Worker Classification Legislation Moves Ahead in Virginia

Feb. 4, 2020, 10:02 PM

Virginia lawmakers are advancing legislation that would punish employers for misclassifying their workers as contractors rather than employees.

The House of Delegates approved a bill (H.B. 1407) Tuesday that would impose a fine of up to $1,000 per worker on businesses that improperly treat their employees as independent contractors. Maximum fines would be boosted to $2,500 per misclassified individual for second offenses and to $5,000 for any additional violations.

Virginia’s Senate approved its version of the measure (S.B. 744) on Jan. 27. Once differences between the bills are reconciled, the measure will be sent to Gov. Ralph Northam (D), who is expected to sign it. Both versions were approved largely along party lines, with Democrats voting in favor and Republicans against the legislation.

Worker classification has attracted growing attention from state lawmakers, partly due to the spread of the gig economy and app-based transportation and delivery services such as Uber, DoorDash, and Lyft that connect workers to consumers. But the issue affects a broad range of industries such as construction, health care, and information technology.

Workers properly classified as independent contractors rather than employees aren’t guaranteed minimum wages, overtime benefits, or other employment protections. That means employers can face higher labor and other costs for workers deemed to be employees under the law.

New Jersey and California both recently enacted employee classification laws and other states including New York are considering similar legislation. California’s new requirements are facing multiple court challenges.

Northam issued an executive order in 2019 calling for an inter-agency task force to make recommendations on how to address the issue in Virginia. The pending measures stem from that study.

When he announced the study results in November, Northam said that about 214,000 state workers are misclassified as contractors, costing the commonwealth some $28 million in tax revenues each year.

The House and Senate bills pending in Virginia would prohibit the awarding of public contracts for a certain period of time to employers that misclassify workers. The legislation also would allow the state Tax Commissioner to share information to help with enforcement. Both versions would take effect Jan. 1, 2021.

The bills’ proposed use of IRS guidelines to determine classification is considered a more employer-friendly model than California’s classification law.

To contact the reporter on this story: Andrew M. Ballard in Raleigh, N.C. at aballard@bloomberglaw.com

To contact the editors responsible for this story: Terence Hyland at thyland@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com

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