors.

Misclassification
Are there state-specific rules regarding employee/contractor misclassification?

The misclassification of employees as independent contractors creates significant risk to employers under North Carolina law. Employers that regularly employ three or more employees must be covered by workers’ compensation insurance or be qualified as self-insured. An employer that misclassifies its employees as independent contractors and does not carry the required workers’ compensation insurance coverage will be potentially subject to payment of an employee’s workers’ compensation claim, monetary penalties, and criminal charges. Other consequences of misclassifying employees include employer liability for unpaid payroll taxes to the North Carolina Department of Revenue and unemployment benefits.

Contracts
Must an employment contract be in writing?

Employment contracts need not be in writing to be legally enforceable; however, restrictive covenants such as non-compete agreements must be in writing and signed by the employee in order to be enforceable.

Are any terms implied into employment contracts?

Employment contracts contain implied terms of good faith and fair dealing “to effect the intention of the parties and which are not in conflict with the express terms.” (Maglione v. Aegis Family Health Ctrs., 168 N.C. App. 49, 56 (2005) (quoting Lane v. Scarborough, 284 N.C. 407, 410 (1973))). These duties are predicated on the underlying premise that each party to the employment contract “has a duty to adhere to the presuppositions of the contract for meeting this purpose” (Maglione, 168 N.C. App. at 56 (citing Weyerhaeuser Co. v. Building Supply Co., 40 N.C. App. 743, 746 (1979)). Accordingly, a court may read implied terms into an employment agreement depending on the nature and substance of the contract.

Are mandatory arbitration agreements enforceable?

The North Carolina Court of Appeals recently affirmed the state’s policy toward arbitration, holding, that “the public policy of our State favors arbitration” (King v. Bryant, 737 S.E.2d 802, 807 (2013)), when and where “the parties entered into an enforceable agreement to arbitrate" (id.). The enforceability of arbitration agreements is dictated by the laws and principles of contract. Crossman v. Life Care Ctrs. of Am., Inc., 738 S.E.2d 737, 740 (2013). Mandatory arbitration agreements are enforceable to the extent that they conform to the basic expectations of enforceable contracts. The enforceability of mandatory arbitration provisions is a fact-sensitive inquiry and does not lend itself to consistent application of well-established, black-letter law.

Because mandatory arbitration agreements can be the product of unequal balances of power between two parties, unconscionability (i.e., where the contract is “so one-sided that the contracting party is denied any opportunity for a meaningful choice” Brenner v. Little Red School House, Ltd., 302 N.C. 207, 213 (1981)) is often a basis for finding that a mandatory arbitration agreement is unenforceable. Therefore, employers should ensure that the mandatory arbitration clause is the product of a procedurally fair bargaining process and is substantively fair on its face and in practice.

How can employers make changes to existing employment agreements?

Either the employer or the employee’s ability to modify the employment agreement is generally the same as any party’s right to modify contracts.

A written contract may be modified or waived by a subsequent parol agreement, or by conduct that naturally and justly leads the other party to believe the contract has been modified or waived. This principle has been sustained even where the instrument requires any modification of the contract to be in writing. It has likewise been sustained where a contract contained a provision saying, "No salesman or agent of the company shall have the right to change or modify this contract" (42 East, LLC v. D.R. Horton, Inc., 722 S.E.2d 1, 6-7 (2012) (internal citations omitted)). 

Thus, employment contracts may be amended only by express modification or by modifications implied by the actions of all parties to the contract.

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