In another policy change that is designed to benefit workers and penalize businesses that violate the law, the federal government announced that employers who violate the overtime or minimum wage provisions of the federal Fair Labor Standards Act (FLSA) may be liable for both the unpaid wages and an additional equal amount as liquidated damages. Employers will want to examine their classification of workers as exempt from overtime and other payroll and wage payment practices, as well as their independent contractor relationships, to avoid paying workers double the amount of earned wages.
In June 2020, after employers complained that U.S. Department of Labor (DOL) investigators began seeking these double damages inconsistently and too often during the Obama Administration, the Trump Administration issued a policy limiting investigators’ ability to seek liquidated damages in pre-litigation settlements. Under the Trump policy, DOL Wage and Hour Division (WHD) investigators were directed to not assess liquidated damages absent clear evidence of bad faith and willfulness on the employer’s part or a history of violations by the employer. If an investigator felt that double damages were warranted, they needed approval from former WHD Administrator Cheryl Stanton (a Trump appointee) and the DOL Solicitor to pursue them.
On Friday, April 9, the WHD issued a field assistance bulletin stating that, effective immediately, it is revoking the Trump-era policy to give investigators greater discretion in when to seek double damages. Now, investigators can make a pre-litigation demand for liquidated damages as long as they first get approval from their regional office leader.
According to the field bulletin, “Liquidated damages shall not be assessed by WHD where the employer has set forth credible evidence of a good faith defense,” or the where the regional solicitor “deems the matter inappropriate for litigation.” The good faith defense referenced does not refer to an employer’s subjective lack of intent or bad faith. Rather, an employer can demonstrate a good faith defense by showing reliance on, for example, court decisions, official DOL interpretations or the advice of counsel.
This change in policy by the DOL does not impact the availability of liquidated damages if there is litigation filed by the DOL or by an employee in state or federal court. In such cases, the employee can also seek an award of their attorneys’ fees. The DOL policy only impacts the likelihood that employers will be able to avoid having to pay liquidated damages to resolve investigations by the DOL and avoid being sued – either by DOL or the employee if a settlement can be reached. Employers should be wary of this policy change because it is another clear signal that the DOL plans to be more proactive and aggressive in responding to complaints and initiating investigations.