Worker Misclassification – What Employers Need to Know in Light of New Enforcement Efforts

The Virginia Department of Labor and Industry (“DOLI”) has recently announced the implementation of a new Virginia Occupational Safety and Health (“VOSH”) policy directed at preventing the misclassification of workers in VOSH cases.  VOSH will be seeking to identify workers who have been misclassified as independent contractors during the course of VOSH inspections and investigations.  Misclassification occurs when an employer improperly classifies a worker as an independent contractor when the worker should be classified as an employee.  The new policy, which takes effect July 1, 2015, comes on the heels of Governor Terry McAuliffe’s 2014 executive order establishing an inter-agency task force on worker misclassification and payroll fraud in Virginia.  DOLI’s June 2, 2015 Public Service Announcement provides that the new VOSH policy represents the Department’s commitment to “aggressively pursue” Governor McAuliffe’s initiative.  The Public Service Announcement contains similar language to that contained in the governor’s 2014 executive order, reasoning that worker misclassification “constitutes payroll fraud,” “denies hard-working Virginia employees of basic legal protections such as workers’ compensation, family and medical leave, and unemployment insurance,” and “cheats those honest employers and contractors who properly classify employees.”

Because the policy was only recently announced, details of how it will be enforced in practice by DOLI, VOSH and the Department of Professional and Occupational Regulation (“DPOR”) are not yet clear.  However, Virginia employers should expect the new policy to have significant implications, particularly for those in industries such as the construction industry which are heavily regulated by VOSH.  In determining whether a worker has been misclassified as an independent contractor, VOSH will consider factors such as who has responsibility to control the worker, who pays the worker’s wages, and whether the alleged employer has the power to hire, fire, or modify the employment conditions of the worker.

Starting on July 1, whenever VOSH has reasonable cause to believe that worker misclassification has occurred in a VOSH case, the following procedures will apply:

• In the event that VOSH citations and penalties are proposed for the employer, penalty reductions for size and good faith will not be afforded to the employer.
• On construction multi-employer worksites, each contactor (e.g., general contractors, prime subcontractors and lower tier subcontractors) will be asked to provide proof of their DPOR contractor’s license as well as proof that its subcontractors are also licensed by DPOR.
• When it is determined that a construction employer has contracted with an unlicensed subcontractor, VOSH will make a written referral to DPOR for the contractor and its unlicensed subcontractor.  DPOR sanctions for contracting with an unlicensed subcontractor may include fines, probationary terms, license suspension or license revocation.
• In cases where the contract value for the specific subcontractor’s job is less than $1,000 (and, therefore, the subcontractor is not required to possess a DPOR license), VOSH will make a written referral to the either or both of the Virginia Employment Commission and the Virginia Workers’ Compensation Commission for potential audits of the alleged employer’s employment practices.  In some cases, referrals may also be made for cases involving contract values of $1,000 and more.

To avoid the potential penalties listed above, Virginia employers should review any and all independent contractor arrangements for compliance with the new VOSH policy.  Contractors in particular must also ensure that their subcontractors possess the required contractor’s license issued by DPOR.  In addition, subcontractors must also possess the requisite classification/specialty for the scope of work performed.  If VOSH has reasonable cause to believe that a contractor has misclassified workers, then failure to follow these licensure requirements could subject the contractor to significant DPOR penalties in addition to VOSH penalties. For all of these reasons, employers and prime contractors are strongly encouraged to take all necessary steps to ensure compliance with this and other Virginia misclassification policies, as well as state and federal laws regulating worker classification.