As we previously reported on April 23, 2020, in the midst of the COVID-19 pandemic that is dominating the news, Virginia Governor Ralph Northam signed into law a slew of bills passed by the General Assembly that transform Virginia’s employment laws. This is the second part of a series of alerts discussing Virginia’s groundbreaking new laws governing workplace discrimination and retaliation, worker misclassification, wages, restrictive covenants, background checks and whistleblower claims [Part 1 is here].

Employers will be subject to substantial liability for misclassification of employees

On March 10 and March 18, 2020, respectively, Governor Northam signed into law H.B. 984 and S.B. 894, which create a private right of action against employers for misclassifying employees as independent contractors. The new law, set to take effect July 1, 2020, will expose employers who misclassify employees as independent contractors to substantial liability, as employees bringing such actions may recover damages for lost wages/salary (including overtime worked, but not paid), employment benefits, or other lost compensation, as well as reasonable attorney’s fees and costs. Most notably, employers will face an uphill battle in defending these claims because the law creates a general presumption that an individual is an employee unless the employer can establish independent contractor status based on Internal Revenue Service guidelines.

In addition to private lawsuits by contractors claiming to be employees, two other new bills — H.B. 1407 and S.B. 744 — arm the Virginia Department of Taxation with authority to investigate and assess civil penalties for misclassification.  These bills will become effective on January 1, 2021. In addition, Governor Northam also signed into law H.B. 1646.  That bill requires the Virginia Board for Contractors to promulgate regulations to “(i) require a contractor to appropriately classify all workers as employees or independent contractors, as provided by law and (ii) provide that any contractor who is found to have intentionally misclassified any worker is subject to sanction by the Board.” That means that contractors who misclassify their workers risk their licenses.  H.B. 1646 becomes effective on July 1, 2020.

Last, to ensure that employees can report alleged misclassifications to the Virginia Department of Labor and Industry (VDOLI) without fear of reprisal, Governor Northam signed into law H.B. 1199 (March 10, 2020) and S.B. 662 (March 11, 2020).  Both bills prohibit “an employer from discharging, disciplining, threatening, discriminating against, or penalizing an employee or independent contractor because the employee or independent contractor reported or plans to report that an employer or any officer or agent has failed to properly classify an individual as an employee and failed to pay required benefits or other contributions.” The also prohibit retaliation against workers who are requested or subpoenaed by an appropriate authority to participate or testimony in an investigation or hearing. The new law authorizes VDOLI to investigate and take action against an employer for engaging in retaliation and gives it the power to order reinstatement of the employee, payment of lost wages and assess a civil penalty equal to the value of the employee’s lost wages.

In light of these new laws, Virginia employers would be wise to examine any independent contractor relationships as soon as possible to ensure proper classification.

Virginia joins other states in prohibiting non-compete agreements for low-wage employees

Effective July 1, 2020, Virginia will join numerous other states – most recently, Maryland (October 2019), Maine (June 2019) and New Hampshire (July 2019) – in banning non-competition agreements for “low-wage employees.” H.B. 330 and S.B 480  define “low-wage employee” as either: “(i) an individual whose average weekly earnings are less than the average weekly wage in the Commonwealth (currently $1,125 per week); or (ii) an independent contractor compensated at an average rate less than the median hourly wage for the Commonwealth for all occupations as reported by the Bureau of Labor Statistics of the U.S. Department of Labor (currently $20.30 per hour).” Note, however, that they exclude from the definition of low-wage employee those “whose earnings are derived, in whole or in predominant part, from sales commissions, incentives, or bonuses paid to the employee by the employer.”

The new law broadly defines covenant not to compete to include any agreement between an employer and employee that restrains, prohibits, or otherwise restricts the employee’s ability to compete with his or her former employer after termination. The bills also expressly permit an employee to provide service to a customer or client of the employer as long as the employee does not initiate contact with or solicit the customer or client. In addition, they require employers to post the requirements of the new law in the workplace.

The new law creates a private cause of action for low-wage employees, and provides as remedies injunctive relief, liquidated damages, lost compensation, and reasonable attorney’s fees and costs. It also authorizes VDOLI to assess a civil penalty against the employer of $10,000. The statute of limitations for the newly created action is two (2) years.

For more information on developments in these areas or their impact on your business, please contact Betty Graumlich at, Mark Passero at, or the Reed Smith lawyer with whom you normally work.