Worker misclassification: new presumption of “employee” (rather than independent contractor) status
Virginia is making it more difficult for businesses to treat service providers as independent contractors due to a “presumption” of employee status and a new private right of action. The risks of misclassification are heightened for businesses that have government contracts with the Commonwealth due to the threat of debarment.
- Presumption. Any individual who performs services for remuneration is presumed to be an employee, unless the company can prove the individual is an independent contractor pursuant to IRS guidelines (these guidelines, described at 26 C.F.R. 31.3121(d)(1) and here, 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).
- Private right of action. Employees may sue in court for “knowing” misclassifications and can recover wages, salary, reasonable attorneys’ fees, costs, and “employment benefits, including expenses incurred by the employee that would otherwise have been covered by insurance.” This latter provision could be significant if an individual incurs a major medical expense while serving as an independent contractor.
- Public enforcement and debarment. The Department of Labor and Industry is also authorized to enforce this law. In addition to civil penalties, upon two or more misclassification violations, the employer and “any firm, corporation, or partnership in which the employer has an interest” will be debarred for one year (or two years for a third or subsequent offense) from contracts with all Virginia “public bodies and covered institutions.”
- Anti-retaliation. The law prohibits retaliation against an individual who has reported or “plans to report” a misclassification or is requested or subpoenaed by an appropriate authority regarding a misclassification investigation, hearing, inquiry, or court action. Retaliation claims are enforced by the Commissioner, who may seek reinstatement, lost wages, and a civil penalty equal to lost wages.
- Effective date. Some of these provisions, including the presumption and civil penalties, do not take effect until January 1, 2021, however, other provisions, including the provisions authorizing civil actions, take effect on July 1, 2020.