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July Brings DOL Forbearance on Liquidated Damages in Wage Claims, Investigations

Effective today, July 1, 2020, the U.S. Department of Labor (DOL) is cutting employers a temporary break. As we discussed back in March, employers can be sued for violations of the Fair Labor Standards Act (FLSA), such as failing to pay minimum wage for all hours worked or to provide overtime pay as required. The DOL’s Wage and Hour Division also can investigate and enforce remedies for violations. As we discussed, the FLSA provides for three remedies:

  1. Backpay
  2. Liquidated Damages
  3. Reasonable Attorney’s Fees

Some state laws, like Illinois’ Wage Payment and Collection Act, provide for some form of interest payments. In Illinois, the WPCA provides for “damages of 2% of the amount of any such underpayments for each month following the date of payment during which such underpayments remain unpaid.” The FLSA does not include this kind of interest provision. Instead, the FLSA includes a remedy called “liquidated damages.” Liquidated damages is a legal term of art used in contract law and many other statutes. Unlike interest, liquidated damages provide for the award of a fixed sum of money.

Under the FLSA, liquidated damages are an amount equal to any backpay. Liquidated damages are awarded in most but not all FLSA cases. As the Seventh Circuit has explained, there is “a strong presumption in favor” of awarding liquidated damages. Normally, an employer can only overcome this presumption by “‘good faith . . . and reasonable grounds for believing that [the] act or omission was not a violation” of the FLSA. To avoid liquidated damages, employers must show that (1) their actions were taken in good faith and (2) they had reasonable grounds for their belief that they were complying with the FLSA. (See 29 U.S.C. § 260).

However, the DOL announced in in Field Assistance Bulletin 2020-2 on June 24 that it will temporarily cease imposing liquidated damages in its pre-litigation settlements of wage claims and investigations.  Given that liquidated damages effectively double the amount of damages awards, this policy change is significant.

Per the new guidance, WHD will not assess pre-litigation liquidated damages if any of the following circumstances exist:

  • there is no evidence of bad faith or willfulness;
  • the employer’s explanation for the violation shows that it was the result of a bona fide dispute of unsettled law under the Fair Labor Standards Act (FLSA);
  • the employer has no previous history of violations;
  • the matter involves individual coverage only and not a collective action involving multiple employees or classes of employees;
  • the matter involves state and local government agencies or other non-profits;
  • the matter involves “complex” FLSA § 13(a)(1) or § 13(b)(1) exemptions.

Most of these points are self-explanatory, save for the last one. FLSA § 13(a)(1) refers to the “white collar” exemptions from both minimum and overtime pay protections for executive, professional, and administrative employees, as well as outside sales employees.  FLSA § 13(b)(1) is the “motor carrier exemption” that exempts certain employees who are subject to the jurisdiction of the Secretary of Transportation and DOT/NHTSA regulations.

The Bulletin also requires that both the WHD Administrator and the Solicitor of Labor (or either of their designees) must approve each request for pre-litigation liquidated damages on an individual, case-by-case basis.

The DOL took this action based on an executive order that President Trump signed in May 2020 that directed federal agencies to use deregulatory actions to spur economic activity in light of COVID-19 shutdowns.  The Memorandum attached to DOL’s Field Assistance Bulletin observes that administrative actions involving liquidated damages take 28% longer to conclude than those that seek only back wages.  WHD may still assess and seek liquidated damages in cases involving bad faith and willfulness on the part of the employer, but seeking such a remedy will now be the exception, not the rule.

Employer Takeaways

Obviously, employers should continue to comply with all federal and state wage and hour requirements. Neither COVID-19 nor this coronavirus-related policy exempts employers from complying with the law. Importantly, this new policy does not affect the DOL’s authority to seek liquidated damages against employers in court, and does not prohibit employees from pursuing liquidated damages in private actions against employers. This Bulletin is temporary and could be rescinded at any time by the Trump administration or a future Biden administration, so it is not a permanent reprieve.

Although this new guidance does not completely eliminate the possibility that an employer may be subject to liquidated damages in all wage-and-hour claims, employers do have some additional flexibility should they wish to pursue settlement of individual claims before the DOL or otherwise face WHD investigations.

In our next post, we’ll discuss the other Bulletin from the DOL late last week regarding Family First Coronavirus Response Act (FFCRA) leave based on the closure of a summer camp or program.

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