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VIRGINIA’S ONGOING EFFORTS TO ADDRESS EMPLOYEE MISCLASSIFICATION BY CONSTRUCTION CONTRACTORS

Authored by John R. Lockard; jlockard@vanblacklaw.com; 757-446-8600

For several years, Virginia has been endeavoring to address employee misclassification in the Commonwealth, particularly in the construction industry.  In a 2014 Executive Order, the Governor raised concerns that contractors who misclassify employees as “independent contractors” were depriving the Commonwealth of taxes and denying workers insurance coverage and other benefits.  By avoiding these costs, such contractors gained a competitive advantage over contractors who complied with the laws.  The Executive Order created the Inter-Agency Taskforce on Worker Misclassification and Payroll Fraud to combat the problem.

In 2015, the Virginia Department of Labor and Industry issued a new policy designed to identify construction contractors who misclassify employees as unlicensed subcontractors.  The policy authorized Virginia Occupational Safety and Health (VOSH) inspectors to require general contractors to produce copies of the contractor’s licenses for all subcontractors on the project site as part of safety inspections.  The policy not only increased fines for the misclassification of employees, but it also allowed VOSH to refer these violations to the Department of Professional and Occupational Regulation (DPOR) for further penalties.  VOSH inspectors were also given the power to refer contractors to the Virginia Employment Commission (VEC) and the Virginia Workers’ Compensation Commission (VWCC) for audits of their employment practices.

In 2016, VEC signed a Memorandum of Understanding with the U.S. Department of Labor, Wage and Hour Division that provides for information sharing and coordinated investigations to further prevent employee misclassification and to pursue companies that violate federal and state employment laws.  More recently, Virginia passed legislation (effective July 1, 2017) that would explicitly make a general contractor responsible for any fines or other penalties based on a subcontractor’s failure to obtain or maintain the required contractor’s license. 

It appears that the Commonwealth of Virginia will continue to aggressively pursue construction contractors who try to misclassify employees as independent contractors.  The penalties for violating these statutes are significant and can result in loss of the contractor’s own license.  Given Virginia’s increasing enforcement efforts and the harsh consequences for worker misclassification, it is imperative that general contractors confirm that all of their subcontractors are properly licensed and maintain copies of the licenses at the project site.  Contractors who have any questions regarding licensure or employment issues can contact one of the construction law or employment law attorneys at Vandeventer Black LLP —preferably before they become the target of a government investigation.

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