Is Virginia the new California?  That may be an exaggeration, but in April 2020 the Commonwealth took major steps away from its historically pro-employer climate to provide employees and independent contractors with new potential claims.  We previously reported about Virginia’s extension of employment protection to LGBTQ employees and creation of a new state-law employment discrimination cause of action.  Virginia employers should also be aware of new changes to the Commonwealth’s wage and hour laws.

Minimum Wage Increase

The Virginia General Assembly submitted legislation to Governor Ralph Northam to increase the minimum wage from $7.25 to $9.50 per hour effective January 1, 2021. Under the proposed legislation, the minimum wage in Virginia would continue to increase to $11.00 in 2022, $12.00 in 2023, $13.50 in 2025, and $15.00 in 2026. The bill requires the General Assembly to vote again by July 1, 2024 in order for the final two wage increases to become effective.

Governor Northam did not sign the bill and suggested that the bill be amended to delay the first increase until May 1, 2021. On April 22, 2020, the Virginia Legislature agreed with Governor Northam's suggestion and decided to delay increases in the Commonwealth’s minimum wage amid the COVID-19 pandemic. The Senate vote resulted in a 20-20 tie broken by Lieutenant Governor Justin Fairfax in favor of the amendment. The House of Delegates voted 49-45 in favor of the amendment to delay the increase.

In addition to an increase in minimum wage, the new legislation requires three government agencies to review the effects of a regional minimum wage increase. These agencies must consider the potential impact of regional increases on benefits, income inequality and the cost of living. After review, the agencies must prepare a joint report with findings and recommendations by December 1, 2023.

Under the new law, employers may pay a “training wage” at 75 percent of the minimum wage for employees in on-the-job training programs lasting less than 90 days. Moreover, the law provides that the Virginia minimum wage applies to persons whose employment is covered by the Fair Labor Standards Act, persons employed in domestic service or in or about a private home, persons who normally work and are paid on the amount of work done, persons with intellectual or physical disabilities except those whose employment is covered by a special certificate issued by the U.S. Secretary of Labor, persons employed by an employer who does not employ four or more persons at any one time, and persons who are less than 18 years of age and who are under the jurisdiction of a juvenile and domestic relations district court. The Virginia minimum wage does not apply to individuals participating in the U.S. Department of State's au pair program, those employed as temporary foreign workers, or individuals employed by certain amusement or recreational establishments, organized camps, or religious or nonprofit educational conference centers.

New Wage Payment Claim

Virginia also imposed a new “wage theft” statute that provides employees with powerful statutory remedies for an employer’s non-payment of wages.  Under the new law, employees can bring a claim for the recovery of unpaid wages.  If the employee is successful in proving that he or she has not been paid all wages due, then the employee can recover prejudgment interest of 8% per year on the amount of the wages from the date they were due.  If the employee can show that the employer “knowingly” failed to pay wages due, then the employee can recover his or her reasonable attorney’s fees incurred in the action.  And, if there was no “bona fide dispute” regarding the employee’s entitlement to the wages, the employee is entitled to recover liquidated damages equal to triple the amount due.

Construction contractors should take particular note of this new statute.  The statute provides that general contractors are jointly and severally liable for the wages owed to their subcontractors’ employees, and are considered to be the employers of such employees.  General contractors doing business in Virginia should immediately review their contract forms to ensure that they make adequate provisions for indemnification in the event that a subcontractor fails to comply with its obligations.

Independent Contractor Misclassification

Finally, Virginia enacted a new statute to combat independent contractor misclassification.  Independent contractors may now bring a claim for misclassification against their putative employer to recover wages, benefits (including expenses that would have been covered by the putative employer’s insurance), or other lost compensation, as well as reasonable attorney’s fees.  Notably, the statute presumes that any individual performing services in exchange for compensation is an employee, unless the putative employer can show that the person is an independent contractor under the IRS’s independent contractor test.  The use of the IRS test is a small victory for employers, as it is a lower bar to satisfy than the “ABC” tests imposed by many state statutes such as California’s AB5.

These enactments substantially shift Virginia’s legal environment in favor of employees.  Employers in the Commonwealth can no longer count on Virginia’s traditional, business-friendly environment.  Polsinelli is available to assist Virginia employers in reviewing their policies, understanding these new requirements, and evaluating the risks of any independent contractor relationships in light of the newly-enacted claims.