State News : North Carolina

By: Elizabeth Ligon

In Holmes v. Associate Pipe Line Contractors, Inc., the Court of Appeals determined that post-offer contingencies, such as background checks and drug testing, constitute the “last act” necessary to create a contract of employment.

On October 29, 2013, Plaintiff, who was living in North Carolina, was contacted via telephone by a union representative and offered an assignment in Texas. Plaintiff traveled to Texas, where she was required to submit to a drug test and complete various forms, including an authorization for a Department of Transportation background check, before she could begin working. Two hours after taking the drug test, Plaintiff began working in Texas. She sustained two injuries on the jobsite in Texas in January 2014, and sought workers’ compensation benefits in North Carolina. Defendants denied the claims, citing lack of jurisdiction.

At hearing, witnesses for the defense testified that when workers arrive at the jobsite, they are required to take a drug test and consent to a background check. If they did not submit to either the drug test or the background check, they would not be hired. However, because it takes several days to receive the results, the worker begins work immediately after taking the drug test and signing the consent form. If the drug test or background check did not “come back clean,” the worker would be terminated and paid a per-day rate for the time worked versus the full hourly rate under the union agreement.

The Deputy Commissioner issued an Opinion and Award, dismissing Plaintiff’s claims based on lack of jurisdiction. Plaintiff appealed to the Full Commission, who upheld the Deputy Commissioner’s Opinion and Award. The Full Commission concluded that the submission to the drug test and consent to a background check outside of North Carolina were conditions precedent to Plaintiff’s hire, and were more than administrative paperwork. Consequently, the “last act” necessary to create an employment contract occurred in Texas. Because the contract of employment was not made in North Carolina, Defendant-Employer’s principal place of business was not in North Carolina, and Plaintiff’s principal place of employment was not in North Carolina, the Industrial Commission did not have subject matter jurisdiction.

Plaintiff appealed to the Court of Appeals, who agreed with the Full Commission. Plaintiff argued that the last act necessary to form her employment contract occurred in North Carolina, when she accepted the job from her home via telephone. The Court of Appeals rejected Plaintiff’s argument, noting that it was undisputed that Plaintiff’s submission to a drug test was a prerequisite to her employment. If Plaintiff had refused to submit to the drug test, she would not have been permitted to start working. Therefore, the drug test constituted the last act necessary to form a binding employment relationship. Because this act occurred in Texas rather than North Carolina, the Commission lacked jurisdiction.

RISK HANDLING HINT: Under N.C. Gen. Stat. § 97-36, jurisdiction is created (i) if the contract of employment is made in North Carolina, (ii) if the employer’s principal place of business is in North Carolina, or (iii) if the employee’s principal place of employment is in North Carolina. Holmes solidifies that post-offer requirements drug testing and background checks constitute the “last act” necessary to create an employment contract under prong (i). As part of their initial investigation of a claim, employers and their carriers should determine whether a claimant was required to meet any additional requirements after a job offer was extended, and where they took place.