When the Labor Department quietly rolled out a new policy this week to limit when companies will be on the hook for double penalties in wage settlements, it said the move stemmed from an executive order directing agencies to remove “barriers to economic prosperity as America strives to defeat the economic effects of Covid-19.”
But that explanation obscures the extended history of a contentious action that had been discussed within the Trump administration since at least 2017, and that wage-hour practitioners say will transform the landscape of how the federal government negotiates settlements with employers accused of stiffing workers on pay.
The new directive, published deep inside a DOL webpage on Wednesday, culminates a concerted push by the business lobby to get the Trump administration to drop an Obama-era policy of seeking liquidated damages in pre-litigation wage settlements, which double the amount of back pay workers receive. The DOL’s Wage and Hour Division as of July 1 will seek regular back pay, and not liquidated damages, except in limited circumstances and with approval from two top agency officials.
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The Wage and Hour Division’s online notice, which hasn’t been promoted by the department through a formal press release, directs field staff to stop applying liquidated damages as a default rule.
WHD Administrator Cheryl Stanton instructed local offices across the country that they’re prohibited from assessing double damages if employers meet any one of six conditions. That list includes situations in which there’s no clear evidence the employer acted willfully or in bad faith; the business has no history of violations; or if there’s a dispute over an unsettled area of law.
“It basically blows a complete hole in this policy,” said Michael Hancock, who was WHD assistant administrator during the Obama administration through 2015, where he oversaw the expanded use of double damages. “I would be hard pressed to name any employer that can’t cite at least one of these as a reason why they shouldn’t be subject to liquidated damages.”
The notice also said that if an agency investigator decides there’s enough evidence to proceed with pre-litigation liquidated damages, final approval must be obtained from the WHD administrator and the Solicitor of Labor.
The sign-off requirement is a “final kicker,” Hancock said, because it creates “such an administrative barrier that I can’t imagine anyone asks for the exception.”
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