DOL Returns to the Practice of Seeking Liquidated Damages in Settlements in Lieu of Litigation, Rescinding Trump-Era Policy (US)
On April 9, 2021, the U.S. Department of Labor (“DOL”) issued Field Assistance Bulletin No. 2021-2, which provides updated guidance to Wage and Hour Division (“WHD”) field staff regarding the practice of seeking liquidated damages in settlements in lieu of litigation. In so doing, the DOL rescinded a Trump-era policy aimed at reducing the imposition of liquidated damages in wage cases.
It is well-established that under the Fair Labor Standards Act (“FLSA”), employers who violate the provisions of the FLSA involving minimum wages, overtime compensation, and protections for employees who receive tips are liable for the unpaid wages or unlawfully kept tips and for an additional equal amount as liquidated damages – in other words, double damages. Prior to June 23, 2020, it had been the policy of WHD to seek liquidated damages in pre-litigation settlements only in certain cases upon agreement by the Solicitor’s Office. As we reported in a previous blog post, this policy was revised by the Trump Administration pursuant to a June 2020 memorandum from the Deputy Secretary in which the DOL announced that it would no longer automatically pursue pre-litigation liquidated damages in administrative actions. The change in practice was based on President Trump’s Executive Order 13924, Regulatory Relief to Support Economic Recovery, and FAB 2020-2, issued on June 24, 2020. At that time, the stated goal of the policy change was to remove certain regulatory and enforcement barriers to economic gains as America tried to rebuild from the devastating economic effects of COVID-19.
However, the good news for employers was short-lived, as the Biden-Administration’s DOL has rescinded that guidance, announcing that effective April 9, 2021, the WHD will be returning to the policy of pursuing liquidated damages in settlements with employers where unpaid wages are found to be owed in its pre-litigation investigations. Accordingly, moving forward, the Regional Administrator or designee, will consult with the appropriate Regional Solicitor or designee through a Joint Review Committee, or other agreed upon process, regarding the assessment of liquidated damages in lieu of litigation on a case by case basis.
As a result of this policy change, regional DOL offices around the US will now have much more discretion in determining when liquidated damages are necessary and appropriate in a settlement. (Note, however, that the decision to seek liquidated damages in settlement is not automatic; the WHD cannot make a demand for liquidated damages without first obtaining concurrence from the Regional Solicitor or his or her designee.) Further, the WHD will not insist on pre-litigation liquidated damages when the employer demonstrates credible evidence of a good faith defense or where the Regional Solicitor determines that the matter is not appropriate for litigation.
In light of this guidance, employers should take this opportunity to review their pay practices and consult with their attorney to ensure compliance under the FLSA in order to avoid wage-and-hour claims that could result in demands for liquidated damages in settlement, or an award of such damages in litigation.