New Virginia Statutes Target Employee Misclassification and Wage Issues

On July 1, 2020, Virginia enacted a host of new employment laws that provide new protections for employees and impose new obligations and restrictions on employers. Among those new laws that went into effect on July 1st are significant legal changes relating to the misclassification of employees as independent contractors and to wage payment and compensation issues.

Effective July 1, 2020, workers that are misclassified as independent contractors, rather than employees, can bring a lawsuit against employers for such misclassification. Importantly, the new law provides a presumption that a person providing services for pay is an employee. The employer may only overcome this presumption by showing that the worker is a contractor under the rigorous guidelines adopted by the IRS. In an action under this section, a misclassified employee may receive as damages any compensation and employment benefits lost as a result of the misclassification, plus attorneys’ fees and costs expended in bringing the action. Virginia bolstered this new provision by prohibiting employers from retaliating against workers who “in good faith and upon a reasonable belief” report suspected misclassification or participate in investigations or court proceedings.

Adding to Virginia’s efforts to crack down on employee misclassification, beginning on January 1, 2021, the Virginia Department of Taxation will be charged with applying IRS guidelines to make determinations of whether an employee is misclassified as a contractor. Again, any worker providing services in exchange for pay will be presumed to be an employee. If the Department of Taxation determines that misclassification has occurred, it may impose civil penalties up to $1,000 for a first offense, up to $2,500 for a second offense, and up to $5,000 for subsequent offenses. And the Department of Taxation will notify all public agencies and bodies of the misclassification determination against the employer. The employer could be debarred from receiving contracts from such public agencies for up to one year for a second offense and for up to three years for a third and subsequent offense. As of January 1, 2021, employers cannot “require or request” that a worker sign any agreement or document that misclassifies the worker as an independent contractor and cannot discriminate or retaliate against any person for exercising rights under the statute.

Aside from targeting misclassification issues, Virginia also added teeth to its wage payment statute. As of July 1, 2020, employees can bring lawsuits—either individually, in conjunction with other employees, or as a collective action on behalf of similarly situated workers—for failure to pay wages. Similar to the provisions of federal wage and hour law, employees, if successful on their claims, can recover the back wages owed, liquidated damages in an amount equal to the back wages, and attorneys’ fees and costs incurred in bringing the action. However, if an employer knowingly fails to pay wages, the employer can be liable for triple the amount of back wages. The revised statute also allows the Department of Labor and Industry (DOLI) to accept, investigate, and determine complaints for non-payment of wages, to file civil actions to collect wages due, and to impose civil penalties up to $1,000 for each violation.

Finally, Virginia enacted a “wage transparency” law, protecting employees when they are discussing compensation with their co-workers. Employers cannot take retaliatory action against an employee for inquiring about, disclosing, or discussing compensation with another employee. However, employers can prevent employees who have access to compensation as “part of their essential job functions” from disclosing compensation information to persons not having access, unless the disclosure occurred as part of a formal complaint, an investigation (including an internal investigation), or the employee’s legal duty to furnish such information. The DOLI has the final authority to determine violations and can impose civil penalties up to $100 per violation.

Given these new laws, the balance has tipped significantly in favor of employees in Virginia. As such, employers need to be especially careful when using independent contractors and need to make sure their payroll practices and personnel policies are updated to ensure compliance with the new requirements. Otherwise, they could be faced with significant liability under Virginia’s new statutes.