If a temporary employment agency supplies security guards to North Carolina businesses or government agencies, must the agency itself be licensed by the Private Protective Services Board?

Plain-English summary

The Administrator of the N.C. Private Protective Services Board (PPSB) asked the AG whether a temporary employment agency that supplied security guards (armed or unarmed) to client businesses and government agencies needed to be licensed under Chapter 74C, the Private Protective Services Act. The triggering fact pattern was an arrangement with the North Carolina Ports Authority: the temp agency placed certified law-enforcement-officer guards on its own payroll, withheld taxes and Social Security, and provided fringe benefits, while the Ports Authority Chief of Security interviewed and selected which officers to use.

Associate Attorney General Teresa L. White answered: yes, the temp agency must be licensed, both for armed guards and for unarmed guards, regardless of whether the guards are certified law enforcement officers.

Chapter 74C requires a license for any person, firm, association, or corporation engaging in the business of providing a private watchman, guard, or street patrol service "on a contractual basis for another person, firm, association, or corporation for a fee or other valuable consideration." The triggering activities include prevention or detection of intrusion, observation of unauthorized activity, protection of patrons, and controlling movement of people for the protection of properties.

The statute contains an exemption for proprietary security: in-house employees employed "regularly and exclusively as an employee by an employer in connection with the business affairs of such employer." A corporation that has its own internal security force does not need a PPSB license; the corporation is not in the security guard "business" in the sense the statute regulates. The carve-out is for the captive employee, not for the third-party provider.

The legal pivot in this opinion is the special-employment doctrine. Under that doctrine, when a temp agency places a worker with a client, the worker can simultaneously be the employee of both the temp agency (the general employer) and the client (the special employer). The AG cited Santa Cruz Poultry, Inc. v. Superior Court (1987) for this principle. In that case the California Court of Appeals held that "where the general employer is a temporary employment agency and the business to which the employee is assigned has the right of supervision and direction of the employment duties, the typical result is to find the existence of a special employment relationship." Hoffman v. National Machine Co. (Michigan) and Campbell v. Central Terminal Warehouse (Ohio) supported the same conclusion.

Applying that doctrine, the guards placed by the temp agency at the Ports Authority were employees of both the temp agency and the Ports Authority. The proprietary exemption in § 74C-3(a)(6) requires "regularly and exclusively" employed by the client, and a guard who is on the temp agency's payroll cannot meet that exclusivity test. The agency keeping the guards on its books, withholding taxes, and providing fringe benefits cemented the conclusion: the temp agency remained an employer, and the guards were not "regularly and exclusively" the client's employees.

For armed guards specifically, the statute is even more demanding. § 74C-3(a)(6) provides that even guards who would otherwise fall within the proprietary exemption are subject to § 74C-13 (firearms registration) if they are armed. § 74C-13(a) makes it unlawful for any armed private security officer to carry a firearm in the performance of duties without an individual firearm-registration permit issued by the Board.

§ 74C-13 also defines "contract security company" as any entity engaging in a private protective services business that provides those services on a contractual basis. A temp agency placing armed guards with clients on a contract basis falls within that definition. The temp agency therefore needs (a) a Chapter 74C license to operate as a contract security company, and (b) firearm registration permits for each of its armed guards. The fact that the client interviews and selects which officers to hire does not vitiate either requirement.

The opinion also addresses the wrinkle that some of the guards were Chapter 17C certified law-enforcement officers. The AG was clear: certification under Chapter 17C does not exempt either the guards or the agency from Chapter 74C licensing. Off-duty law enforcement officers can be employed by a licensed security guard and patrol company on an employer-employee basis (a separate provision of § 74C-3(a)(6)), but that employer must be a licensed company; the licensure obligation is not waived by Chapter 17C status.

The opinion's bottom line: a temp agency placing security guards is a contract security company. The proprietary-employee exemption is not available to it because the employment relationship is split. Chapter 17C law-enforcement certification does not change the result. The agency needs the license and (for armed guards) the firearm permits.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. Chapter 74C has been amended several times since 1987, including changes to the firearm-permit requirements and the addition of new categories such as electronic countermeasures and security consultants. The Private Protective Services Board has continued the licensing program for contract security companies in the same general framework. The special-employment doctrine has remained settled North Carolina law (see later cases under workers' compensation and the borrowed-servant doctrine). Modern temp-agency security placements still typically require dual compliance: the temp agency holds the PPSB license, and each guard holds an individual registration / permit.

Background and statutory framework

The Private Protective Services Act, enacted in 1981, was a response to the rapid growth of the private security industry in North Carolina and the recognition that armed and unarmed guards perform police-like functions in commercial settings. The PPSB's screening and training requirements include criminal-record checks (12 N.C.A.C. 7D .0703) and firearm training (12 N.C.A.C. 7D .0807). Without licensure, anyone could put on a uniform, strap on a sidearm, and patrol a shopping mall.

The Shipman case from the N.C. Court of Appeals (1986) had recently confirmed the legitimacy of this regulation in the year before this opinion. Shipman held that "regulating an occupation which engages in many of the same activities as our public police officers is clearly a legitimate purpose of state government." That sets up the AG's analysis: the regulatory framework is sound, and exemptions to it should be read narrowly.

The proprietary-exemption issue addressed in this 1987 opinion arises from a common business arrangement: large facilities (the Ports Authority, hospitals, corporate campuses) want flexible security staffing without becoming employers themselves. Temp agencies fill that gap. The question is whether the agency / client structure can side-step PPSB licensure by claiming the guards are "really" the client's employees.

The special-employment doctrine cited by the AG was the right tool for this question. It recognizes economic reality: a worker dispatched by a temp agency to a client typically takes day-to-day direction from the client (the special employer) while remaining payroll-and-benefits-attached to the agency (the general employer). For most legal purposes (workers' compensation, employer liability, tax), the doctrine assigns specific responsibilities to one or the other based on the function being analyzed. For PPSB licensing, the AG used the doctrine to defeat the claim of "exclusive" employment by the client.

The cited California, Michigan, and Ohio cases all predate the 1987 opinion and reflect the then-emerging body of temp-agency special-employment jurisprudence. The AG essentially imported the doctrine into the PPSB regulatory framework as a tool for interpreting the proprietary exemption.

The firearm-registration overlay in § 74C-13 is parallel: every armed guard needs the individual permit, regardless of whether they are employed by a contract security company or a proprietary security organization. The agency-vs-client dispute about who is the employer does not affect the individual guard's licensure obligation.

Common questions

Can a temp agency placing only law-enforcement-officer guards skip PPSB licensure?

No. The opinion is explicit that Chapter 17C certification does not exempt the agency. The agency is still in the business of providing security on a contractual basis, which triggers Chapter 74C. There is a narrow provision allowing licensed security companies to employ off-duty police officers, but that contemplates a licensed company doing the employing.

Does the proprietary exemption work if the client agency hires the guards directly through the temp agency's job posting?

The proprietary exemption is about the structure of the employment relationship, not the recruiting channel. If the client agency ends up paying the guards directly (no temp agency on the payroll, no temp agency holding taxes, no continuing relationship with the temp agency), then the guards may be the client's "regularly and exclusively" employees and the exemption could apply. The mere use of the temp agency as a recruiter does not defeat the exemption; what defeats it is the temp agency staying in the employment relationship.

Can the temp agency restructure to be a licensed contract security company?

Yes. The opinion's conclusion is not that the temp agency must exit the business but that it must be licensed. Any agency that wants to keep placing guards can apply for and obtain a Chapter 74C license, satisfy the Board's training and screening requirements, and operate as a contract security company. That is the path the statute contemplates.

What if the temp agency provides only janitors or clerical staff to a client and the client uses some of those workers as informal guards?

The statute targets the business of providing security services. If the temp agency is providing clerical staff and the client uses them as guards, the temp agency is not in the security business. The licensure obligation falls on whoever is in the security business, and on the armed individual if they carry a firearm in the performance of guard duties.

Does the client (the Ports Authority in this fact pattern) face liability for using an unlicensed contract security company?

The opinion does not directly address client liability. The Board's enforcement authority under § 74C-5 runs to licensees and applicants. The client may face indirect consequences: insurance coverage may be voided, contracts may be unenforceable, and downstream civil claims (e.g., negligent hiring) may be harder to defend if the security provider was operating without the required license.

Source

• Landing page: https://ncdoj.gov/opinions/license-requirement-for-security-guard-and-patrol-businesses/

Citations

• N.C.G.S. § 74C (Private Protective Services Act)
• N.C.G.S. § 74C-3(a), (a)(6) (licensing requirement and proprietary exemption)
• N.C.G.S. § 74C-4(a), § 74C-5(6) (Board authority)
• N.C.G.S. § 74C-13, (a)(2), (a)(3) (firearm permit; contract security company; proprietary security organization)
• 12 N.C.A.C. 7D .0703, .0807 (criminal record and firearm training rules)
• Chapter 17C (criminal justice training and standards)
• Shipman v. N.C. Private Protective Services Bd., 82 N.C. App. 441 (1986)
• Hoffman v. National Machine Co., 113 Mich. App. 66 (1982)
• Campbell v. Central Terminal Warehouse, 56 Ohio St.2d 173 (1978)
• Santa Cruz Poultry, Inc. v. Superior Court, 239 Cal. Rptr. 578 (1987)

Original opinion text

Requested By:

James F. Kirk, Administrator

N.C. Private Protective Services Board

Questions:

• (1)
• Is a temporary employment agency authorized to provide armed and/or unarmed security guards to a government agency or a civilian company, firm, association, etc., without being licensed in accordance with Chapter 74C of the General Statutes of North Carolina?
• (2)
• Where a temporary employment agency is under contract to a North Carolina Ports Authority to provide armed guards who are certified law-enforcement officers under Chapter 17C of the General Statutes of North Carolina, must the agency be licensed under Chapter 74C of the General Statutes of North Carolina where it allows the Chief of Security for the Ports Authority to interview and select the officers hired (agency placed the guards on its payroll, withheld taxes and social security and provided other fringe benefits) by the agency to provide armed security for the Ports Authority?
• (3)
• If the guards being provided by the temporary agency are not certified law-enforcement officers and the other facts, stated in Question two above existed, would the temporary employment agency be in violation of Chapter 74C of the General Statutes of North Carolina for providing unarmed security guards without a license?

Conclusions:

• (1)
• No.
• (2)
• Yes.
• (3)
• Yes.

Questions one, two, and three present similar considerations for analysis. For this reason, these questions are analyzed together. Initially, however, it is helpful to examine the purpose of the Private Protective Services Board (hereinafter Board) which was created by the Private Protective Services Act, Chapter 74C of the General Statutes of North Carolina.

An examination of the Act shows that the Board was created to "administer the licensing and set educational, and training requirements for persons, firms, associations, and corporations, engaged in the private protective services businesses within this State." G.S. § 74C-4(a). The Board is authorized to "deny, suspend, or revoke any license issued under this Chapter to any applicant or licensee who fails to satisfy the requirements of this Chapter and/or the rules established by the [B]oard." G.S. § 74C-5(6).

The licensure and training requirements prescribed by the Act and regulations promulgated thereunder are clearly designed to protect the citizens of North Carolina. The Board's application process entails searching the criminal record of each applicant to insure that the applicant has not been convicted of any crime which would indicate bad moral character. 12 N.C.A.C. 7D .0703. Also, each armed guard must provide proof of the successful completion of a firearm's training course. G.S. § 74C-13; 12 N.C.A.C. 7D .0807.

Unquestionably, the State may regulate security guard and patrol businesses by establishing licensing requirements. Shipman v. N.C. Private Protective Services Bd., 82 N.C. App. 441, 346 S.E.2d 295 (1986). In Shipman, the North Carolina Court of Appeals stated that:

[r]egulating an occupation which engages in many of the same activities as our public police officers is clearly a legitimate purpose of state government.

82 N.C. App. at 444.

Under N.C.G.S. § 74C-3(a)(6) a license is required for:

any person, firm, association or corporation engaging in the business of providing a private watchman, guard, or street patrol service on a contractual basis for another person, firm, association, or corporation for a fee or other valuable consideration and performing one or more of the following functions:

• a.
• prevention and/or detection of intrusion, entry, larceny, vandalism, abuse, fire, or trespass on private property;
• b.
• prevention, observation, or detection of any unauthorized activity on private property;
• c.
• protection of patrons and persons lawfully authorized to be on the premises of the person, firm, association, or corporation for whom he contractually obligated to provide security services; and
• d.
• control, regulation, or direction of the flow or movement of the public, whether by vehicle or otherwise, only to the extent and for the time directly and specifically required to assure the protection of properties.

This definition does not include a person employed regularly and exclusively as an employee by an employer in connection with the business affairs of such employer, except that if the employee is an armed private security officer and wears, carries, or possesses a firearm in the performance of his duties, the provisions of G.S. 74C-13 shall apply; provided, however, that nothing in this Chapter shall be construed to prohibit a law enforcement officer from being employed during his off-duty hours by a licensed security guard and patrol company on an employer-employee basis; provided further, that the police officer shall not wear his police officer's uniform or use police equipment while working for a security guard and patrol company. This definition does not include a law enforcement officer who provides security guard and patrol services on an individual employer-employee basis to a person, firm, association, or corporation which is not engaged in a security guard and patrol business.

The North Carolina Courts have not construed the statutory definition of security guard and patrol businesses as it relates to temporary employment agencies. In fact, there are no cases which construe this definition as it applies to a temporary employment agency. However, there are some cases which have discussed whether the employee of a temporary employment service is also an employee of the business to which he has been assigned to work. Hoffman v. National Machine Co., 113 Mich. App. 66, 317 N.W.2d 289 (1982); Campbell v. Central Terminal Warehouse, 56 Ohio St.2d 173, 383 N.E.2d 135 (1978).

In Santa Cruz Poultry, Inc. v. Superior Court, Cal. App. 3d , 239 Cal. Rptr. 578 (1987), the Court of Appeals of California stated:

Where the general employer is a temporary employment agency . . . and the business to which the employee is assigned has the right of supervision and direction of the employment duties, the typical result is to find the existence of a special employment relationship.

Santa Cruz, 239 Cal. Rptr. at 580.

Applying Santa Cruz, it appears that a special employment relationship exists between the security guards furnished by the temporary employment agency and the client seeking security services. Assuming that unarmed guards are provided by the temporary employment agency, the question is whether they fall within the exemption under G.S. § 74C-3(a)(6) for proprietary security guards. Here, this question cannot be resolved in the affirmative because the exemption plainly applies only to a "person employed regularly and exclusively as an employee by an employer in connection with the business affairs of such employer."

In essence, for the unarmed guards to fall within the proprietary exemption, they must be employed solely by the client. However, inasmuch as Santa Cruz supports the proposition that the guards are employees of both the temporary employment agency and its client, the temporary employment agency is not entitled to rely upon the proprietary exemption. This appears to be buttressed by the fact that the agency carries the guards on its payroll, deducts taxes, social security, and makes various benefits available to the guards. Therefore, it is concluded that the temporary employment agency must first obtain a security guard and patrol license under Chapter 74C before providing unarmed guards to their clients. As explained more fully below, this conclusion applies irrespective of whether or not the guards have been certified as law-enforcement officers under Chapter 17C of the General Statutes of North Carolina.

With respect to armed guards, G.S. § 74C-3(a)(6) provides that although the definition of security guard and patrol business excludes those persons regularly and exclusively employed by an employer in connection with the employer's business affairs, employees serving as armed private security officers and wearing, carrying, or possessing a firearm in the performance of their duties are subject to the provisions of G.S. § 74C-13. G.S. § 74C-13 reads, in pertinent part:

• (a)
• It shall be unlawful for any person performing the duties of an armed private security officer to carry a firearm in the performance of those duties without first having met the qualifications as set forth in this section and having been issued a firearm registration permit by the Board. For the purpose of this section, the following terms are defined:
• (1)
• "Armed private security officer" means an individual employed by a contract security company or a proprietary security organization whose principal duty is that of an armed security guard, patrol, or watchman; armed armored car service guard; alarm system company responder; private detective; or armed courier service guard who at any time wears, carries, or possesses a firearm in the performance of his or her duties.
• (2)
• "Contract security company" means any person, firm, association, or corporation engaging in a private protective services business as defined in this Chapter which provides said services on a contractual basis for a fee or other valuable consideration to any other person, firm, association, or corporation.
• (3)
• "Proprietary security organization" means any person, firm, association, or corporation or department thereof which employs watchmen, security guards or patrol personnel, alarm responders, armored car personnel, or couriers who are employed regularly and exclusively as an employee by an employer in connection with the business affairs of such employer.

Considering the above-quoted provisions, a temporary employment agency providing armed guards to its clients on a contractual basis falls within the definition of a contract security company. Moreover, to properly operate as a contract security company, it is concluded that the temporary employment agency must be licensed by the Board as a statutory prerequisite to engaging in the private protective services business as defined in G.S. § 74C-3. See G.S. §§ 74C-2 and 74C-13(a)(2). This conclusion is not vitiated by the fact that the client interviews and selects the officers hired by the temporary employment agency to provide armed security for the client.

LACY H. THORNBURG ATTORNEY GENERAL

Teresa L. White Associate Attorney General