On 30 March 2021, Governor Ralph Northam signed into law the Virginia Overtime Wage Act (VOWA), creating new wage and hour requirements for Virginia employers. Set to take effect on 1 July 2021, the VOWA also includes numerous employee protections. The VOWA amends the Virginia Code to authorise collective actions and allows for a lengthier statute of limitations period and increased damages provisions.
Until now, Virginia did not have its own overtime pay statute. Instead, Virginia employees relied on the federal Fair Labor Standards Act (FLSA) to govern their wage and hour requirements. The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. The FLSA also allows for a variety of exemptions from the FLSA.
Under the FLSA, an employee’s regular rate of pay is calculated as the sum of all remuneration for employment (barring statutory exclusions) divided by total hours worked in a work week. Further, under the FLSA, overtime pay is determined by multiplying the employee’s straight time rate of pay by all overtime hours worked plus one-half of the employee’s hourly regular rate of pay times all overtime hours worked. However, the FLSA excludes certain types of compensation from an employee’s regular rate pay, including gifts, discretionary and non-discretionary bonuses, severance bonuses, and referral bonuses, among other things.
The VOWA expands the definition of covered employee from the FLSA, specifically including employees of ‘derivative carriers’ (that is, employees who provided contracted services such as baggage handling and catering for railroads or air carriers) within the meaning of the federal Railway Labor Act, who are typically exempt under the FLSA. Although unclear, the VOWA may also preclude several other exemptions available under the FLSA, such as for retail sales employees.
The VOWA expands the FLSA’s overtime provisions by changing the calculation for the rate of pay for hourly and salaried non-exempt employees. Under the VOWA, employers must calculate the regular rate for hourly non-exempt workers as ‘the hourly rate of pay plus any other non-overtime wages paid or allocated for that workweek’, excluding any applicable federal exclusions under the FLSA, divided by the total number of hours worked in that workweek.
However, employers must now engage in a different calculation for non-exempt employees paid on a salary or other regular basis. The VOWA calculates a salaried non-exempt employee’s rate of pay as one-fortieth of all wages paid for that work week, including wages, commissions, and non-discretionary bonuses. Under the VOWA, overtime payment for salaried employees can be no less than 1.5 times an employee’s regular rate of pay. This regular rate of pay is calculated based on an employee’s wage compensation earned in that work week, divided by 40 (arriving at the 1/40th rate), plus 1.5 times that calculated regular rate for all overtime hours worked by the employee in that work week.
Ultimately, this is likely to preclude many Virginia employers from paying non-exempt employees a fixed salary to cover straight time wages for hours worked in excess of 40 in any given work week or using a fluctuating work week method as permitted under the FLSA.
The VOWA omits certain good faith defences traditionally available under the FLSA, including the defence which allows an employer to avoid liquidated damages by demonstrating it acted in good faith and had reasonable grounds for believing its acts did not violate the FLSA. In contrast, the VOWA automatically provides for double damages for all overtime wage violations in addition to a pre-judgment interest at eight percent a year. Additionally, the VOWA permits an employee to recover treble damages if a court finds that the employer knowingly failed to pay overtime in compliance with VOWA. Like the FLSA, the VOWA also permits prevailing employees to recover attorneys’ fees and costs.
While Virginia law has historically not permitted class or collective actions, the VOWA specifically provides for collective actions ‘consistent with the collective action procedures of the Fair Labor Standards Act’. Ultimately, the VOWA authorises employees to bring a private action in Virginia state court, either individually or collectively.
Under the VOWA, Virginia employers now also face the possibility of defending overtime claims in an individual or collective legal action covering work weeks up to a three-year period. The statute of limitations for unpaid overtime claims under the VOWA is three years, unlike the FLSA’s two-year default statute of limitations.
Employers should be mindful that the VOWA significantly departs from the FLSA by changing the rate of pay calculation for employees, thus potentially providing larger damages for misclassified workers. It also does not provide for the same exemptions as the FLSA, so employers need to ensure that employees not currently receiving overtime pay will still be excluded under VOWA. Virginia employers should review their overtime pay practices to ensure compliance with both the FLSA and the new Virginia requirements.