Virginia Employers Subject to Multiple New State Statutes

Virginia employers will be subject to a long list of new state laws effective July 1, 2020, and thereafter. In many cases, the new laws do not create new substantive rights for employees, but instead create new remedies or opportunities for enforcement of existing requirements – thus raising the stakes for compliance. However, there are significant new obligations to “whistleblowers,” and eventually large increases in the minimum wage, along with a smattering of other new substantive obligations.

Expansion of the Virginia Human Rights Act (and Title VII)

The Virginia Human Rights Act (VHRA) has been expanded in multiple ways, effective July 1, 2020. Currently the law prohibits employers having 6 or more employees but less than the threshold for federal discrimination laws (15 or 20) from discharging employees based on race, color, religion, national origin, age, sex, pregnancy, or childbirth or related medical conditions, enforced in court with damages of up to 12 months’ back pay, plus interest, and attorneys’ fees up to 25% of that amount.

On June 15, 2020, the U.S. Supreme Court extended Title VII protection to sexual orientation and transgender status in the case of Bostock v. Clayton County, Georgia, reasoning that discrimination on such bases is on account of sex. The Virginia Values Act now amends the VHRA to add new protected classes of sexual orientation, gender identity, hairstyle (e.g., “dreadlocks”), lactation (as a separate category), and veteran status. Reasonable accommodation is required under VHRA for employees who are experiencing pregnancy, childbirth, or related medical conditions, and this requirement must be posted.

The amended VHRA will also apply to larger employers (with more than 15 or 20 employees) to prohibit all forms of discrimination (not just discharge), similar to existing federal law. Such claims will now be subject to unlimited damages and attorneys’ fees, including punitive damages (which are limited under federal law). Significantly, the amendments will allow employees to pursue discrimination claims against larger employers in state court, where summary judgment will be more difficult to obtain, instead of in federal court. However, aside from employees experiencing pregnancy, childbirth, or related medical conditions, claimants must file a charge with the EEOC or the Virginia Division of Human Rights before going to court. The amended VHRA also applies for the first time to employment agencies, labor organizations, state agencies, school boards, and places of public accommodation.

The amendments are not expected to be applied retroactively to employment actions taken before the effective date. However, employers may need or want to update their equal employment policies to reflect the newly-protected categories. Many employers’ policies may already note protection for “other categories protected by law,” or similar language.

Multiple New Worker Misclassification Laws

Also effective July 1, 2020, under a new Va. Code § 58.1-1900 et seq., employers who misclassify employees as independent contractors will be subject to penalties assessed by the state Department of Taxation for up to $1,000 per employee for a first offense (or $2,500 or $5,000 for second or third offenses). Violators will be subject to debarment from public contracts for second or subsequent offenses. Information regarding independent contractor misclassification will be shared among the Department of Taxation, the Department of General Services, the Virginia Department of Labor & Industry (DOLI), the Virginia Employment Commission (VEC), and the Workers Compensation Commission. These new provisions also prohibit requiring individuals to enter into agreements or sign contracts that result in misclassification. Retaliation against employees for reporting misclassification to ”appropriate authorities” or participating in an inquiry or action about the same is prohibited under a new Va. Code § 40.1-33.1.

A new Va. Code § 40.1-28.7:7 (adopted in HB 984), also effective July 1, 2020, purports to allow individuals who have been misclassified as independent contractors to bring suit for damages, if the employer “had knowledge” of the misclassification, for any pay or benefits lost as a result (including expenses not covered by insurance), plus attorneys’ fees. The burden of proof is on the employer, subject to federal IRS guidelines. We are skeptical whether this provision will have the sweeping effect asserted, as it appears to be preempted by federal law under the Employee Retirement Income and Security Act (ERISA) (for benefit claims) and potentially also by the federal Fair Labor Standards Act (FLSA) (for overtime claims). However, that defense would not apply to the Virginia tax penalties.

New Rules for Construction Contractors

Effective July 1, 2020, Va. Code § 54.1-1102, regarding the Board of Contractors, is amended to require that the Board require that contractors appropriately classify their workers as employees or independent contractors, and sanction those found to have intentionally misclassified “any worker.”

Also effective July 1, 2020, a new Va. Code § 11-4.6 provides that construction contracts will be deemed to provide for joint and several liability of contractors and subcontractors for the payment of wages owed by the subcontractor (including under FLSA and the Virginia Wage Payment Act, discussed below). This rule will apply only to construction contracts for projects other than a single-family home, where the value of the project is more than $500,000, and “the general contractor knew or should have known that the subcontractor was not paying his employees all wages due.” Except where otherwise provided by contract, the sub will be obliged to indemnify the general for its payment of such wages, unless the sub’s failure to pay employees was due to the general not paying the sub.

Generalized Whistleblower Protection

Effective July 1, 2020, Virginia Code § 40.1-27.3 will prohibit employers from taking adverse action against employees for a list of protected activities: (1) reporting violations of federal or state law; (2) being requested to participate in a government investigation, hearing, or inquiry; (3) refusing to engage in a criminal act; (4) refusing to perform an order that would violate a federal or state law or regulation, and so explaining; or (5) testifying before or providing information to a government investigation, hearing, or inquiry into possible violation of a federal or state law or regulation. Employees aggrieved under this provision can sue for injunctive relief, reinstatement, lost wages and benefits, interest, and attorneys’ fees. Depending on how it is applied to good faith belief, this new provision may give employees a protected right to second-guess their employer’s determinations of legality by refusing to comply with directions.

Minimum Wage Increases and Expanded Scope for the Virginia Minimum Wage Act

Until now, Virginia’s minimum wage has been the same as the federal, and the Virginia Minimum Wage Act (VMWA) has exempted any employer subject to the federal FLSA, which is most employers. Effective July 1, 2020, however, pursuant to changes in Va. Code § 40.1-28.9 and .10, this exemption will be limited to employees paid under certain certificates for disabled workers under 29 U.S.C. § 214(c). Certain other exemptions are revised or limited as well. As a result, most Virginia employers will now be subject to suit under the VMWA, which allows recovery of unpaid wages plus 8% interest and attorneys’ fees.

This would not be a big deal – the FLSA already allows double damages – but the General Assembly, with Governor Northam’s consent, has also raised Virginia’s minimum wage above the federal $7.25/hour, beginning on May Day, 2021 (delayed from January 1, 2021, because of COVID-19). On that date, Virginia’s minimum wage will increase to $9.50/hour, and then further increase to $11 on January 1, 2022, and then to $12, $13.50, and $15 in successive years (and thereafter adjusted for inflation), the last two scheduled increases contingent on reenactment by the General Assembly by July 1, 2024.

Prohibition of Non-Competes for “Low-Wage” Workers

Under a second new Va. Code § 40.1-28.7:7 (HB 330, more on this below), effective July 1, 2020, Virginia employers may not enter into, enforce, or threaten to enforce a covenant not to compete against a “low-wage employee.” “Low-wage employees” are those whose average weekly earnings are less than the average weekly wage in the Commonwealth (currently reckoned as $1,137 or $59,124/year, as shown here), interns, and independent contractors paid at an hourly rate less than the median hourly wage in the Commonwealth for all occupations in the preceding year (apparently $20.30/hour, as shown here). These are higher thresholds than are applied in some other states with similar statutes. Aggrieved employees can sue for injunctive relief, lost compensation and damages, “liquidated damages,” and attorneys’ fees. Also, civil penalties of up to $10,000 per violation may be assessed by DOLI.

Notably, the new rule does not apply to workers whose “earnings are derived, in whole or in predominant part, from sales commissions, incentives, or bonuses.” Nor will the rule prohibit nondisclosure agreements prohibiting disclosure of proprietary or confidential information, including trade secrets. However, these provisions will be retroactive to prohibit enforcement of covenants entered into before the effective date. Employers are required to post a copy of the law or a summary approved by DOLI.

This new law includes at least three possible ambiguities. First, the definition of “covenant not to compete” includes the cryptic sentence, “A ‘covenant not to compete’ shall not restrict an employee from providing a service to a customer or client of the employer if the employee does not initiate contact with or solicit the customer or client.” That sentence may simply mean that a non-solicitation clause that so restricts an employee will be regulated as a non-compete, but employees’ attorneys may contend that it states a free-standing rule applicable to non-solicitation clauses for all employees. Second, it uses the term “liquidated damages” without explaining what those are – amounts provided by contract, or perhaps a doubling of lost wages, as that term is under FLSA or the amended Virginia Wage Payment Act (discussed below)? Finally, the same section number is also specified for one of the new worker misclassification provisions described above, and the new wage transparency law described below. This last item could simply be a scrivener’s error that will be corrected in codification, but there could be an argument that one bill undid the other two.

Wage Transparency Law

A third new Va. Code § 40.1-28.7:7 (HB 622, see above), also effective July 1, 2020, prohibits an employer from adverse action against an employee for discussing or disclosing to another employee information about their own or any other employee’s compensation. The law does not apply to employees who have access to others’ compensation as part of their job and make disclosure to those who do not, unless the disclosure is made in response to a formal complaint or charge, in an investigation, proceeding, or action including one conducted by the employer, or consistent with a legal duty to furnish information. Enforcement is by DOLI, which can file suit and/or assess a civil penalty of up to $100 per violation. Retaliation for filing a complaint with DOLI is also prohibited. Employers should note that similar duties to allow discussion of wages exist under the National Labor Relations Act (NLRA), even for non-union employees.

Private Enforcement of the Virginia Wage Payment Act

Va. Code § 40.1-29, informally referred to as the Virginia Wage Payment Act, has long required the payment of promised wages and regulates deductions from them, including the claw-back of advances or bonuses. DOLI has provided administrative enforcement of this law, but there has been no private right of action. Now, effective July 1, 2020, employees will also have the ability to sue in court for violations of this law, including by collective actions similar to those available under the FLSA (which requires the payment of overtime to many employees). The amended law also provides for “liquidated” (double) damages, prejudgment interest, and attorneys’ fees, with a 3-year limitations period, and treble damages for willful violations. Retaliation against employees for asserting claims is also prohibited, but this requirement is enforced only by DOLI, with available remedies of reinstatement and back pay with double damages.

Please see last year’s mid-year Virginia update for a description of changes to paystub requirements in Va. Code § 40.1-29 that were effective January 1, 2020.

We look forward to helping clients respond to these changes in Virginia’s legal environment.