Effective on July 1, 2020, WHD will no longer pursue pre-litigation liquidated damages as its default policy in its administratively resolved investigations.
Under the FLSA, liquidated damages are equal to the amount of back wages due to the employee. For instance, if an employer owes an employee $5,000 as a result of FLSA violations, the liquidated damages add another $5,000 to the back pay that the employee can receive.
From its creation in 1938 until 2010, WHD did not administratively assess liquidated damages as part of an informal settlement but sought them when in litigation. Some would argue this is because the FLSA does not include authority for WHD to impose liquidated damages, per 29 U.S.C. § 216(c). The Obama DOL in 2010 changed this practice on a pilot basis, and pre-litigation liquidated damage assessments eventually became the norm for the agency. Given the statutory language, many WHD observers and even some within the agency (including yours truly) believed employers would challenge the policy in court and prevail, and it would be short-lived. For whatever reasons, such as the cost of litigation against the unlimited resources of the federal government, or concerns about adverse publicity, those observers were wrong.
It is not a surprise that the Trump Administration is largely reversing this practice, under the authority of Executive Order 13924, which tasked federal agencies with removing regulatory and enforcement barriers to economic prosperity for Americans in the wake of COVID-19. The only surprise is that it took them 3-1/2 years and a pandemic to do so.
In a June 24 announcement, effective July 1, 2020, the WHD will limit administrative cases in which liquidated damages are sought, and will not assess pre-litigation liquidated damages if any one of the following circumstances exist:
- There is no clear evidence of bad faith and willfulness for the violation on the part of the employer;
- The employer’s explanation for the violations show that they were the result of a bona fide dispute of unsettled law under the FLSA;
- The employer has no previous history of FLSA violations;
- The matter involves individual coverage only (FLSA individual coverage applies to employees whose duties involve interstate commerce-affecting activities, even if their employer does not meet the enterprise coverage standard because it is a non-profit entity or the annual sales volume is less than $500,00);
- The matter involves certain complex exemption issues, including the white collar exemptions; or
- The matter involves State and local government agencies or other non-profits.
This new policy also applies to ongoing investigations in which the final conference was not conducted by July 1, 2020.
Also beginning July 1, pre-litigation liquidated damages that are assessed under the FLSA must be submitted to and approved by both the WHD Administrator and the Solicitor of Labor on an individual case basis.
Now, the recovery of pre-litigation liquidated damages will be “the exception, not the rule,” according to Patrick Pizzella, the Deputy Secretary of the DOL. This change will certainly be welcome for any employer investigated by the agency.