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Virginia Enacts Wide Range of New Wage and Hour Laws

May 04, 2020

The Virginia legislature ended its term by passing a host of new laws that expand liability for employers on a variety of critical wage and hour issues.

Virginia’s legislative session—its first in more than two decades with both houses under Democratic Party control—ended with big changes for employers. In addition to a historic overhaul of its antidiscrimination and antiretaliation laws, the commonwealth enacted a number of critical new wage and hour measures. These measures include (1) authorizing employees to bring individual and collective actions in court to recover both owed wages and substantial additional damages; (2) allowing workers to challenge their independent contractor status in court; (3) gradually raising Virginia’s minimum wage to $15.00/hour; and (4) prohibiting noncompete agreements for low-wage employees.

New ‘Wage Theft Law’ and Antiretaliation Protections

On April 12, Virginia Governor Ralph Northam approved HB 123/SB 838, known as the Wage Theft Law. This new law, which becomes effective on July 1, 2020, dramatically alters Virginia’s wage and hour landscape in the following ways:

  • New Private Right of Action: Currently, Virginia employees cannot sue their employers directly for nonpayment of wages. The Wage Theft Law changes this bar by creating a private right of action and allowing employees to sue directly in court for alleged unpaid wages.
  • New Collective Action Mechanism: In addition to creating a private right of action, the Wage Theft Law authorizes employees to bring collective actions using the same procedure as the federal Fair Labor Standards Act.
  • New Remedies: The Wage Theft Law not only creates new avenues for employees to bring wage claims in court, it also provides stronger remedies for prevailing plaintiffs. Specifically, the law allows prevailing plaintiffs to recover unpaid wages, liquidated damages equal to the amount of unpaid wages, prejudgment interest (at 8%), and attorney fees and costs. Moreover, the law provides for treble damages where an employer “knowingly” failed to pay owed wages.

In addition to the Wage Theft Law, Governor Northam signed HB 337/SB 48, which prohibits retaliation against employees engaging in protected activity related to nonpayment of wages. Notably, this protection does not include a private right of action. Instead, employees will need to file an administrative complaint with the Virginia Department of Labor & Industry, which can assess civil penalties not to exceed the amount of back pay due.

Added Measures for Independent Contractor Misclassification

Virginia also recently adopted HB 984/SB 894, which becomes effective on July 1, 2020, and creates a private right of action for workers alleging that their employers misclassified them as independent contractors. Not only does this law establish a private right of action, it creates a presumption that an individual was an employee if he or she “performed services for remuneration.” It will then be the defendant’s burden to show that the individual was an independent contractor under the Internal Revenue Service’s (IRS’s) governing guidelines. A plaintiff who successfully challenges his or her independent contractor status can recover back pay, benefits, expenses incurred, and other compensation due, along with reasonable attorney fees and costs.

The commonwealth also approved legislation prohibiting retaliation against an individual engaging in protected activity regarding misclassification. Under the new law (HB 1199), an employer may not retaliate against an individual either for reporting that the employer failed to classify an individual as an employee or for participating in an investigation, hearing, inquiry, or court proceeding concerning independent contractor misclassification. Again, this legislation does not allow for suit in court. Rather, the individual claiming retaliation must file an administrative complaint with the Virginia Department of Labor & Industry.

Finally, Virginia enacted HB 1407/SB 744, which provides for steep civil fines against employers that misclassify workers as independent contractors. The bill, which does not take effect until January 1, 2021, allows the Virginia Department of Taxation to impose the following civil penalties:

  • First offense: Up to $1,000 per misclassified individual
  • Second offense: Up to $2,500 per misclassified individual
  • Third and later offenses: Up to $5,000 per misclassified individual

Minimum Wage Increases to Start in 2021

Virginia’s recent actions also included gradually increasing the minimum wage to $15.00/hour. The phased increases to Virginia’s current $7.25/hour minimum wage start on May 1, 2021, according to the following schedule:

  • May 1, 2021: $9.25/hour
  • January 1, 2022: $11.00/hour
  • January 1, 2023: $12.00/hour
  • January 1, 2025: $13.50/hour
  • January 1, 2026: $15.00/hour[1]

Noncompete Agreements Banned for Low-Wage Employees

Finally, Virginia has joined select other states in banning noncompete agreements for “low-wage” workers. With an effective date of July 1, 2020, this legislation (HB 330/SB 480) prohibits covenants that restrain competition with former employers generally, including when an employee does not solicit business from a customer or client. Importantly, the law still allows employers to protect against disclosure of trade secrets and proprietary and confidential information through nondisclosure agreements.

Low-wage earners are defined as those who earn below Virginia’s average weekly wage, including independent contractors paid less than Virginia’s median hourly wage. Employees who earn compensation mainly through sales commissions, incentives, and bonuses are not subject to the noncompete ban.

Under the law, if an employer attempts to enforce a noncompete agreement against a low-wage earner, the employee can sue to void the agreement. On top of injunctive relief, a court may award lost compensation, damages, and reasonable expert witness and attorney fees and costs. Employers are also subject to civil penalties of $10,000 before the Virginia Department of Labor & Industry for each violation of the act, and will have to post notice of the new law in the workplace.

Recommendations for Employers

Virginia employers should act to ensure they comply with these new laws before they take effect, and consider some or all of the following steps:

  • Be prepared to litigate wage and hour claims under Virginia law and potentially in Virginia state court.
  • Revisit internal reporting and investigation procedures governing complaints of alleged nonpayment of wages, misclassification, and other violations of wage and hour laws.
  • Review independent contractor agreements for compliance.
  • Review, create, and/or modify antiretaliation policies.
  • Review employee rosters and employment agreements to determine whether any covenants not to compete are affected, and consider drafting compliant nondisclosure agreements to protect trade secrets and confidential and proprietary information.
  • Before May 1, 2021, review employee rosters and identify any positions affected by the higher minimum wage, and confer with payroll providers for a seamless transition to the new rate.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Lincoln O. Bisbee
Russell R. Bruch
Susan Harthill


[1] Beginning January 1, 2027, employers will need to pay the adjusted minimum wage set each year by the Virginia Department of Labor & Industry.