On June 27th, Donald M. Harrison, III, the Acting Administrator of the federal Department of Labor (DOL), issued a very important two-page memorandum to all of the DOL's Regional Administrators and District Directors. In a nutshell, this memorandum made clear that the DOL's Wage and Hour Division (WHD), "may not supervise the payment of liquidated damages in any administrative matter under the Fair Labor Standards Act (FLSA)." To put that more simply, the DOL WHD is no longer able, pre-litigation, to seek and/or impose liquidated damages (essentially a "doubling" of wages that are assessed to be owed) as part of the DOL's investigations into claims of unpaid wages made against employers.
It was fifteen years ago when the Obama Administration first authorized the DOL to use liquidated damages as a remedy to provide employees who were found by the DOL to either be misclassified under the FLSA, or otherwise not paid all wages owed to them (including overtime) by their employers. In 2020 the first Trump Administration limited this practice by the DOL, but in 2021 the Biden Administration rescinded that 2020 policy restriction, and restored the DOL's unrestricted pre-litigation use of liquidated damages.
The June 27th memorandum acts to now draw a new line in the sand in which the DOL may no longer seek to impose liquidated damages in any pre-litigation matter. For those pre-litigation matters in which the parties have already agreed in writing to the payment of liquidated damages, those agreements remain undisturbed, and liquidated damages may still be imposed. But, for those employers mired in a pre-litigation investigation with the DOL in which liquidated damages have been sought by the DOL, but not agreed to in writing by the parties, this June 27th memorandum has suddenly changed the trajectory of the existing investigation, and should reduce the employer's potential pre-litigation liability exposure by as much as half of the amounts at issue. For employers facing large back-pay assessments as part of ongoing (where no agreement on liquidated damages has been confirmed in writing), or future DOL investigations, this development could result in significant pre-litigation savings.
You might be wondering what the DOL's reasoning is behind the decision to roll back the use of liquidated damages. The June 27th memorandum takes the position that Congress has only authorized the DOL to seek the award of liquidated damages in judicial proceedings, and not in administrative (i.e. investigative phase) matters. Therefore, it is only the Solicitor of Labor and its Regional Solicitors who can and should seek the imposition of liquidated damages when resolving FLSA violations through litigation or litigation-related settlement. Moreover, the memorandum explained that the DOL's fifteen-year use of liquidated damages in pre-litigation matters has proven to extend the duration of investigations by 28%, which has significantly delayed the recovery of unpaid wages by affected workers.
This move by the DOL does not render liquidated damages obsolete. Whether it is in litigation with the DOL itself, or as part of a private lawsuit seeking unpaid wages, employees seeking unpaid minimum wages or overtime compensation are still authorized in litigation to seek, "an additional equal amount as liquidated damages." 29 U.S.C. § 216(b). But, it does mean that during the DOL WHD investigative phase, the DOL will now no longer be able to push for a resolution while holding the specter of liquidated damages over the employer's head. As the memorandum spells out, the WHD may not use, "any manner or method of seeking, pursuing, imposing, accepting, endorsing, approving, encouraging, leveraging, or otherwise supporting in any way the payment of liquidated damages before the filing of a lawsuit."
That language leaves little doubt that the days of the DOL using liquidated damages as a hammer on employers during the pre-litigation investigation phase are over. This is a big development for the business community, and to the extent your company is involved in any ongoing pre-litigation proceedings with the DOL, and no written agreement has been reached regarding the assessment of liquidated damages, your company needs to be speaking to a labor and employment defense attorney as soon as possible.
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