Virginia Legislative Update: California of the East? A Flood of Employment-Related Legislation in the Commonwealth

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Seyfarth Synopsis: Virginia has been making headlines this year with an aggressive employment legislation agenda. Employers have come to expect “pro employee” legislation in California, New York and some other states, but not in the Commonwealth, which has long been considered very “employer friendly.”  This year, however, numerous bills were presented that have the potential to substantially impact Virginia employers. Some proposals, like paid sick leave and paid family leave, did not make the cut this time around and have been continued to future sessions. However, a flurry of pro-employee measures were approved as the legislative session wound down last week. The Governor now has until April 11, 2020 to approve and sign legislation.  All new and amended laws will take effect on July 1, 2020.  Below, we summarize some of those laws the Governor has already approved that have the potential to impact employer policies, practices or liabilities. 

Misclassification of Workers as Independent Contractors: The Governor’s Inter-Agency Task Force on Misclassification and Payroll Fraud report issued in November 2019, estimated that 214,000 workers in Virginia are misclassified as independent contractors. Unsurprisingly, several of the legislative measures that have been approved during this legislative session are aimed at combatting the alleged improper classification of employees as independent contractors, and providing remedies and protections for those independent contractors that seek to challenge their classification.

New Private Right of Action: Virginia has created a new cause of action relating to the “misclassification of workers” at Va. Code  § 40.1-28.7:7. An individual who has not been properly classified as an employee can now bring a civil action against his or her “employer” if the employer has knowledge of the individual’s misclassification. If successful, the misclassified individual can recover damages including: wages, salary, employment benefits (including recoupment of expenses covered by the individual that would have otherwise been covered by insurance if the individual had been properly classified as an employee), other compensation lost to the individual, and “reasonable” attorney fees and costs incurred in bringing the action. 

Additionally, in any civil action alleging such misclassification, there is a presumption that a person or entity that pays an individual for the performance of services is an  employer. The presumptive employer can only overcome that presumption if it can prove that the individual is an independent contractor under the most recent version of Internal Revenue Service guidelines and regulation, including 26 C.F.R. § 31.3121(d)-1.

This legislation is significant as there is currently no private right of action for the  misclassification of workers as independent contractors. Rather, such suits are traditionally brought in the context of Fair Labor Standards Act claims for unpaid overtime wages.  In those suits, proving a misclassification is only one step necessary for recovery. The allegedly misclassified individuals must then also prove they worked overtime.  In Virginia, it now appears that  proof of the misclassification alone is sufficient to entitle workers to some damages. Additionally, employers face an uphill battle in any such suit with the presumption of employment based on  payment for services alone.

Anti-Retaliation Provisions for Reporting Misclassification of Workers: A new section, Va Code § 40.1-33.1, has been added to the Virginia Code to prohibit retaliation against employees or independent contractors who report an alleged misclassification of workers as independent contractors and failure to pay required benefits or contributions. 

In order for a report to qualify for this protection, the individual must have made the report in good faith and with a reasonable belief that it is accurate. Prohibited actions include discharge, discipline, threats, discrimination, penalties or other retaliatory actions with respect to the terms, conditions, location or privileges of employment. The protection extends not only to those who make (or plan to make) the initial report of alleged misclassification, but also those who participate in an investigation, hearing or inquiry by the appropriate authority.  

Unlike much of the other legislation passed or pending in this session, this provision does not create a private right of action and permit filing of a civil suit by an individual. Rather, any alleged violations must be reported to the Commissioner of Labor & Industry, who, with the written and signed consent of such an employee, may institute proceedings against the employer for remedies, including reinstatement  and recovery of lost wages. Employers can also be subject to civil penalties in an amount equal to the employee’s lost wages resulting from the violation. Notably, although the prohibition on retaliation extends to both employees and independent contractors, the filing of a complaint with the Commissioner is limited to “an employee.”

More to Come on Misclassification: Additional measures relating to the misclassification of workers as independent contractors are awaiting the Governor’s approval, including new civil penalty and debarment ramifications for government contractors.

Expansion of Investigations of Employers for Non-Payment of Wages: Keeping in line with the focus on worker classification and wage payment concerns, Virginia has also expanded the ability of the Commission of Labor & Industry to investigate the potential non-payment of wages. 

Specifically, if the Commissioner has a reasonable belief (based on information learned during an investigation of a complaint about an employer’s failure to pay wages in accordance with the requirements of Va. Code § 40.1-29) that other employees are not being paid wages in accordance with such requirements, the Commissioner has the authority to investigate the employer’s wage payment practices with respect to other employees, even without those employees filing a complaint. The Commissioner also has the authority to institute actions on behalf of those employees impacted in accordance with Va. Code § 40.1-29, even without the written and signed consent of the impacted employees.

Employers should be mindful that this section includes the pay statement amendments to Va. Code § 40.1-29 that went into effect on January 1, 2020, and make sure they are in full compliance with the new requirements. Those amendments require Virginia employers to provide each employee a written statement, by a paystub or online accounting, on every regular payday that shows the name and address of the employer, the number of hours worked during the pay period, the rate of pay, the gross wages earned by the employee during the pay period, and the amount and purpose of any deductions therefrom. 

Discrimination Based on Natural Hair: Although other measures expanding discrimination protections remain pending, the Virginia Human Rights Act has been amended  pursuant to what is commonly referred to as a “CROWN” Act. The VHRA will now define discrimination “because of race” to include discrimination because of or based on traits historically associated with race, including hair texture, hair type, and hairstyles such as braids, locks and twists. 

Stay Tuned

Several other employment-related bills were approved by the House and Senate before the conclusion of the General Assembly session.  Perhaps most notably, this includes the Virginia Values Act which could lead to sweeping changes to the Virginia Human Rights Act and significantly increase liability-exposure for employers. We will continue to monitor the Governor’s action on all employment-related legislation over the coming weeks as we approach the April 11, 2020 deadline.