If a company lacks the skilled employees needed for a job or simply has more work than it can handle, it may turn to subcontractors. For example, a builder may subcontract the electrical and plumbing work on a new home. An electronics manufacturer receiving a large order may subcontract with another company to manufacture the circuit boards needed. A subcontractor or a contractor may be an individual or a corporation employing many workers. Regardless, North Carolina law requires certain things from all who employ subcontractors.
Workers' Compensation Insurance
Most employers with at least three employees must carry workers' compensation coverage. If a contractor subcontracts work, he should obtain a certificate of coverage from the subcontractor even if the subcontractor employs fewer than three workers. Otherwise, if one of the subcontractor's employees suffers an injury on the job, the contractor may be held responsible for the employee's medical expenses and other costs. However, the liability does not extend to the subcontractor himself, only to his employees.
Workers' Compensation Insurance – Motor Carriers
If the subcontractor operates a tractor, truck or tractor-trailer that requires licensing by the U.S. Department of Transportation, it is irrelevant how many people the contractor or subcontractor employs. Unless the subcontractor himself is driving at the time of the accident, the contracting employer may be held financially liable for the death or injury of the subcontractor and his employees. North Carolina law permits contractors to cover all subcontractors and their employees under a blanket policy. The statutes also permit contractors and subcontractors to enter into agreements whereby the subcontractor will reimburse the contractor for the cost of independent contractor's inclusion under the contracting employer's policy.
Payments to Subcontractors
Typically, contractors receive the payments from their clients. Regardless of whether the payment is final or periodic payment, North Carolina law states that the contractor must pay his subcontractors what he owes them within seven days of receiving the payment. The payment should include what is due the subcontractor for both labor and materials. The subcontractor must have performed acceptably under the terms of his contract.
As part of the contract, subcontractors may be asked to sign certain covenants or agreements. North Carolina courts do not favor agreements not to compete, but these may be enforceable if they meet six requirements. The agreements must be in writing; included in the initial contract; required by the contractor to protect his legitimate interests; offered in return for compensation of value; have reasonable limitations on territory and time; and not "otherwise against public policy." Subcontractors may also sign non-solicitation agreements, stating that they will not attempt to secure work directly from the contractor's client. The contractor may also have trade secrets that the subcontractor may learn during the course of his work. He may ask subcontractors to sign confidentiality agreements to protect such proprietary information. North Carolina's Trade Secrets Protection Act codifies the state's laws on the subject, and violations of confidentiality or non-compete agreements may also result in a violation of the act.
- North Carolina Industrial Commission: Questions and Answers for Business and Industry
- Onecle: North Carolina General Statutes § 97-19.1 -- Truck, Tractor, or Truck Tractor Trailer Driver's Status as Employee or Independent Contractor
- Lawserver.com: North Carolina Laws, Chapter 22C – Time of Payment to Subcontractors after Contractor or Other Subcontractor Has Been Paid
- Johnston, Allison and Hord, PA: North Carolina Employment Law Summary
- Hans Hansen/Lifesize/Getty Images