A New Right to Work: The Old Dominion Adopts New Restrictions on Restrictive Covenants

By: Billy B. Ruhling II

Virginia has always allowed employers to impose reasonable restrictions on their employees’ ability to compete after the termination of the employment relationship. While this right was not unfettered, employers could take steps to protect their business by preventing a former employee from taking client relationships with them upon their departure. Such agreements were permitted so long as the restrictions were for a reasonable time and scope. But all of that is about to change for certain employees!

Effective July 1, 2020, Virginia has adopted a new scheme to protect certain workers’ right to work – even when doing so in direct competition with their former employer. The new legislation prohibits an employer from entering into, enforcing, or threatening to enforce a covenant not to compete with any “low-wage employee.” While the new statute does not limit an employer’s ability to require workers to sign agreements prohibiting the taking, misappropriating, or sharing of trade secrets or other proprietary/confidential information, it does alter the landscape significantly.

The new legislation defines a “covenant not to compete” as any agreement, including a provision in an employment contract, between an employer and an employee that restrains, prohibits, or otherwise restricts an individual’s ability to compete with his former employer following the termination of the individual’s employment. It further provides that such a covenant “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.”

As with all laws, the devil is in the details here. First, “low-wage” probably does not mean what most employers would think it means!  Covered employees are those whose average weekly earnings are less than the average weekly wage in the Commonwealth as determined pursuant to subsection B of Va. Code § 65.2-500 (As of December 2019, the average weekly earnings amount was $1,113 or roughly $50,000 per year). The law also protects independent contractors if they are paid at an hourly rate that is less than the median hourly wage for the Commonwealth for all occupations as reported for the preceding year by the Bureau of Labor Statistics of the U.S. Department of Labor. It excludes, though, sales persons who derive their earnings, “in whole or in predominant part, from sales commission, incentives, or bonuses….” Second, the law provides a private right of action for covered individuals to sue their former employer or any other person who attempts to enforce a prohibited covenant.

These changes are significant. Employers who have or seek to enforce restrictive covenants should review their existing agreements to ensure they comply with the new legislation. If you have questions or concerns about whether your agreements comply with the new standards, the attorneys at DiMuroGinsberg, P.C. stand ready to assist you!

Virginia Law Targets Worker Misclassification

By:  Jayna Genti

Companies misclassifying their employees as independent continues to be a hot-button issue throughout the country, and Virginia is no exception. In the last year alone, legislation related to independent contractor misclassification was introduced at the federal level and in at least 20 states. New Jersey and California recently enacted employee misclassification laws, and other states including New York are considering similar legislation.

Virginia Acts to Prevent Misclassification

In 2019, Virginia Governor Northam issued an executive order calling for an inter-agency task force to make recommendations on how to address the issue.  The study results issued last November found that about 214,000 Virginia workers are misclassified as contractors, costing the Commonwealth some $28 million in tax revenues each year.

In response to the task force’s recommendations, the Virginia General Assembly passed legislation this term that seeks to prevent misclassification and to penalize those employers who misclassify their workers.  Governor Northam recently signed the legislation into law, which will take effect January 1, 2021.

Classification of Employees

Under the new law, the Virginia Department of Taxation will determine whether a worker is an employee or independent contractor by applying Internal Revenue Service guidelines.  The IRS guidelines involve a multi-factor analysis, with the most important being the level of control exercised by a company.  In making the requisite assessment, the presumption will be that a worker who performs a service for an employer for pay will be considered an employee unless the individual or his or her employer demonstrates that she is an independent contractor.

Penalties and Enforcement

The new Virginia misclassification law has some real teeth.  Businesses that improperly treat their employees as independent contractors will be subject to a fine of up to $1,000 per worker for a first offense.  Maximum fines will increase to $2,500 per misclassified individual for a second offense, and up to $5,000 per misclassified individual for a third or subsequent offense.

The new legislation also prohibits the awarding of public contracts to employers that misclassify workers.  Debarment will last for up to one year for a second offense and up to two years for a third offense.  The legislation further requires the Virginia Department of Taxation to share information to help with enforcement.

Further Efforts to Halt Misclassification

The new Virginia law imposing penalties for employee misclassification will not be the end of the story.  Further efforts are likely to be forthcoming to crack down on employers who misclassify their workers, and deny tax revenues to both states and the federal government.  The impetus for the Commonwealth to move quickly against employee misclassification has arisen as a result of the recent federal legislation extending unemployment insurance to gig workers and other independent contractors who do not traditionally receive unemployment when they cannot work.  Unemployment benefits are funded by specific payroll taxes on employee pay.  Companies, however, do not pay unemployment insurance for independent contractors, even though they will now be able to receive unemployment benefits courtesy of the federal government.

Thus, we can expect heightened scrutiny on companies that misclassify employees as independent contractors and, thereby, evade their obligation to pay unemployment taxes.  As it stands, misclassification already has reportedly denied the Commonwealth substantial revenue, and this concern will only be heightened by the current COVID-19 pandemic and the stay-at-home orders shuttering many businesses.

Bottom Line

Going forward, you can expect greater attention by Virginia enforcement and investigative agencies to claims of worker misclassification.  Those agencies are on high alert for violations of the law and undoubtedly will use the full spectrum of available enforcement mechanisms to crack down and penalize those employers that evade the law.  The stakes of losing at the agency level are high and can lead to fines, legal expenditures, and litigation.

Given the continuing evolution of these and other related employment law matters, you are well advised to undertake a thorough assessment of the appropriateness and defensibility of classifying any members of your workforce as independent contractors.  Such an evaluation should be undertaken under the direction of an employment law attorney who is well versed in these matters and can review your policies and present workforce classifications to ensure legal compliance.  Misclassification no longer will result in simply a slap on the wrist.  Real penalties will now be imposed.

Virginia Hikes Minimum Wage

By:  Jonathan R. Mook and Colete Fontenot

The Virginia General Assembly for the first time in ten years has increased the state’s minimum wage and has established a mechanism to raise the minimum wage in the coming years.  Minimum wage workers in Virginia will now see a substantial raise next year, and in the years that follow – potentially more than doubling to $15 an hour by 2026.

What Are the Increases?

The new Virginia law is fairly complicated in terms of its provisions increasing the minimum wage over time.  Here’s the rundown:

Beginning May 1, 2021, employees paid at the current federal minimum wage of $7.25 would need to be paid $9.50 an hour – an increase of $2.25 per hour.  After that, the minimum wage will increase automatically on the first day of the year by $1.50 every year until 2023.  In 2023, the minimum wage will be increased by only $1.00; and in 2024, there will be no increase at all.

Under the measure as passed, the minimum wage also will not increase in 2025 and 2026 unless there is a new vote in the General Assembly to authorize the increases, which would be at the rate of $1.50 per hour.  If the legislature does not enact authorization for a wage increase, however, that does not mean the minimum wage will not rise.  Instead, beginning in 2027, a yearly adjusted minimum wage will be imposed, with increases based on the yearly increase in the Consumer Price Index (CPI). Even if the CPI falls, the adjustment cannot be less than zero.

Who Is Covered?

At the present time, if you have four or more employees, you must pay the state minimum wage.  Importantly, the new legislation also removes any limitation on the number of employees you must have in order to comply.  One is enough.  The only exclusions are for farm workers, work study students, and students under the age of 18 who work less than 20 hours per week.

For Now, No Regional Differentials

Many Virginia legislators fought hard for regional differentials, which would have allowed for variations of the minimum wage based on the economics of the particular area.   Members in rural areas, where the cost of living is lower than the more populous parts of the state, expressed concerns about imposing what they termed a “Northern Virginia rate” on the rest of the Commonwealth.  In the end, the new legislation does not include any regional distinctions.

Starting in 2022, however, the Virginia Department of Housing and Community Development, the Economic Development Partnership Authority, and the Employment Commission will “conduct a joint review of the feasibility and potential impact of instituting a regional minimum wage in the Commonwealth.”  A working group formed by these agencies will study and evaluate influential factors, including linking the minimum wage to the cost of living in the area served, the impact on employers and the fringe benefits they offer, the impact on workers with a focus on income inequality, and the experience of other states with a regional wage.  Approving a regional variation in the minimum wage will require another vote in the General Assembly before July 1, 2024.

Getting Ready for the Increase

The General Assembly’s increase in the minimum wage moves Virginia from having one of the lowest state minimum wages to one of the highest.  Undoubtedly this increase will have an impact on virtually all businesses in the Commonwealth – even those that now pay their employees more than the minimum wage.  That’s because minimum wage increases usually have the real world effect of boosting the wages of all hourly employees.

What should you be doing to prepare for the increase that kicks in on May 1, 2021?  Here are some suggestions:

  • Make sure your payroll department or payroll service is aware of the minimum wage increase and is prepared and stays in compliance with the new law.
  • Check and double check your cash flow to make sure you will have funds available for the increased wages you will be paying to your minimum wage employees.
  • If you are planning to hire minimum wage workers, create a hiring plan you can afford given the upcoming wage increase. In some cases, you may find that hiring temporary workers, as needed, is less expensive than taking on full-time regular employees.

Finally, in four years if not before, the General Assembly will be addressing the minimum wage again.  Get involved in the legislative process and let your state representatives know about the real world impact the increase in the minimum wage is having on your business operations.  Are you needing to lay off employees or having to reduce hiring as a result of the minimum wage increase?  This is critical information that you and only you can provide to those legislators who will be making the decisions about the economic future of your business.

Jonathan Mook is a partner in the office of DiMuroGinsberg, P.C.  He can be reached at jmook@dimuro.com.  Colete Fontenot is a legal assistant who provided much valued research assistance in preparing this article.

The Old Dominion Adopts Restrictions on Non-Competes

By: Billy Ruhling

Virginia has always allowed you to impose reasonable restrictions on your employees’ ability to compete after the termination of the employment relationship.  While this right was not unfettered, you could take steps to protect your business by preventing a former employee from taking customers or clients with them upon their departure.  Such agreements were permitted so long as the restrictions were for a reasonable time and scope.  But all of that [is about to change or has changed] for certain of your employees!

The New Law

Effective July 1, 2020, Virginia has adopted a new scheme to protect the right to work of certain workers – even when doing so in direct competition with your business.  The new legislation now prohibits you from entering into or enforcing a non-compete with any “low-wage employee.”  Further, you may not prevent such 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.”

The “Details”

As with all laws, the devil is in the details here.  First, “low-wage” probably does not mean what you may think it means!  Covered employees are those whose average weekly earnings are less than the average weekly wage in the Commonwealth.  As of December, 2019, the average weekly earnings was $1,113 or roughly $50,000 per year.

Second, the law protects more than just employees.  Independent contractors whom you pay at an hourly rate that is less than the median hourly wage in the Commonwealth for all occupations also are generally covered.  That amount is presently $20 per hour.  There is an exclusion to this requirement for your independent contractors, however.  That exclusion is or sales persons who derive their earnings, “in whole or in predominant part, from sales commission, incentives, or bonuses . . . .”

Third, the new statute does provide some protections for your business.  You still have the right to require your employees, even “low-wage” workers, to sign agreements prohibiting them from taking, misappropriating, or sharing your trade secrets or other proprietary/confidential information.

Bottom Line

These changes to Virginia’s general approach to non-competes are significant for all Virginia employers.  If you are planning to have your new employees sign non-compete agreements, you need to make certain that they do not fall into the category of being “low-wage.”  If you are seeking to enforce any existing agreements, you also need to ensure they comply with the new legislation.  You don’t want to run afoul of the new statutory limitations.  That’s because the law allows persons protected by the statute to sue you or any other person who attempts to enforce a prohibited covenant.

To avoid being the subject of a lawsuit, you should consult with experienced employment counsel to review your existing agreements and answer any questions or concerns about whether they comply with the new standards.

DGRead 20.09.15

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Virginia Becomes First Southern State to Ban Hair Discrimination

By:  Jayna Genti

During the 2020 legislative session, Virginia became the first southern state not only to ban LGBTQ discrimination, but also bar hair discrimination across the Commonwealth. This makes Virginia the fourth state behind California, New York, and New Jersey to do so.  As reported in the March issue of the Mid-Atlantic Employment Law Letter, Montgomery County, Maryland (but not the state itself) also has prohibited discrimination based on a person’s hairstyle.

The New Law

The new Virginia law specifically expands the Virginia Human Rights Act (VHRA) to prohibit discrimination based on characteristics historically associated with someone’s race and/or culture.  Under the new law, discrimination “because of race” or “on the basis of race” will now encompass bias that stems from “traits historically associated with race, including hair texture, hair type, and protective hairstyles such as braids, locks, and twists.”

The reason for the law is simple according to Delegate Delores McQuinn, who sponsored the legislation, “A person’s hair is a core part of their identity. “Nobody deserves to be discriminated against simply due to the hair type they were born with, or the way in which they choose to wear it. The acceptance of one’s self is the key to accepting others.”

In signing the legislation into law, Virginia Governor Ralph Northam echoed Ms. Quinn’s remarks: “It’s pretty simple—if we send children home from school because their hair looks a certain way, or otherwise ban certain hairstyles associated with a particular race—that is discrimination.”  The Governor added: “This is not only unacceptable and wrong, it is not what we stand for in Virginia. This bill will make our Commonwealth more equitable and welcoming for all.”

Who’s Covered and When

Like other laws passed in the 2020 General Assembly session, the ban on hair discrimination will take effect on July 1.  Although the VHRA currently applies only to employers with six to14 employees, that limitation also will change as of July 1, 2020.  Under the Virginia Values Act, also passed by the Virginia General Assembly this term, the reach of the VHRA now will cover all employers with six or more employees.

Ensuring Compliance

To make sure you are in compliance with the new law banning hair discrimination, you should act now to assess your workplace grooming and dress standards.  You still continue to enforce non-discriminatory appearance and grooming policies, but make sure those policies don’t prohibit certain types of hairstyles, such as braids, locks and twists.  If you do, you could be charged with using those policies as a proxy for, or to facilitate, discriminatory practices, such as gender or racial discrimination.

An exception may arise if restrictions on hairstyle choices are necessary for certain specific safety reasons.  But, even if you need to maintain certain grooming standards for safety reasons, be careful in the wording of the standard. For example, if long hair poses a safety hazard in the workplace, avoid listing specific types of hairstyles that pose a risk.  Instead, simply state that hair must be shorter than a certain length or secured at all times.

Determining whether you have crossed the line in imposing certain grooming and appearance standards can be tricky to determine.  When in doubt, it always is a good idea to consult with experienced employment counsel to assist you in charting this new and uncertain area of the law.

Jayna Genti is an associate in the office of DiMuroGinsberg, P.C.  She can be reached at jgenti@dimuro.com.

New Virginia Law Significantly Broadens Whistleblower Protection

By Stacey Rose Harris

On July 1, 2020, never-before-seen protections for whistleblowers will take (took) effect in Virginia.  Prior to the enactment of Virginia’s new “Whistleblower Law,” workers had little recourse if their employer terminated them for reporting illegal or improper activity in their workplace.  Previously, their protection had been limited to a few narrow statutory protections and limited common law exceptions to doctrine employment-at-will doctrine.

What Is Protected

Now, the new Whistleblower Law provides broad protections where an employee:

  • makes a good faith report of a violation of any federal or state law or regulation to a supervisor or to any governmental body or law-enforcement official;
  • is an employee who is requested by a governmental body or law-enforcement official to participate in an investigation, hearing, or inquiry;
  • refuses to engage in a criminal act that would subject the employee to criminal liability;
  • refuses an employer’s order to perform an action that violates any federal or state law or regulation and the employee informs the employer that the order is being refused for that reason; and
  • provides information to, or testifies before, any governmental body or law-enforcement official conducting an investigation, hearing, or inquiry into any alleged violation by the employer of federal or state law or regulation.

What Is Excluded

The Whistleblower Law, however, does not give employees a blank check.  Importantly, the law does not protect an employee:

  • who discloses information that is otherwise protected by law or privilege;
  • who makes false statements that the employee knows, or should know, are not true; and
  • who makes disclosures that violate state or federal law or impair any person’s legally-protected right to confidentiality.

Legal Actions

If an employee is discriminated or retaliated against for engaging in protected activities, the employee must bring a claim within a year of the wrongful action.  The Whistleblower Law applies only to private-sector employers.  Employees of the Commonwealth or its localities who “blow the whistle” already are protected by state law.  Remedies available under the new statute include reinstatement, back pay, lost benefits, and, significantly, attorneys’ fees and costs of bringing the action.

Take Away

All private employers in Virginia should take note of these new worker rights.  Make sure that your managers and supervisors are aware of these developments and even better, document your education efforts as to these changes.  Moreover, if your supervisors or managers recommend that an employee should be disciplined, ask the necessary questions to make sure that the employee cannot claim that he or she was disciplined for engaging in protected activity.  The last thing you want is to run afoul of the rights created by the new Virginia Whistleblower Law.

DGRead 20.09.01

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