The U.S. Labor Department (DOL) has revoked a Trump-era policy that reduced the pre-litigation amount an employer would have to pay to settle with the DOL for violating the Fair Labor Standards Act (FLSA) by deemphasizing the use of liquidated damages in settlement discussions.
Under the FLSA, employers who fail to properly pay minimum wages, overtime compensation, or violate the protections for tipped employees are liable for the unpaid wages and for an additional, equal amount, called liquidated damages (i.e., double the back pay the employer owes). Before June 23, 2020, it had been the policy of the DOL’s Wage and Hour Division (“WHD”) to seek liquidated damages in most pre-litigation settlement discussions with employers. However, in May 2020, then-President Trump issued an Executive Order purportedly directing agencies to use deregulatory actions to encourage economic recovery in the wake of the COVID-19 pandemic. As part of those “deregulatory actions,” on June 23, 2020, the DOL changed its policy, explaining it would no longer presumptively seek pre-litigation liquidated damages. Instead, liquidated damages would only be sought when there was “clear evidence” of bad faith and willfulness or a history of violations by the employer. Further, if an investigator felt that liquidated damages were warranted, they had to obtain prior approval from the former WHD Administrator (a Trump appointee) and the DOL Solicitor.
On April 9, 2021, the DOL issued a memorandum revoking this Trump-era “no liquidated damages” policy. Investigators now have greater discretion to seek liquidated damages, and can more easily get approval when they decide to do so, as they only need approval from a Regional Solicitor or someone the Solicitor designates. The new DOL policy makes it more likely that employers will have to pay liquidated damages to resolve DOL investigations pre-litigation. The incentive for employers to settle these types of claims, rather than face being sued by the DOL, has just been significantly reduced (though, to be fair, back to where it was pre-June 23, 2020).