Virginia Changes Overtime Pay Standards to Align with FLSA

Virginia lawmakers have rolled back significant portions of a 2021 state overtime law passed under Democratic rule. The 2021 law had stricter requirements for employers than those found under the federal Fair Labor Standards Act (FLSA).

Legal experts say the move realigns Virginia’s overtime provisions with the FLSA and is a “reprieve from the many compliance concerns and increased exposure to liability created by the 2021 law.”

Republican Gov. Glen Youngkin signed the changes into law on April 11, 2022. The amendments to the existing state legislation go into effect on July 1, 2022.

Why was the Virginia overtime law changed?

For many years, Virginia employers used the Fair Labor Standards Act (FLSA) guidelines when calculating and paying overtime wages. However, that changed in 2021 under Democratic Gov. Ralph Northam. With a Democratic majority in the General Assembly, Northam signed the Virginia Overtime Wage Act (VOWA) in March 2021. The measure expanded employer overtime pay requirements in the Old Dominion state beginning July 2021.

A few months later, because of the November 2021 elections, Republicans obtained a slight majority in Virginia’s House of Delegates, and a GOP Governor was elected. These events allowed Republicans to undo many of the VOWA’s requirements enacted by the Democrats.

VOWA’s impact on employers

Although the VOWA required employers to pay time-and-a-half for hours worked over 40 in a workweek, it deviated from the FLSA in several significant ways, including:

• The calculation for the regular rate of pay
• The statute of limitations
• Available damages
• Collective actions

These changes enacted in the 2021 VOWA legislation put employers in a tenuous situation.

Employer pitfalls of the 2021 Virginia law

In an analysis of the “many pitfalls created for employers by the passage of the VOWA,” Shaun Bennett and Kristina H. Vaquera, attorneys for Jackson Lewis, P.C., have pointed out that the 2021 version of the VOWA approved by the Democrats:

• Used a method for calculating a salaried, non-exempt employee’s regular rate of pay in a way that increased liability for employers for unpaid overtime from that found under the FLSA
• Increased liability for Virginia employers facing overtime lawsuits
• Eliminated a “good faith” defense against claims of liquidated damage made by aggrieved workers. Under the FLSA, employers can defend against claims for heightened damages by asserting “good faith.” Good faith means that the employer had reasonable grounds to believe their actions weren’t FLSA violations. A court finding under the version of the VOWA enacted by the Democrats automatically provided increased damages for “knowing” failures to pay overtime wages
• Allowed workers an extended timeframe to claim violations of the state law. The VOWA approved by the Democrats had a three-year statute of limitations, while the FLSA allows two years
• Was one of the few state statutes that expressly authorized class action lawsuits, called “collective action” lawsuits. The FLSA allows conditional certification of such lawsuits. Christopher Durham and Natalie Bare, attorneys for Duane Morris, LLP, said in an analysis of the VOWA shortly after it was signed into law, “the VOWA’s extension of collective action procedures to state overtime lawsuits made Virginia a more attractive jurisdiction for plaintiffs’ lawyers to bring representative actions.”
• Created greater legal liability for employers for misclassifying employees as exempt

That version of the VOWA was roundly criticized and, some say, created confusion and uncertainty for Virginia employers.

Employer criticism and confusion

Informal guidance from the state’s Labor Department was rolled out to clarify employer obligations. “[They] did little to assuage employer concerns over the VOWA’s many ambiguities,” the Jackson Lewis attorneys noted.

Much of that is poised to change.

Return to federal overtime standards

According to Michael S. McIntosh, Joshua B. Waxman, and Sarah M. Martin, attorneys for Littler Mendelson, P.C., “The 2022 amendments remove the 2021 VOWA provisions and clarify that employers must comply with FLSA overtime obligations. When determining their overtime obligations to employees, the amendments further emphasize that this realignment means employers may once again rely on the over 80 years of FLSA:

• Regulations
• Guidance
• Rules
• Governing case law.”

Although Virginia’s 2022 overhaul of the overtime pay requirements aligns its overtime obligations with the federal FLSA in many ways, employers should be aware of the critical similarities and differences.

A regular rate of pay

The FLSA requires that non-exempt employees be paid overtime wages of 1.5 times their regular rate of pay for all hours in excess of 40 worked in a workweek. According to the U.S. Department of Labor, the regular rate is:

• The total compensation paid in the workweek
• Except for statutory exclusions
• Divided by the total hours worked in the same workweek

“Under the original VOWA, if a non-exempt employee was paid on a salary basis, their regular rate of pay was calculated by dividing that compensation by 40 hours rather than actual hours worked, resulting in a higher regular rate,” according to Jackson Lewis.

The Republican version of the VOWA eliminates this difference and returns to the FLSA’s regular rate calculation.

Misclassifying employees

The risk Virginia employers faced under the VOWA for misclassifying employees as exempt is reduced under the amendments to the VOWA.

“Employers often argue in FLSA claims that a misclassified employee’s salary already covers the employee’s straight-time wages for all hours worked. Therefore, only the additional ‘half-time’ amount is owed for hours in excess of 40,” according to Jackson Lewis. That defense wasn’t available under the VOWA.

Exempt Classifications

Some of the exemptions allowed under the FLSA for overtime pay requirements weren’t available under the VOWA. A return to FLSA standards means that Virginia employers can take advantage of all of the exemptions allowed under the FLSA.

Reduced statute of limitations

The longer statute of limitations allowed under the VOWA for all overtime wage payment disputes has been eliminated. The VOWA provided a three-year statute of limitations for all wage disputes.

The FLSA provides a two-year statute of limitations for most claims. However, it allows a three-year deadline when a claimant can demonstrate that the employer’s actions were willful.

Virginia’s statute of limitations for overtime claims will mirror the limitations period found under the FLSA.

Liquidated damages

A return to FLSA standards means that Virginia employers can defend against a claim for liquidated damages by showing that they acted in good faith. Liquidated damages in FLSA lawsuits are a “double backpay” remedy.

Under the original version of the VOWA, all established overtime wage violations were automatically subject to penalties of liquidated damages, plus pre-judgment interest of 8% a year. In addition, there was no defense available to mitigate the liquidated damages.

2022 changes will be reviewed

A workgroup headed up by Virginia’s Labor Secretary will review the overtime issues created by the amendments to the VOWA. A report, including findings and recommendations, will be provided to the governor and relevant Virginia state lawmakers by November 2022.

Conclusion

The changeover to federal standards means Virginia employers will probably have more protection from potential violations and worker overtime claims.