May 20, 2020 - 11:00am

Virginia Passes Misclassification Statutes


Executive Director, Labor Policy

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Virginia State Capitol
Virginia State Capitol, Photo by Sean P. Redmond

The ongoing coronavirus pandemic has occupied the time and attention of most policy makers for the last several months, and rightfully so, but legislators in the Commonwealth of Virginia recently managed to pass several unrelated bills while others’ focus lay elsewhere.

In addition to permitting local government employees to unionize—something even Democrat icon FDR opposed—three of those bills dealt with purported misclassification of independent contractors, which has been a cause du jour of pro-labor activists in recent years.  The bills follow a report from Virginia Governor Ralph Northam’s Inter-Agency Taskforce on Misclassification and Payroll Fraud, which he first appointed in August 2018 and reauthorized a year later with a stated objective of having a report and recommendations by November 1, 2019. 

The task force subsequently released its 35-page report—albeit three weeks late—on November 22, 2019, with several recommendations. Among them, the taskforce suggested increased penalties for alleged misclassification, which the taskforce believes should apply even “when an employer received advice, consultation or counsel” to adopt such alleged misclassification as a “‘business model,’” with the extra quotes added apparently for effect.

The taskforce recommended granting a private right of action and whistleblower protection for individuals who report alleged misclassification, and it calls for administrative sanctions such as debarment for businesses for misclassification. The report also calls for legislation or executive action to form an interagency effort to investigate and prosecute alleged misclassification, and for good measure the taskforce recommended that it be allowed to “remain in place” and “reconvene as needed.”

With the taskforce’s recommendations in hand, the newly-minted Democrat majority in the Virginia legislature set out to enact legislation that would realize much of them. Addressing the private right of action, HB 984 creates the right to pursue civil action against an employer for alleged misclassification, a convenient tool for class action lawsuits seen in other states like California

The second statute, HB 1199, prohibits retaliation against individuals who report or plan to report alleged misclassification or failure to pay for benefits required for employees, and it similarly prohibits retaliation for participating in misclassification investigations initiated by a government agency. The law will provide enforcement power to the Commissioner of Labor and Industry, who may require reinstatement of employees, back pay, and a civil fine equal to the amount of back pay.

As this blog observed previously, perhaps the most sweeping new statute, HB 1407 adopts the Internal Revenue Service's guidelines, or "twenty-factor" test, to determine whether someone is an independent contractor while also creating a presumption that the relationship between a business and an individual performing work for the business is that of an employer-employee. In other words, an entity that pays for services will have the burden of proving that the person performing those services is an independent contractor and not an employee, and the putative employer may not require an individual to sign an agreement stipulating that they are an independent contractor. The new statute will apply not just to wage and hour law, but also the unemployment and workers’ compensation provisions of Virginia law. 

Lastly, HB 1407 assumes any one or more alleged violations within 72 hours constitute a single violation, but beyond that it imposes penalties up to $5,000 per misclassified individual and debarment from government contracts up to two years for repeat offenses.

For employers in the Old Dominion state, the phrase “elections have consequences” just got real.

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About the Author

About the Author

Sean P. Redmond
Executive Director, Labor Policy

Sean P. Redmond is Executive Director, Labor Policy at the U.S. Chamber of Commerce.