Worker Misclassification Missteps Can Prove Costly to Health Care Providers

On July 1, 2020, a slew of new employment laws went into effect in Virginia. While these statutes impact all Virginia employers, a trio of statutes about worker misclassification have particular significance among health care practices. First, under Virginia Code § 40.1-28.7:7, an individual who has not been properly classified as an employee may bring a claim for damages against his or her employer if that employer had knowledge of the individual’s misclassification. The potential damages available under this law include not only unpaid wages or salary that would have been payable to the individual as an employee but also employment benefits, including expenses employee incurred that would otherwise have been covered by insurance, or other compensation lost to the individual. Additionally, a plaintiff can recover his or her attorney’s fees and costs. 

Significantly, this new law presumes that the individual performing services for pay is an employee and the person paying for service is the employer, unless the alleged employer can affirmatively show that the individual is an independent contractor as determined under IRS guidelines. 

As if that is not enough, effective January 1, 2021, pursuant to Virginia Code § 58.1-1901, the Virginia Department of Taxation can impose the following penalties for misclassification offenses: first offense, up to $1,000 per worker; second offense, up to $2,500 per worker, and third + offenses, up to $5,000 per worker.  

Lastly, under Virginia Code § 40.1-33.1, an employer is prohibited from taking adverse action against an employee or independent contractor because he or she 

• has reported or plans to report that the employer has failed to properly classify a worker as an employee and failed to pay required benefits or other contributions; or
• is requested or subpoenaed by an appropriate authority to participate in an investigation, hearing, or inquiry in a court action.

Under section (B) of this statute, these anti-retaliation provisions apply only if an employee or independent contractor who discloses information about suspected worker misclassification has done so “in good faith and upon a reasonable belief that the information is accurate.” 

An aggrieved employee claiming retaliation may file a complaint with the Department of Labor and Industry, which can institute proceedings against the employer for reinstatement and recovery of lost wages. An employer that retaliates against a worker under this statute is subject to a civil penalty not to exceed the employee’s lost wages due to the misclassification.

The fact that the individual wants to be classified as an independent contractor or has business concerns are irrelevant and not defenses to such claims. Health care practices would be wise to review with counsel any existing independent contractor agreements with individuals to determine whether those relationships are truly independent contractor relationships under applicable IRS rules.