DOL Scales Back on Double Damages in Prelitigation Settlements

Allen Smith, J.D. By Allen Smith, J.D. July 13, 2020
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DOL

​The U.S. Department of Labor (DOL) has, effective July 1, stopped seeking double damages—referred to as liquidated damages—in many cases that it settles before suing. But it still will seek them in litigation.

Liquidated damages are a multiplier of any back wages owed. "For every dollar of back wages owed, the FLSA [Fair Labor Standards Act] includes provisions allowing for an additional dollar of damages to be added," said Michelle Anderson, an attorney with Fisher Phillips in New Orleans and Tampa, Fla.

Under the DOL's new enforcement policy, prelitigation liquidated damages will not be sought when:

  • There is not clear evidence of bad faith and willfulness.
  • The employer's explanation for the violation shows that it was the result of a genuine dispute of unsettled law under the FLSA.
  • The employer has no previous history of violations.
  • The matter involves individual coverage only.
  • The matter involves complex exemptions, such as the executive, administrative, professional and outside-sales-employee exemptions and the motor carrier exemption.

"With this new announcement, the DOL is essentially providing a carrot to employers designed to resolve cases more quickly," said Hugh F. Murray III, an attorney at McCarter & English in Hartford, Conn.

Reasons for the Change

Patrick Pizzella, the deputy secretary of labor, outlined the reasons for the change in a June 23 memo to Cheryl Stanton, the administrator of the DOL's Wage and Hour Division, and Kate O'Scannlain, the solicitor of labor.

Pizzella noted that Executive Order 13924, signed on May 19, requires the department to continue removing certain regulatory and enforcement barriers to economic prosperity.

In the executive order, President Donald Trump instructed agencies to waive certain requirements to "give businesses, especially small businesses, the confidence they need to reopen by providing guidance on what the law requires; by recognizing the efforts of businesses to comply with the often-complex regulations in complicated and swiftly changing circumstances; and by committing to fairness in administrative enforcement and adjudication."

Principles of fairness, according to the executive order, include that procedural rules are "public, clear and effective." Further, penalties imposed in administrative enforcement "must be proportionate, transparent, imposed in adherence to consistent standards and only as authorized by law."

Pizzella stated that "since approximately 2011, in a departure from its long-standing prior policy, the department has engaged in the practice of recovering liquidated damages as part of a prelitigation negotiated settlement of alleged FLSA liability for unpaid wages where the department has yet to file a complaint in court."

In recent years, the department has often pursued double damages as the default rule rather than as an exception. As a result, "FLSA administrative cases take longer to conclude—and thus delay workers' receiving back wages—in cases where liquidated damages are assessed."

He added that continuing to recover prelitigation liquidated damages is an enforcement practice that inhibits economic recovery in these challenging times.

Pizzella said the prior policy did not account for the efforts of businesses to adjust. "This is especially true as employers face novel and practical challenges in applying the FLSA to new conditions in response to the coronavirus pandemic," he stated.

In announcing the new policy in Field Assistance Bulletin No. 2020-2 on June 24, Stanton specified that each request for prelitigation liquidated damages under the FLSA must be submitted to and approved by Stanton and O'Scannlain, or one of her designees.

Changes in Direction

The imposition of liquidated damages during a DOL prelitigation settlement has varied under different presidential administrations, according to Anderson.

Under the administration of President George W. Bush, DOL investigators generally did not include liquidated damages. One exception was if the DOL had previously conducted an audit or investigation where back wages were owed and the employer had not yet come into compliance.

Another was if the violations were egregious. If an employer makes its employees clock out so there's no record of overtime, for example, "there's no way you'll ever avoid liquidated damages," according to Adam Chotiner, an attorney with Shapiro, Blasi, Wasserman & Hermann in Boca Raton, Fla.

Around 2011, the department essentially took the position that the FLSA required double damages for prelitigation settlements unless the employer could reasonably establish good faith and a reasonable basis for believing that it had not violated the FLSA, Murray said.

Technically, the FLSA states that a court, rather than the DOL, should decide whether and to what extent an employer must pay liquidated damages, Anderson said. But when faced with a low-dollar back wage finding, the costly prospect of litigation, business disruption and potential negative media coverage, businesses often simply paid liquidated damages to the DOL instead of fighting them, she added.

Under the Trump administration prior to Stanton's announcement, the imposition of liquidated damages varied, Anderson said. Some investigators accepted the position that only a court can impose these damages, while other investigators imposed them.

In recent months, prior to the DOL's announcement, "my experience with the DOL was the agency was moving away from imposing liquidated damages as a matter of course," she said.

[Need help with legal questions? Check out the new SHRM LegalNetwork]

Liquidated Damages in Lawsuits

The DOL "probably must seek liquidated damages if it brings a lawsuit," Murray stated.

Chotiner said that if an employer determined an employee was exempt after due diligence, a court might decide not to impose liquidated damages even if it determines that an employee was misclassified.

Anderson noted that the FLSA includes a private right of action where employees do not have to seek relief from the DOL first before filing a lawsuit.

Even if an employee brings a claim to the DOL and the department settles without liquidated damages, state departments of labor and individuals can bring analogous claims under state law for whatever liquidated damages—often treble damages—are permitted by state law, Murray cautioned.

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