Increased Focus on Worker Misclassification
Governor Northam signed a number of bills aimed to prevent and remedy allegations of worker misclassification. House Bill 984 and Senate Bill 894 create a private cause of action for individuals who claim they have been misclassified as independent contractors. The law will follow the current Internal Revenue Service (“IRS”) guidelines to determine whether an individual is appropriately classified as an independent contractor. Successful plaintiffs may 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.
Individuals also may bring private actions for retaliation if they report alleged misclassification. Under House Bill 1199 and Senate Bill 662, employers found liable for retaliation will be subject to a civil penalty up to the value of the employee’s lost wages.
The recently signed bills also vest additional authority in Virginia agencies to reduce misclassification. Pursuant to House Bill 1407 and Senate Bill 744, the Virginia Department of Taxation has the authority to oversee investigations into suspected cases of worker misclassification and levy penalties as appropriate. The Department of Taxation may share information with other agencies, including the Department of Labor and Industry, about employee misclassification. Under House Bill 1646, the Virginia Board of Contracts may sanction contractors who intentionally misclassify workers.
Limitations on Non-Compete Agreements
Virginia has also followed the lead of a number of other states that have recently prohibited employers from requiring low-wage workers to enter into non-compete agreements. Under House Bill 330 and Senate Bill 480, Virginia employers may not enter into or enforce a covenant not to compete against a “low-wage employee.” Such employees may bring a private cause of action against an employer to seek injunctive relief, lost compensation, liquidated damages, and reasonable attorneys’ fees and costs.
“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. Importantly, this also includes independent contractors who are compensated at an hourly rate that is less than the median hourly wage for Virginia for all occupations for the preceding year, as reported by the U.S. Bureau of Labor Statistics.
The law, however, does not prohibit employers from requiring low-wage employees to enter into non-disclosure or confidentiality agreements meant to protect trade secrets and proprietary and confidential information.
With respect to worker classification:
- Review agreements and relationships with independent contractors to ensure they are appropriately classified.
- Modify template independent contractor agreements to follow IRS guidelines for classification of independent contractors.