7.26.21

The Virginia Department of Labor and Industry recently released a set of Frequently Asked Questions to help clarify the Virginia Overtime Wage Act, which was signed into law by Gov. Ralph Northam (D) on March 31. The Overtime Act, in conjunction with the Virginia Wage Payment Act of 2020, provides additional benefits to employees while saddling employers with additional burdens and increased potential liability. These burdens go beyond the requirements of the federal Fair Labor Standards Act and impose harsher penalties for failure to comply.

As contrasted with the FLSA, the Virginia Overtime Act has regular rate calculation provisions that are less favorable to employers and fewer overtime exemptions. Coupled with the Wage Payment Act, plaintiffs will get a longer “automatic” statute of limitations, and more favorable liquidated damages provisions. The Overtime Act is also expected to make it easier for employees to bring collective actions in the Virginia state courts, where summary judgment is almost impossible to obtain. Here is a summary.

Rate calculation

Under the FLSA, employers must pay nonexempt employees one and a half times their “regular rate” for all hours worked in excess of 40. An employee’s regular rate under the FLSA is calculated as the sum of all remuneration for employment (except certain statutory exclusions), divided by total hours worked in a workweek. This allows employers to pay non-exempt employees by various methods other than simply by the hour, including by “piece rate” (for instance, based on the number of widgets an employee makes), by day rate (as a flat sum for a day’s work regardless of the number of hours worked), by job rate (again, as a flat sum for a specific job, regardless of the number of hours worked), and by salary. For nonexempt employees who receive salaries, the FLSA allows an employer to determine the number of hours that the salary is intended to compensate, or to determine that the salary will cover all hours worked regardless of the number.  In each of the above methods, the “regular rate” will be determined by the same method:  Dividing the total remuneration by the number of hours worked in the workweek. Because the employee has already received his or her “straight time” for all hours worked, overtime payments can be calculated using a “half-time” method rather than a “time-and-a-half” method.

The Virginia Overtime Wage Act is different. A literal reading appears not to authorize the half-time method of overtime calculation. The statute mentions only two types of pay for nonexempt employees when describing the calculation of the “regular rate”:

  • For hourly employees, the regular rate is calculated essentially the same way it is calculated under the FLSA. In other words, the regular rate would be (1) the hourly rate of pay, (2) plus any other non-overtime wages paid or allocated for that workweek, (3) but excluding any amounts that are excluded from the regular rate by the FLSA and its implementing regulations, (4) divided by the total number of hours worked in that workweek.

  • However, for nonexempt employees paid on a salary or other basis, the regular rate is calculated as 1/40 of all wages paid for that workweek, regardless of the number of hours the salary was intended to compensate and regardless of the number of hours worked.  This differs from the FLSA method.

The FAQs confirm the above regarding salaried employees. They provide the example that a nonexempt salaried employee who earns $800 per week has a regular rate of $20 an hour, regardless of the number of hours the salary was intended to compensate. Thus, the employee’s overtime rate would be $30 an hour ($20 x 1.5) under Virginia law. Under the FLSA, the employee’s regular and overtime rates would be the same, but only if the employee worked 40 hours in the workweek. If the employee worked, for example, 60 hours, under the FLSA the regular rate would decrease to $13.33 an hour ($800 divided by 60) and the overtime rate would be $6.66 an hour ($13.33 divided by 2). Because the employer had already paid the straight time for all hours worked (included within the salary), the employer would owe the employee only an additional $6.66 an hour for each of the 20 overtime hours.

On the other hand, the Virginia FAQs provide that the regular rate for piece-rate employees is calculated in exactly the same way that it would be calculated under the FLSA. In other words, the regular rate would be determined by dividing the amount earned for the week by the number of total hours worked for the week. The employees would then receive an overtime premium of half of the regular rate for any hours worked in excess of 40.

Exemptions

Under the FLSA, there are dozens of exemptions to the overtime requirements for various types of employees and various types of industries. But the Virginia Overtime Wage Act identifies only five. (The following is quoted from the Act, with edits for ease of reading.)

  • Any individual who volunteers solely for humanitarian, religious, or community service purposes for a public body, church, or nonprofit organization that does not otherwise employ the individual.

  • Any person who qualifies for the executive, administrative, professional, and outside sales “white collar exemptions” under the FLSA.

  • Any person who qualifies for the Motor Carrier Act exemption under the FLSA (in other words, with respect to whom the U.S. Secretary of Transportation has power to establish qualifications and maximum hours of service).

  • Any person who qualifies for the exemption applicable under the FLSA to a driver or driver's helper making local deliveries who is compensated on the basis of trip rates or other delivery payment plan.

  • Employees of carriers subject to the federal Railway Labor Act, except derivative carriers within the meaning of that law.

Fortunately, the FAQs clarify the Overtime Law incorporates all of the FLSA exemptions listed under 29 U.S.C. § 213(a). That means that in addition to the above list, the following FLSA exemptions also apply under the Virginia law:

  • Employees employed by seasonal amusement or recreational establishments, organized camps, or religious or non-profession educational conference centers that meet certain criteria.

  • Employees who catch fish and similar aquatic life, and engage in related activities, or who process, can, or pack these marine products.

  • Certain agricultural workers.

  • Employees of certain small newspaper publications.

  • Switchboard operators of certain small telephone companies.

  • Seamen on a vessel other than an American vessel.

  • Certain domestic workers, such as nannies and companions of adults or the infirm.

  • Certain criminal investigators.

  • Certain computer professionals.

  • Border patrol agents.

  • Certain baseball players.

However, there are many other FLSA exemptions that the Virginia law did not adopt, including salesman, partsman, or mechanics of certain dealerships; certain radio or telephone station announcers, news editors, or chief engineers; certain unique types of agricultural workers; taxicab drivers; certain small agency fire protection or law enforcement employees; domestic workers who reside in the household; employees of motion picture theaters; certain national park or forest employees; and certain criminal investigators.

Finally, the FAQs do not shed light on whether the Overtime Law incorporates exemptions under Section 207 (rather than Section 213) of the FLSA. Section 207 includes the popular exemption for employees of certain retail and service establishments who are paid on a commission basis.  The Virginia law suggests that this exemption is incorporated, but it is not clear, and as of the time of publication of this Bulletin, we have been unable to obtain clarity from the Virginia Department of Labor and Industry.

Statute of limitations

Under the FLSA, an employee is entitled to recover damages for two years. The employee can seek damages for a third year, but can recover only if the employer is found to have committed a willful violation. By contrast, the Virginia Overtime Act allows an employee to recover three years’ worth of damages without having to prove that the employer’s violation was willful.

Liquidated damages

Under the FLSA, an employee who prevails on a claim for overtime wages can recover the wages plus an equal amount as “liquidated damages.” This is often referred to as “double damages.” An employer may defend against a claim for liquidated damages on the basis that the employer acted in “good faith.” The employee cannot recover prejudgment interest.

The “good faith” defense is unavailable under the Virginia Overtime Act, which instead provides that all overtime violations are subject to an equal amount in liquidated damages, as well as prejudgment interest at a rate of 8 percent a year. Even more significantly, as a result of the Virginia Wage Payment Act of 2020, Virginia law now provides for treble damages for a “knowing” violation.

Collective actions

Virginia law typically does not authorize class or collective actions. However, the Overtime Act—along with the Wage Payment Act—are exceptions. Employees may now bring collective actions “consistent with the collective action procedures of the Fair Labor Standards Act” for violations of the Overtime Act. That is not particularly good news for employers. The FLSA collective action procedures require potential collective action members to “opt in” to a lawsuit (versus “opting out” of a traditional class action), and this typically results in a much smaller lawsuit. However, the standard for initially establishing a collective action is much lower than for a traditional class action. This is part of the reason that FLSA collective actions have dwarfed the number of other employment-related class actions for decades.

Key points

  • Virginia employers may not pay nonexempt employees using the half-time overtime calculation allowed by the FLSA “fluctuating workweek method.” In other words, they may not pay a fixed salary to cover the straight-time wage obligations for all hours worked in a workweek, regardless of the number.

  • Virginia employers should review their exempt classifications carefully to ensure that they are not relying on FLSA exemptions that are not available under Virginia law. Moreover, they should ensure that their exempt classifications are fully defensible under Virginia law, because of the next bullet point.

  • Failing to comply with overtime requirements in Virginia is about to get much more expensive.

    • Prevailing employees can automatically recover unpaid overtime for three years without having to show that the employer’s conduct was “willful.”

    • Prevailing employees are entitled to double damages and prejudgment interest automatically, and may be entitled to treble damages in the case of a “knowing” violation.

    • Employers face increased damages in misclassification cases. Under federal law, courts commonly hold that an employee’s salary covers his or her straight-time wages for all hours worked, leaving only an additional half-time (0.5x) premium as potential damages in a federal misclassification case (much like the “fluctuating workweek method” of pay described above).  By expressly providing that a salaried employee’s regular rate is 1/40 of all wages paid in the workweek, the Virginia Overtime Wage Act eliminates this back wage compensation method and instead entitles employees to 1.5 times their regular rate for hours worked in excess of 40, leading to a higher regular rate and damages at time and a half. This, alone, can increase the value of overtime claims by three to four times the value that the same claims would have under the FLSA.

  • Virginia employers should prepare to defend overtime claims in state court, rather than federal court. In addition to the fact that the plaintiffs’ bar will no longer need to go to federal court to take advantage of the favorable collective action mechanism of the FLSA, the state courts’ unique procedural requirements make summary judgment a near impossibility. In other words, employers who cannot remove cases to federal court are likely to have to settle or go to trial.

Please contact any of the attorneys in our Washington DC Metro Office if you have questions about the new Virginia Overtime Wage Act or any other Virginia employment law issues.

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