Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Historically, Virginia has not had a standalone overtime law, instead relying on the federal Fair Labor Standards Act (FLSA) to provide protections to employees who work more than 40 hours a week. But that will change on July 1, 2021. Continuing a pattern of legislative action that is quickly making the Commonwealth a much more “employee-friendly” jurisdiction, and a much more attractive venue for wage and hour claims, on Tuesday, March 30, 2021, Governor Ralph Northam signed into law the Virginia Overtime Wage Act (HB 2063). Like the FLSA, Virginia’s new overtime law generally requires payment of time and a half an employee’s regular rate for hours worked in excess of 40 hours in a workweek. But while the law largely tracks federal standards, certain significant differences are likely to result in new liabilities for Virginia employers and higher damages for overtime violations in the Commonwealth.
Changes to Regular Rate Calculations
Generally, under the FLSA, the same basic formula is used to determine each employee’s regular rate—all remuneration for employment, subject to certain statutory exclusions, divided by all hours worked in the workweek. The new Virginia law, however, establishes a new formula for regular rate calculations for salaried employees in the Commonwealth.
For employees paid on an hourly basis, the regular rate will be the employee’s hourly rate in addition to other wages paid or allocated to that workweek, minus any applicable federal exclusions, divided by the total number of hours worked in that workweek.1 For Virginia employees paid on a salary or other regular basis, however, the regular rate will be calculated as “one-fortieth of all wages paid for that workweek.”2 This new standard appears to preclude employers from paying non-exempt employees a fixed salary that covers straight-time wages for hours in excess of 40 hours in a workweek, or from utilizing the “fluctuating workweek” method of calculating overtime under the FLSA,3 and will require the use of a higher hourly rate for calculating overtime liability for non-exempt salaried employees in many situations.
It also will result in larger recoveries for misclassified workers. When salaried employees are found to be misclassified as exempt under the FLSA, employers normally argue those misclassified workers’ salaries already cover their straight-time wages for all hours worked. Thus, only an additional “half time” premium is owed for hours worked over 40. But the new state law’s regular rate definition for employees paid on a salary basis will eliminate this defense for Virginia employers. Instead, misclassified employees will be entitled to “time and a half” their regular rate for any hours worked over 40 in a workweek. Moreover, because the divisor used to calculate the regular rate will be capped at 40 hours, the base rate used to determine overtime liability will be higher as well. This will greatly increase employer liability for exemption misclassification under Virginia law.
For example, imagine an employee who is paid $700 a week and who worked 50 hours in a workweek. If that employee was misclassified as exempt under the FLSA, the unpaid overtime wages owed to the employee would be calculated in the following manner:
$700 ÷ 50 hours = $14 per hour regular rate
One half the $14 regular rate = $7 per hour.
10 overtime hours x $7 per hour = $70 in overtime owed.
That same employee’s overtime under the Virginia Overtime Wage Act, however, would be calculated like so:
$700 ÷ 40 hours = $17.50 per hour regular rate
Time and a half the $17.50 regular rate = $26.25 per hour.
10 overtime hours x $26.25 per hour = $262.50 in overtime owed.
The impact of this difference (resulting in overtime liability that is 3.75 times greater) becomes even more pronounced when it is extrapolated over an entire limitations period or across multiple employees proceeding collectively—an option that is now available to Virginia employees pursuing wage claims thanks to last year’s amendments to the Virginia Wage Payment Act.4
Extended Statute of Limitations for Virginia Violations
With that in mind, it is important to note that the Virginia Overtime Wage Act also will expand the statute of limitations applicable to overtime claims in the Commonwealth. Generally, under the FLSA, a two-year statute of limitations is applied to overtime violations. That limitations period is extended to three years in the case of a “willful” violation.5 But under the new Virginia overtime law a three-year statute of limitations is the default.6
This means that even in situations where an employer acted in good faith to comply with its overtime obligations, employees will have three years to file a private lawsuit or wage claim with the state Department of Labor and Industry. Further, in the case of an ongoing wage violation, an employee plaintiff will be able to recover back wages for a full three years prior to the date the claim was filed instead of two. Again, this means the possibility for significantly greater liabilities for employers in Virginia than what they are subject to under federal law.
Liquidated Damages Available for All Overtime Violations
Finally, under the FLSA, liquidated damages are permitted in an amount equal to the amount of unpaid overtime wages.7 The FLSA provides a defense to such “double damages,” however, when an employer can show that it acted in “good faith” with “reasonable grounds” for believing its actions to be in compliance with the requirements of the FLSA.8
But violations of the Virginia Overtime Wage Act will result in greatly expanded damages available for overtime wage violations. Under the Virginia act, all overtime wage violations are subject to double damages (plus pre-judgment interest of 8% per year), and there is no “good faith” defense like that available under the FLSA.9 Instead, the Virginia law goes further and permits treble damages for “knowing” violations10—meaning that the employer had actual knowledge that it failed to pay the overtime wages due, and acted in deliberate ignorance or reckless disregard as to whether it was paying all overtime wages owed.11
Combined with last year’s amendments to the state Virginia Wage Payment Act, the enactment of the Virginia Overtime Wage Act greatly increases the potential wage and hour liabilities for Virginia employers. And given those expanded liabilities, Virginia will become an increasingly attractive jurisdiction for plaintiffs’ attorneys looking to bring wage and hour actions. Virginia employers are encouraged to review their overtime pay practices and exemption classification in light of this new law.
1 See Va. Code § 40.1-29.2(B)(1) (effective July 1, 2021).
2 See Va. Code § 40.1-29.2(B)(2) (effective July 1, 2021).
3 See 29 C.F.R. § 778.114.
4 See Va. Code § 40.1-29(J).
5 See 29 U.S.C. § 255(a).
6 See Va. Code § 40.1-29.2(G) (effective July 1, 2021).
7 See 29 U.S.C. §216(b).
8 See 29 U.S.C. §260.
9 See Va. Code § 40.1-29(G).
10 See Va. Code § 40.1-29(J).
11 See Va. Code § 40.1-29(K).