Virginia’s Worker Misclassification Law, VA Code § 58.1-1900-05 (“WML”), emphasizes the rights of employees to be properly classified as such, and makes it unlawful for employers to require or request that employees sign documents incorrectly classifying them as independent contractors. While the WML does not provide a statutory right of action, an employee terminated in violation of the policy stated in this law may have a common law claim for wrongful discharge.
The WML is important because it prohibits employers from asking or requiring workers sign documents that seek to deny them basic employment rights, like payroll taxes, unemployment protections, and overtime and minimum wages, by misclassifying them as independent contractors.
Classification of Employees
Section 1900 creates a default rule that, for purposes of Virginia employment, tax, worker’s compensation, and unemployment benefits laws, an individual is an employee of the company that pays for his services, unless the company or individual can prove that the individual is an independent contractor under IRS guidelines:
A. For the purposes of this title and Title 40.1, Title 60.2, and Title 65.2, if an individual performs services for an employer for remuneration, that individual shall be considered an employee of the party that pays that remuneration unless such individual or his employer demonstrates that such individual is an independent contractor. The Department shall determine whether an individual is an independent contractor by applying Internal Revenue Service guidelines.
Civil Penalties
Section 1901 imposes civil penalties on employers, and officers and agents of employers, who fail to properly classify employees as such, and fails to pay taxes, benefits, or other contributions required to be paid with respect to the employee:
Any employer, or any officer or agent of the employer, that fails to properly classify an individual as an employee in accordance with § 58.1-1900 for purposes of this title, Title 40.1, Title 60.2, or Title 65.2 and fails to pay taxes, benefits, or other contributions required to be paid with respect to an employee shall, upon notice by the Department to the affected party, be subject to a civil penalty of up to $1,000 per misclassified individual for a first offense, up to $2,500 per misclassified individual for a second offense, and up to $5,000 per misclassified individual for a third or subsequent offense. Each civil penalty assessed under this chapter shall be paid into the general fund.
Debarment Penalty
Section 1902 imposes a debarment penalty, which prohibits public bodies and covered institutions from doing business with a employer that fails to properly classify a worker as an employee:
A. Whenever the Department determines, after notice to the employer, that an employer failed to properly classify an individual as an employee under the provisions of § 58.1-1900, the Department shall notify all public bodies and covered institutions of the name of the employer.
B. Upon an employer’s subsequent violations of subsection A, all public bodies and covered institutions shall not award a contract to such employer or to any firm, corporation, or partnership in which the employer has an interest in the following manner:
1. For a period of up to one year, as determined by the Department, from the date of the notice for a second offense.
2. For a period of up to three years, as determined by the Department, from the date of the notice for a third or subsequent offense.
Prohibition on Agreements Misclassifying Employees as Independent Contractors
Importantly, Section 1903 prohibits employers from requiring or requesting that a worker sign an agreement or document that results in the misclassification of the employee as an independent contractor, or otherwise does not accurately reflect the worker’s relationship with the employer:
No person shall require or request that an individual enter into an agreement or sign a document that results in the misclassification of the individual as an independent contractor or otherwise does not accurately reflect the relationship with the employer.
Prohibition on Terminating an Employee for Refusing to Sign an Agreement Misclassifying the Employee as an Independent Contractor
Section 1904 makes it unlawful for an employer to terminate or otherwise discriminate against an employee to refuses to sign a document misclassifying the employee as an independent contract, or for exercising other rights under the WML:
It shall be unlawful for an employer or any other party to discriminate in any manner or take adverse action against any person in retaliation for exercising rights protected under this chapter.
Remedies
While the WML does not contain a statutory remedy, an employee terminated in violation of the WML’s provisions may be able to bring a common law claim for wrongful discharge in violation of public policy under Bowman v. State Bank of Keysville, 331 S.E.2d 797 (Va. 1985) and its progeny.
Recordkeeping
Section 1905 imposes on the Virginia Department of Taxation recordkeeping and reporting requirements relating to the misclassification of employees as independent contractors:
The Department shall report annually to the Governor and the General Assembly regarding compliance with and enforcement of this chapter. The Department’s report shall include information regarding the number of investigated reports of worker misclassification; the findings of such reports; the amount of combined tax, interest, and fines collected; the number of referrals to the Department of Labor and Industry, Virginia Employment Commission, Department of Small Business and Supplier Diversity, Virginia Workers’ Compensation Commission, and Department of Professional and Occupational Regulation; and the number of notifications of failure to properly classify to all public bodies and institutions.
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