New Virginia Labor Laws Including Stiff Penalties For Worker Misclassification Errors

By David, Brody & Dondershine, LLP
www.dbd-law.com
April 2020

It has been a difficult period of time for America which has necessitated many changes. Some of the changes have been on the federal level. Our firm has written about two of the changes: the Families First Coronavirus Response Act (see https://www.dbd-law.com/Client-Alerts/Families-First.shtml) and the CARES Act Paycheck Protection Program Loans (see https://www.dbd-law.com/Client-Alerts/Paycheck-Protection-Program-Through-Covered-Loans.shtml).

On April 11, 2020, Virginia enacted a slew of new employment laws that will alter the landscape for Virginia workers and their employers. The laws, which don't go into effect until July 1, 2020, will have a far-reaching impact lasting beyond the pandemic.

I. New Laws. This Client Alert discusses a few of the new laws.

A. Workers Misclassification Errors. Several bills were signed to prevent and remedy allegations of worker misclassification issues. Worker misclassification errors, e.g., treating a worker as a contractor as opposed to an employee, are sometimes intentional but other times can be a result of confusion in the law. The new law (https://lis.virginia.gov/cgi-bin/legp604.exe?201+cab+HC10204HB0984+RCHB2) defers to the IRS tests. In broad generalities, IRS applies a multi-factor analysis that focuses on whether the worker or the payer has the right to control or direct the result of the work, what work will be done, and how the work will be done.

The new law provides stiff consequences for making a mistake. A worker can be awarded lost compensation equal to wages, salary, employment benefits, and expenses incurred that otherwise would have been covered by insurance, as well as reasonable attorneys' fees and costs. In addition, the measure provides that an individual who performs services for a person for remuneration shall be presumed to be an employee unless the employer can show that the individual is an independent contractor as determined under the IRS guidelines.

In borderline cases, courts have found the existence of an employer-employee relationship in misclassification lawsuits. The new law now places the burden of proof on the employer in a misclassification lawsuit. The new law will also result in making it more difficult to enforce restrictive covenants against independent contractors, because if they are found to be employees rather than independent contractors, which there is an increased likelihood of happening, the restrictive covenants may not be enforceable.

B. Expanded Wage Payment and FLSA Remedies. The new law (https://lis.virginia.gov/cgi-bin/legp604.exe?201+ful+HB123ER) creates a private cause of action for employees of employers who violate Virginia's wage payment law, Virginia Code Section 40.1-29. Now, employers that fail to timely and completely pay wages will be subject to civil penalties of up to $1,000 for each violation. Employees can also bring collective actions through the FLSA (invoking its expansive remedies) or individual actions.

C. Limitation on Non-Competes for Low-Wage Employees. The new law (https://lis.virginia.gov/cgi-bin/legp604.exe?201+ful+SB480ER) adds Virginia Code Section 40.1-28.7:7, which prohibits employers from entering into or enforcing a covenant not to compete against a "low-wage employee." A "low-wage employee" is defined as an employee whose average weekly earnings are less than the average weekly wage of employees in Virginia. Interns, students, apprentices, and trainees all constitute low-wage employees for purposes of the law.

The law also includes independent contractors who are compensated at an hourly rate that is less than the median hourly wage for Virginia in all occupations for the preceding year, as reported by the U.S. Bureau of Labor Statistics. In an important exception, the law does not apply to non-disclosure or confidentiality agreements meant to protect trade secrets and proprietary and confidential information.

D. Other. Other important provisions include (1) expanded rights and responsibilities under the Virginia Human Rights Act (https://lis.virginia.gov/cgi-bin/legp604.exe?201+sum+SB868) and (2) a cause of action for employees of subcontractors against not only the subcontractor but the general contractor for the failure to pay wages (https://lis.virginia.gov/cgi-bin/legp604.exe?201+sum+SB838).

II. Recommendation. Virginia employers should immediately review their policies and procedures for compliance before the new laws take effective on July 1, 2020.

We hope that this Client Alert provides some guidance, although please understand that the Client Alert does not represent a full discussion of the issues. Please contact our firm if you have any questions and we wish that you and the members of your family and business stay safe and healthy.

This Client Alert is intended as an introduction only to the topics addressed - it is not a full discussion of the issues presented. Let us know if you want to discuss the issues in this Client Alert in greater detail or if you have other questions.

DISCLAIMER. This Client Alert does not provide legal advice. We are providing it for general informational purposes only.