Summary:

On March 30, 2021, Governor Northam signed into law the Virginia Overtime Wage Act, creating significantly greater liabilities for Virginia employers beginning July 1, 2021. Rather than continue to rely on the federal overtime pay requirements of the Fair Labor Standards Act (FLSA), the Commonwealth will commence summer 2021 with its own set of overtime pay regulations. Notably, Virginia’s new law alters the regular rate calculations for workers, expands liquidated damages for violations, and extends the statute of limitations for overtime claims.

Regular Rates and Overtime Calculations:

Like the federal FLSA, the new Virginia law obligates employers to pay a rate of one and one-half times their regular rate of pay for each of their overtime hours. Under the FLSA, regular rate is calculated as all renumeration for employment divided by all hours worked in the workweek. The new state law employs a different regular rate formula that depends on whether an employee is paid on an hourly or salary basis.

For hourly workers, the regular rate of pay is their hourly rate plus non-overtime wages paid or allocated for the workweek, divided by the total number of hours worked for the workweek. For salaried workers, the regular rate of pay is one-fortieth of all wages paid for the workweek.

Notably, the new Virginia law omits the “fluctuating work week method” recognized by the FLSA. This federal method applies to employees whose hours-worked fluctuate above and below their salaried hours. For the fluctuating method, employees’ fixed salaries cover all the hours worked during the week, and employers only need to pay a half-time premium, rather than one and one-half.

The state law’s regular rate formula and exclusion of a fluctuating work week method will result in higher overtime pay, increasing employer liability.

Virginia’s Overtime Wage Act in Action:

To illustrate the increased exposure facing Virginia employers as a result of the new Virginia Overtime Wage Act, consider the example of an employee who receives a weekly salary of $1,000 intended to cover 40 hours per week works 50 hours in a week.  If that employee were misclassified as exempt from overtime, she would be entitled to receive the following overtime payment:

  1. FLSA Fluctuating Workweek Method

Regular rate = $1,000/50 = $20/hour

Overtime pay = 10 (extra hours worked) × 20 (regular rate) × .5 (premium) = $100

  1. Virginia Overtime Wage Act

Regular rate = $1,000/40 (one fortieth of all wages) = $25/hour

Overtime pay = 10 (extra hours worked) × 25 (regular rate) × 1.5 (premium) = $375

Liquidated Damages:

Under the new Virginia Overtime Wage Act, an award of liquidated damages equal to the about of wages owed is mandatory.  This departs from the FMLA, which provides an employer a good faith defense to avoid liquidated damages. Further, under the new Virginia law, if the court finds the employer knowingly failed to pay wages in accordance with the law, the employer will be ordered to pay triple the amount of wages due. The employer must also pay pre-judgement interest at 8 percent a year. Virginia’s mandatory liquidated damages provision and triple damage exposure for knowing failure to pay overtime significantly increase employer liability for any overtime damages that might otherwise be awarded under the FLSA.

Criminal Penalties:

Virginia’s new law also includes criminal provisions against employers. An employer who willfully, with intent to defraud, fails to pay the correct overtime wages is (1) guilty of a Class 1 misdemeanor if the value of the wages not paid is less than $10,000 or (2) guilty of a Class 6 felony if the value of the wages not paid is more than $10,000 or if the conviction is a repeat offense.

Collective Actions:

Collective and class actions are typically not permitted under Virginia law. Virginia’s new Overtime Wage Act changes all that and authorizes for the collective actions that may be filed in state court “consistent with the collective actions procedures of the Fair Labor Standards Act.”

Statute of Limitations:

Finally, in addition to expanding the scope of recoverable damages for overtime violations and ushering in collective actions in state court, Virginia’s new law extends the statute of limitations for bringing a claim for a violation to 3 years, compared to FLSA’s standard 2 year statute of limitations for non-willful violations, and 3 years for willful violations.

Takeaways:

Employers ought to review their overtime pay practices to ensure compliance with the new Virginia law. Due to changes in the overtime formula, the loss of the fluctuating workweek defense, the potential for increased damages, and an extended statute of limitations, employers will face increased liability for misclassifying employees as exempt and for failing to pay overtime. The era of collective actions being filed against Virginia employers in our Circuit Courts has just begun.  For additional assistance, please contact a member of O’Hagan Meyer’s Labor and Employment Team.

https://lis.virginia.gov/cgi-bin/legp604.exe?212+ful+CHAP0445

Written by: Michael E. Barnsback, Esquire and Pierce Edlich, Law Clerk