Virginia Enacts Three Bills on Employee Misclassification

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Virginia has passed three new laws that apply to businesses and their use of independent contractors. The main focus is to cut down on misclassification of workers - calling a worker an independent contractor when they should be classified as an employee. 

All three are effective as of July 1, 2020.    

Private Cause of Action for Workers 

  • Allows any individual not properly classified as an employee to bring civil action for damages against their employer for failing to properly classify them (if the employer had knowledge of individual’s misclassification).
  • Opens the door for class actions.
  • There will be a presumption that any individual performing services for a business is an employee. It will be the responsibility of the business to show workers are independent contractors. 
  • In determining if a worker is an independent contractor, the Internal Revenue Service guidelines will apply. 
  • 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 to the individual, reasonable attorney’s fees and costs incurred by the individual in bringing the action.

Prohibiting Retaliation Against Employees 

  • Unlawful for any employer to discharge, discipline, threaten, discriminate against or penalize an employee or independent contractor or take other retaliatory action regarding compensation, terms, conditions, location or privileges of employment because the employee or independent contractor:
    •  either reported or plans to report that an employer failed to properly classify individual 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 by an appropriate authority or in a court action.
  • Employees retaliated against for engaging in this protected activity may file a complaint with the Commissioner of Labor and Industry who can institute proceedings against the employer for appropriate remedies including reinstatement and lost wages.
  • Employers found in violation will be subject to a civil penalty not to exceed the amount of the employee’s wages that are lost as a result of the violation. 
  • Reckless disclosures or those the employee knows or should have known were false, confidential by law or malicious will not be deemed good faith reports and not protected activity, meaning an employee could be fired in this situation.

Creating Investigative Authority for Department of Taxation, Prohibit Improper Misclassification Agreements 

  • All occurrences of misclassification of employees made by the same employer at the same time, or within 72 hours, will be deemed a single offense.  
  • If an employer fails to properly classify an individual as an employee, and fails to pay taxes, benefits or other contributions required to be paid with respect to an employee, the employer will be subject to a civil penalty as follows:
    • First offense: up to $1,000 per misclassified individual
    • Second offense: up to $2,500 per misclassified individual
    • Third or subsequent offense: up to $5,000 per misclassified individual
  • Continued violations and misclassifications can prevent companies from getting government contracts for up to two years.
  • Employers are prohibited from requiring or requesting that a person enter into an agreement or otherwise sign a document that would misclassify them as an independent contractor or otherwise not accurately reflect the relationship between the two as employer and employee.

Implications for Employers

  • All Virginia companies that use independent contractors should consider conducting thorough internal audits to identify any employees that may be misclassified as independent contractors.
  • Employers should review existing employment agreements and service contracts to ensure compliance with the new employee misclassification legislation.
  • There will be increased efforts to limit misclassification and businesses should continue to carefully review and manage their processes for employees and independent contractors. 


If you have questions about worker classification, or risk management in general, contact us for a free consultation. 

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