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Pre-Litigation Investigations and Liquidated Damages

April 27, 2021

Earlier this month, the Department of Labor (DOL) announced that it will return to its practice of pursuing liquidated damages in connection with pre-litigation investigations and settlements of wage and hour claims.  This new policy rescinds the Wage and Hour Division’s (WHD) Field Assistance Bulletin (FAB) 2020-2, issued June 24, 2020, that curtailed assessment of these damages.

What does the FLSA say? Under the Fair Labor Standards Act (FLSA), employers who violate the act’s provisions concerning minimum wages, overtime compensation, and protections of employees who receive tips are liable for the unpaid wages as well as liquidated damages—in other words, twice the amount of back pay that an employer owes.  However, employers can avoid liquidated damages under the act if they can demonstrate they acted in good faith and had reasonable grounds for believing they were in compliance with the FLSA. 

Why was FAB 2020-2 issued last year? Executive Order 13924 directed federal agencies, including the DOL, to use deregulatory actions to spur economic activity in an effort to mitigate COVID-19’s impact on the economy.  The WHD responded that it would no longer automatically pursue liquidated damages, but would instead only assess pre-litigation liquidated damages if certain circumstances existed (e.g., no previous history of violations). 

What is the policy now? Essentially, the WHD will return to pursuing liquidated damages from employers in its pre-litigation investigations.

What are the takeaways? As a result of this change, the WHD will have much more discretion in determining when liquidated damages are necessary and appropriate in a settlement in their investigation of wage-and-hour complaints.  To prevent the assessment of liquidated damages in a potential settlement or subsequent litigation, employers should establish well-defined FLSA-compliant policies and educate managers on wage-and-hour policies and common pitfalls in payroll practices that run afoul of the FLSA.  Employers should also consider proactive measures such as conducting internal audits that review company compensation and payroll policies, procedures, practices, and documentation, and confirm FLSA-compliant designations of non-exempt and exempt employees.  Audits done at the direction and under the control of legal counsel can remain confidential and protected (where appropriate) or may help defend against future claims of liquidated damages under the FLSA.

If you would like additional information on this or any related matter, please contact Nexsen Pruet’s Employment & Labor Law group.