Misclassification of Employees: New laws for Virginia businesses

This year Virginia has experienced a seismic shift to its employment law. Over the course of the next few weeks we will be posting articles which all Virginia businesses should be aware.

One of the most significant changes to Virginia Employment Law is that effective July 1, 2020, Virginia Code § 40.1-28.7:7 provides misclassified workers the right to bring a private action for damages against their employer if the employer “had knowledge of the individual’s misclassification.” Another significant piece of this legislation is that it creates the presumption of an employee-employer relationship for individuals who perform services for remuneration. For the employer to overcome that presumption, the employer must show that under IRS guidelines, the individual qualifies as a contractor. IRS guidelines 26 C.F.R. 31.3121(d)(1) focus on the level of control the business exercises over the individual, broken into considerations of (1) behavioral control; (2) financial control; and (3) the type of relationship.

Successful employee litigants have a right to recover wages, lost compensation, benefits and reasonable attorney’s fees from their employer. Civil penalties can also be assessed and directed to be paid to the Literary Fund.

As extra protection for employees, Virginia Code § 40.1-33.1 prohibits employers from retaliating against individuals who report 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. If an employee believes that they were retaliated against, the employee can bring a complaint with the Commissioner of Labor and Industry who can bring an action against the Employer.

Virginia Code § 58.1-1900 prescribes that beginning January 1, 2021, the Department of Taxation is authorized to work and share information to identify employers who fail to properly classify employees and stop retaliation by Employers by subjecting the Employer to a civil penalty up to the value of the wages lost. Employers have the opportunity to challenge an assessment or debarment, but there are strict time limits to do so.

As a result of these changes, businesses need to reassess whether their independent contractors are really independent contractors or if they are truly employees, at risk for misclassification.

If you have questions regarding changes to how employees are classified and how it affects your small business, please don’t hesitate to reach out to Winslow & McCurry at (804) 423-1382 or info@wmmlegal.com to schedule a consultation.