At the recent Closely Held Business Conference held by Ward and Smith, four attorneys from the firm shared vital information for business owners seeking to protect their interests, minimize liability, and secure a strong competitive advantage.
The presentation covered a variety of topics with substantial implications for business owners, including how to properly classify independent contractors, how to evaluate the enforceability of noncompete agreements, the nuances of directors and officers liability insurance, and the importance of government relations.
No Such Thing as 1099 Employees
Justin Hill, a labor and employment attorney and a North Carolina State Bar Board Certified Specialist, provided counsel about the legal and financial exposure that could originate from mislabeling workers. “The 1099 employee is a common term, but it is legally incorrect,” commented Hill. “This is because a 1099 is a form that’s usually provided to independent contractors. An employee, however, is a classification that should be viewed as completely separate.”
The misclassification of an independent contractor can be problematic for a variety of reasons. “If you are calling people independent contractors when they’re technically employees, you’re likely not paying some taxes you should be, as well as providing benefits and including those people in your employee count,” noted Hill. “This can be a significant compliance issue.”
The guidelines that determine what constitutes an employee versus an independent contractor can be confusing for many employers to navigate. “Generally, it boils down to the actual working relationship,” explained Hill.
Some of the key factors that are used to determine whether an individual is an independent contractor or an employee include the degree of:
- Control
- Independence
- Supervision
- Economic dependence
- Permanence
- Skill and initiative
“Basically, with independent contractors, all you really care about is that they get the job done, and they do it well. If they don’t, you obviously want to call one of our great litigators and file a lawsuit against them, to make sure that the work is done the right way the second time around,” laughed Hill.
Employees are typically more closely supervised by the company.
Favorable Development for Employers?
Under a rule that was proposed by the Department of Labor in February of 2026, it will likely be easier for an employer to classify a worker as an independent contractor. “Two specific factors would be more heavily weighed, including the worker’s opportunity for profit or loss and the amount of control the work has over their work,” said Hill.
An independent contractor who should have been classified as an employee could potentially assert claims for wages and overtime, among other issues. Employers can also be liable for unpaid taxes and other withholding obligations.
It is advisable that employers conduct internal audits and assess their workers’ classifications to avoid learning about misclassification issues unexpectedly.
Restrictive Covenants
Emily Massey, a labor and employment attorney and a North Carolina State Bar Board Certified Specialist in Employment Law, discussed the various forms of restrictive covenants. “It is an honor to provide you with a state of the union on restrictive covenants,” joked Massey.
Although many believe that restrictive covenants and noncompete agreements are interchangeable terms, a restrictive covenant applies to various forms of employment contracts. “A restrictive covenant is an agreement where an employer restricts what an employee can do during or after employment,” noted Massey, “though it usually becomes more important post-employment.”
Forms of restrictive covenants include noncompete agreements, non-solicitation agreements, and non-disclosure agreements. A noncompete agreement prohibits the former employee from working within a certain territory or with specific companies. A non-solicitation agreement prohibits soliciting customers or employees from the employer.
“This is somewhat old news, but the death of noncompete agreements has been widely exaggerated,” commented Massey.
The FTC had issued a final rule that would have banned most noncompete agreements in September of 2024, but a Federal judge in Texas set the rule aside, stating it was unreasonably overbroad. In the fall of 2025, the FTC confirmed that it would not further litigate the issue. “The new FTC Chairman commented that the rule would’ve essentially extinguished 30 million private contracts, so it was preliminarily ruled to be illegal, and I agree with that,” explained Massey.
As a result, the state of affairs reverted to the typical enforcement of noncompete agreements. Federal antitrust laws still exist, and large companies that seek to restrict fair competition will continue to be a focus of FTC enforcement.
“During the prior administration, the National Labor Relations Board went after many employers for having noncompete, non-solicitation, and non-disclosure agreements, but we don’t really expect to see that continue unless they’re overly broad and trying to restrict the movement of people that don’t have access to confidential information,” said Massey.
A patchwork of regulations pertaining to restrictive covenants exists at the state level. “Employers in North Carolina need to be aware of the various other regulations at the state level if they have remote employees or offices in other states,” advised Massey.
Although restrictive covenants are becoming increasingly disfavored across the country, the environment for employers is more friendly in Florida. “There’s a new law in effect in Florida that presumes that if an employer has a noncompete with an employee, it’s enforceable, and the employee has the burden to prove that it’s not,” added Massey. “This is highly unusual.”
Kansas has a new law that provides for the presumption of enforceable non-solicitation provisions and requires court modification of overbroad noncompete agreements. “It does a good job of balancing the employer’s and the employee’s interests, so I wish it would get passed here,” commented Massey.
Most of the other recent state laws either ban noncompete agreements or restrict how they can be enforced, particularly for healthcare workers. A new law with significant potential implications is set to go into effect in July of 2026 in Virginia. There, in order for a noncompete agreement to be enforceable, an employer will have to pay severance to the employee. A new law in Tennessee will prohibit the use of noncompete agreements for employees making less than $70,000 per year.
North Carolina does not have a statute that expressly prohibits or limits the use of noncompete agreements. “Determining validity of restrictive covenants requires weighing several factors, and enforcement basically depends on what the judges say,” explained Massey, “and it’s a gray area, however, from a practical perspective, we do litigate restrictive covenants in court, and we see judges in superior courts all over the state granting restraining orders to temporarily enforce them every day.”
Employers should be cautious when hiring an employee that is subject to a restrictive covenant. Even if the agreement is arguablyunenforceable, the former employer could have a claim against the new employer for interfering with the restrictive covenant.
It is also advisable for employers to protect trade secrets and customer relationships with narrowly tailored agreements, such as nondisclosure and non-solicitation agreements.
Directors and Officers Liability Insurance
Allen Trask, an insurance counseling and recovery attorney, provided an overview of directors and officers liability insurance. “This protects the personal assets of the people running the business and the balance sheet of the business itself,” noted Trask.
One in four private companies face a D&O related claim every three years. “This moves it from the realm of hypothetical exposure to that of a planning assumption,” mentioned Trask.
It is a surprise for many to learn that these claims typically originate from someone under the company umbrella, such as a minority shareholder, a co-owner, former officer, a family member with a title, or a bankruptcy trustee. “D&O is the coverage that responds to those claims and provides some cover, but it is not a standalone policy,” commented Trask.
Usually, D&O is an endorsement or part of a larger package that includes employer-related claims, crime and fidelity, and fiduciary coverage. “When you talk to your insurance agent about it, make sure to ask them if they’re carving it out separately, and have them show you where it is in your coverage package,” added Trask.
A standard D&O policy typically includes three coverages:
- Personal-assets protection, which pays the director or officer directly when the company cannot or will not indemnify them
- Company reimbursement, which pays the company back when it indemnifies a director or officer
- Entity coverage, which covers the entity itself when it is sued over regulatory, antitrust, customer, vendor, or investor claims
“Company reimbursement is the most frequently used portion of D&O coverage,” explained Trask.
The Insured versus Insured exclusion bars coverage for a claim that one insured brings against another insured under the same policy. “You might think that would just gut the coverage altogether, but it doesn’t, because there are various carveouts that apply,” said Trask.
Derivative claims, former D&Os (after a one- to two-year separation), whistleblower claims, and claims during insolvency are a few of the most common carveouts. “A derivative claim is when someone who has an interest in the business files a claim from the perspective of the business. So, if you feel there’s a director who has breached their duty to the business, then you can bring a lawsuit. The recovery would go back to the business,” explained Trask.
The major shareholder exclusion can be especially problematic. “This excludes claims from anyone who has more than a five to 10 percent interest in the business,” mentioned Trask.
The details associated with the major shareholder exclusion make it essential to review the coverage relative to current market conditions. “The costs that are spent on a lawyer to defend the claim actually erode the coverage amount,” noted Trask, “so if it’s a million dollar policy and the carrier has to spend $400,000 paying the lawyer, that takes you down to $600,000 worth of indemnity coverage.”
The numbers have an impact on everything, from the decisions regarding how to build a defense to the decisions about how to negotiate a resolution.
The application for insurance is a binding warranty. “You want to make sure that information is accurate and truthful because it will void the policy if it is not,” said Trask.
Notice provisions are typically strict. “Think of it as a DEFCON 2 situation when you’re dealing with a D&O carrier. It’s a lot more strict than when you’re dealing with the property and casualty space, for example,” Trask explained.
Trask advises his clients to ask their agent five important questions:
- Do we have a management liability package? If so, how does this package interact with other policies?
- Does the D&O policy cover former directors and officers?
- What does the Insured versus Insured exclusion carve out?
- Is legal defense outside or inside the limit of coverage?
- Who owns the renewal application, and do they understand it’s a binding warranty?
“The exclusion for Insured versus Insured is one of the most important, because it’s a threshold issue,” mentioned Trask.
“A lot of people don’t realize how quickly paying for legal defense can erode the coverage amount,” said Trask. “It can be very problematic, especially when you’re dealing with multiple insurers who get sued. For example, one carrier may be providing for defense, but they might have to pay for three different attorneys, since they’re not on the same team. This means that the coverage can disappear a lot faster than you might think.”
Trask advocated for contacting the company’s insurance agent to have them analyze the hypothetical outcomes that could potentially arise from various scenarios. “With any of these questions, if you can’t answer them offhand, you need to talk to your agent or your broker, and you’re certainly welcome to call us for help navigating these issues,” concluded Trask.
Government Relations
Marley Peterson, a government relations attorney and a registered lobbyist, shared insights on how government relations are a cost effective business practice with significant return on investment. “No matter your business size or industry, this is something that affects you every day,” noted Peterson.
Government relations is an umbrella term that refers to efforts to influence public policy decisions. “This is basically directly advocating for an outcome in government,” commented Peterson. “The spectrum of activities that I do includes holding meetings for clients with legislators, lobbying for or against public policies, working with state departments or agencies, and engaging with the local media.”
A significant budget is not a requirement, and there are entry points for businesses of all sizes, Peterson said.
In 2025, almost 1,800 bills were filed in the North Carolina General Assembly. “That’s why, in 2024, over 1,000 organizations hired a lobbyist, and the majority of those probably hired more than one,” noted Peterson. “That means your competitors, suppliers, and industry associations already have someone like me watching the legislature on their behalf.”
Additionally, there are over 50 occupational licensing boards and approximately 20 state agencies, such as the Department of Labor and the Department of Commerce, that make rules. Thus, legislative and regulatory activity has a substantial impact on businesses operating in North Carolina.
Real estate and development, healthcare, agriculture, employment, tax and wealth management, and construction are key business segments impacted by legislation. “With construction, of course, building code adoption timelines and licensing requirements can make or break the economics of a project. Right now, there are active discussions about contractor licensing fees, exam requirements, and reciprocity with other states,” Peterson mentioned.
These are areas where a lobbyist can potentially influence the outcome of events. “As an example, this morning, I had a bill passed in the Senate committee that I had already gotten through the House, along with the work of many others,” explained Peterson. “The bill includes a provision my client requested. I worked with legislators and staff to get it into a bill. When I spoke with the legislators, they loved the idea and said it was long overdue. It just hadn’t been brought to their attention before.”
Businesses without a seat at the table run the risk of missing opportunities, being blindsided by new requirements, and having to navigate burdensome regulations. “Legislation can involve carve-outs, phase-in periods and exemptions, but these won’t happen unless you’re there making the request,” said Peterson. “Being reactive also leaves a door open for competitors to walk through and shape policy.”
Many policy outcomes are shaped long before they receive public attention or become law. “Some of my best legislative accomplishments are actually the things that no one will ever know about,” added Peterson, “and that’s because I was playing defense.”
Regulators also typically do not understand an industry as well as the people working in it, so regulations can be unnecessarily burdensome. “I’m working on a bill right now that would have a statewide impact that would negatively affect several of my clients,” commented Peterson. “When I approached the legislators and explained the issue, the bill sponsors agreed and we’re now working on an amendment.”
Though some may balk at the initial investment, the bottom line is that reactive compliance costs more than proactive engagement. Peterson then shared another example involving an agribusiness client that was facing a significant compliance issue with the Department of Environmental Quality. As a direct result of meetings conducted by Peterson, the proposal may not move forward. “If it does, it will be shaped and considered with the business’ point of view,” explained Peterson.
Putting in the effort to proactively engage can exert a range of benefits, including being able to influence legislation before it is finalized. “Most people don’t realize what a huge impact personal stories have on shaping the law,” said Peterson.
As the saying goes, the best offense is a strong defense. “Being proactive means you can get to the table early enough to actually make a difference,” added Peterson.
Businesses with active involvement gain a competitive advantage through early intelligence on upcoming changes, a critical early warning system that allows time to prepare and adapt. Building relationships is another benefit of being proactive, noted Peterson: “Most people don’t realize that state legislators have other day jobs, and they often look to us for information because they’re stretched so thin. So, when you engage consistently, legislators will hopefully come to you as a trusted resource, meaning they’ll call you before they vote on something that affects your industry.”
To get involved, Peterson recommends attending local events, scheduling introductory meetings, and participating in legislative days to build familiarity. Testifying at committee hearings, submitting written comments during rulemaking periods, or attending public forums are additional outreach methods.
Joining a relevant industry association and engaging with a government relations professional are other steps that businesses could take to proactively address strategic issues.
“Government relations is a business strategy, and the best way to be successful is to be helpful, engaged and proactive. We have a rather intense saying that underscores how important this is, ‘If you don’t have a seat at the table, then you might just end up on the menu,” concluded Peterson.
Questions
An audience member wondered how a business owner would know whether D&O insurance is necessary. “The only question is to what extent you need it,” commented Trask. “The risk is fairly low with sole proprietorships but once you get into partnerships or anything with more people, the need becomes more acute.”
Another attendee asked how to hire Peterson. “Give me a call if you’d like,” she said. “I also encourage everyone to have at least one lobby day a year where you sit down with either members from the district or people who have an interest in your line of work. Go meet with them in person if you can, a face-to-face conversation goes a long way.”
In response to a question about whether Ward and Smith is a vertical lobbyist, Peterson said: “We are contract lobbyists, so I help everyone from local governments, nonprofits and major businesses, to trade associations and family businesses. As long as there’s not a conflict of interest, we’re happy to help.”
Read more Insights from our 2026 Closely Held Business Conference:
