Virginia General Assembly Passes Legislation Prohibiting Worker Misclassification

The Virginia General Assembly is considering legislation that will create new civil penalties for employers who improperly classify workers as independent contractors instead of employees.  The two bills, H.B. 1407 and S.B 744, have been approved by the House and Senate. Once the two versions are reconciled, the legislation is expected to be signed by Governor Northam.

Under the legislation, business who misclassify employees could be fined up to $1,000 per worker for a first offense, $2,500 per worker for a second offense, and $5,000 per worker for any additional violations. The bills would also prohibit the awarding of public contracts for a certain period of time to employers that misclassify workers, and would allow the state Tax Commissioner to share information to help with enforcement. Both versions would take effect Jan. 1, 2021.

In addition to prohibiting misclassification, the legislation prohibits employers from asking or requiring employees to enter into agreements that result in the misclassification of employees, and also prohibits  retaliation against employees for exercising rights under the law. The legislation would use the IRS Guidelines to determine whether or not a worker is misclassified.

While the likely enactment of this legislation is significant change in Virginia, the law is relatively weak when compared to Maryland’s prohibitions on misclassification.  Under the Maryland Unemployment Insurance Article, employers who knowingly misclassify employees may face fines of up to $5,000 per employee, and up to $10,000 for repeated violations.  Anyone who knowingly advises an employer to misclassify employees faces fines of up to $20,000.  Md. Code Ann., Lab. & Empl. § 8-201.1.  Additionally, the Maryland Workplace Fraud Act prohibits employers in the construction and landscaping industries from misclassifying employees.  Md. Code Ann., Lab. & Empl. § 3-903.  The Maryland laws use the “ABC” test to determine if a worker is a contractor or employee. This test, which has received a great deal of national attention recently because of California’s AB5, is harder to satisfy than the IRS guidelines used in the Virginia legislation.

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