In March and April 2020, Gov. Ralph Northam signed multiple bills into law meant to combat worker misclassification. The new legislation creates a private cause of action for misclassified workers, prohibits retaliation against individuals challenging their classification in good faith, establishes new penalties against employers who misclassify workers and prohibits agreements that misclassify workers. It also creates a presumption in favor of an employer-employee relationship, unless the employer can show under IRS guidelines that the individual is an independent contractor.
Private Right of Action Created
Gov. Northam signed House Bill 984 and Senate Bill 894 into law, adding § 40.1-28.7:7 to the Virginia Code effective July 1, 2020. This legislation gives misclassified workers a right to bring a private civil action for damages against their employer if the employer “had knowledge of the individual’s misclassification.” The law also creates a presumption of an employee-employer relationship for individuals who perform services for remuneration. To overcome the presumption, the employer must show that the individual is a contractor under IRS guidelines published for evaluating independent contractor status.
If the court determines that the individual was misclassified, the court may award damages in the amount of any wages, salary, employment benefits (including expenses incurred by the employee that would otherwise have been covered by insurance) or other compensation lost, as well as reasonable attorneys’ fees and costs.
Gov. Northam also signed House Bill 1199 and Senate Bill 662 into law, adding § 40.1-33.1 to the Virginia Code effective July 1, 2020. This legislation prohibits employers from retaliating against individuals who report misclassification or participate in investigations or proceedings relating to misclassification in good faith. Specifically, it prohibits employers from discharging, disciplining, threatening, discriminating against or penalizing an individual, or otherwise taking retaliatory actions against an individual’s pay or terms or conditions of work.
These protections apply only to individuals who act “in good faith and upon a reasonable belief that the information is accurate.” It is not considered good faith when an individual makes disclosures that the individual knew or should have known were false or that are reckless, confidential by law or malicious.
Individuals who believe they have been retaliated against in violation of this law may file a complaint with the commissioner of the Department of Labor and Industry. With the consent of the individual, the commissioner may institute proceedings against the employer and seek reinstatement and lost wages. In addition, the commissioner may impose civil penalties up to the amount of lost wages.
Sanctions From the Board of Contractors
On April 6, 2020, Gov. Northam signed House Bill 1646 into law effective July 1, 2020. That legislation amends § 54.1-1102 of the Virginia Code by directing the Board of Contractors to require contractors to classify all workers appropriately. The Board of Contractors regulates tradesmen and also licensed businesses engaged in construction, removal, repair or improvement of facilities or residential building energy analysis. The amended legislation also gives the Board of Contractors the ability to sanction contractors for intentionally misclassifying workers.
Department of Tax Penalties and Assessments
Also on April 6, Gov. Northam signed House Bill 1407 and Senate Bill 744 into law. This legislation makes certain amendments and adds a new chapter 19 to Title 58.1 of the Virginia Code (§ 58.1-1900 et seq.) effective Jan. 2, 2021.
The legislation authorizes the commissioner of the Virginia Department of Taxation to work and share information with other agencies, including the Department of Labor and Industry and the Virginia Employment Commission, to identify employers who misclassify workers. It also authorizes the commissioner to assess penalties to those employers who misclassify workers under IRS guidelines. The civil penalties per misclassified individual are: (1) up to $1,000 for the first offense, (2) up to $2,500 for a second offense, and (3) up to $5,000 for a third or subsequent offense. Misclassifications of employees made by the same employer at the same time or within 72 hours are deemed a single offense.
Additionally, the commissioner must give notice of any offense to all public bodies and covered institutions, and repeat offenses result in debarment from government contracts for one year for second offenses and two years for third or subsequent offenses.
An employer may challenge an assessment or debarment by submitting an application for correction within 90 days. The employer may also challenge the same in a circuit court within three years of the assessment/debarment or one year from the commissioner’s decision on the application for correction, whichever is later.
This legislation also prohibits an employer from requiring or requesting that an individual enter into an agreement or sign a document that results in misclassification or does not accurately reflect the relationship with the employer.
Finally, it prohibits an employer from retaliating against any person for exercising rights under the law.
Given this new legislation, businesses that use independent contractors in Virginia should reassess those relationships and determine whether any workers may be at risk for misclassification challenges. For further information or questions about the new legislation, or for any questions regarding employment laws applicable to Virginia employers, please contact the authors, your McGuireWoods contact or a member of the firm’s labor and employment group.