Virginia General Contractors To Face Expanded Responsibility For Unpaid Wages

Takeaways

• Effective 07.01.26, a new Virginia law significantly expands general contractor liability by imposing near-strict, joint and several liability for subcontractor wage violations.
• The law eliminates key protections, including the “knew or should have known” standard, and limits the effectiveness of indemnification and compliance certifications, while classifying general contractors as statutory “employers.”
• General contractors should consider strengthening oversight, auditing and contractual safeguards.

Article

Beginning July 1, 2026, potential liability of general contractors in Virginia for unpaid wages will greatly expand under newly enacted House Bill 238. This represents a major shift in risk allocation in the construction industry, moving wage compliance responsibility upstream and increasing general contractors’ exposure even when violations originate with subcontractors.

Historically, Virginia law already imposed some degree of joint liability on general contractors for subcontractor wage violations. Since 2020, general contractors could be held jointly and severally liable for unpaid wages owed to subcontractor employees, but only if they “knew or should have known” about the wage violations. This knowledge requirement served as an important limitation, allowing contractors to rely on contractual protection, certifications, and reasonable oversight practices.

Removes Traditional Subcontractor Indemnity for Wages

The new legislation largely removes those limitations. For any construction contract entered on or after July 1, 2026, HB 238 will deem general contractors and subcontractors jointly and severally liable for all wages owed to the subcontractor’s employees under the Virginia Wage Payment Act, the Virginia Minimum Wage Act, and the federal Fair Labor Standards Act. (The Act differs from the Fair Labor Standards Act in that it provides for automatic liquidated or double damages and a three-year statute of limitations.) Consequently, an employee may pursue the general contractor directly for the full amount of unpaid wages, regardless of fault or involvement.

Another important change is the weakening of traditional contractual defenses. While indemnification provisions between contractors and subcontractors remain permissible, they no longer shield the general contractor from direct liability in a wage claim. Similarly, reliance on subcontractor certifications of wage compliance, even if false, will not prevent liability, leaving general contractors to pursue reimbursement only after resolving the underlying claim.

Knowledge Requirement Eliminated

A key feature of the new law is that it eliminates the knowledge requirement. General contractors may be held liable even if they had no awareness of the subcontractor’s failure to properly pay workers. In practical terms, this creates a strict liability framework for wage claims in the construction context, dramatically increasing litigation risk.

“Employers” for Wage Payment Act, Overtime Wage Act, Misclassification Claims

The statute also classifies general contractors as “employers” of subcontractor employees for purposes of wage payment laws. This designation exposes general contractors to the full range of remedies available under those statutes, including unpaid wages, liquidated damages, interest, and attorneys’ fees, and, in some cases, enhanced or treble damages for knowing violations.

For worker misclassification, HB 238 creates a presumption that workers are employees unless they meet the strict criteria under the IRS independent contractor test. This further increases compliance obligations and the risk of wage and hour violations flowing up the contracting chain.

Practical Tips

The implications for the construction industry are substantial. General contractors will need to adopt more robust oversight of subcontractors’ payroll practices, including enhanced due diligence, auditing, and documentation procedures. Contracts likely will evolve to include:

• Stronger indemnification language; 
• Required insurance coverage for subcontractors; and 
• Monitoring mechanisms of subcontractor hiring and wage payment practices designed to mitigate risks.

Businesses operating in Virginia should prepare now to adjust their compliance strategies to the regulatory shift.

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