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Virus Link to ‘Double Damages’ Rollback Skewered by Obama Alums

June 26, 2020, 6:35 PM

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.

“Since the early days of the current administration, stakeholders have encouraged WHD to revert to the agency’s historical practice—consistently followed since the 1930s—of not seeking liquidated damages outside of litigation,” said Paul DeCamp, who ran the WHD under President George W. Bush and now represents employers at Epstein Becker Green.

The change, which DOL’s notice said will deliver back pay to workers more quickly, was discussed inside the department from the early days of President Donald Trump’s administration, according to five sources with direct knowledge, who spoke on condition of anonymity. The push to quash the Obama policy also was discussed inside Trump’s transition team, according to one source with direct knowledge and one who was briefed on the conversations.

But the agency didn’t act on the internal dialogue, despite repeated pressure from management-bar representatives. The White House also repeatedly urged DOL to retreat from the Obama policy, according to two sources with direct knowledge of those conversations. The issue was elevated to former Labor Secretary Alexander Acosta, who decided not to scrap the Obama administration’s enforcement model, according to two of the sources.

Ultimately, the administration and new DOL leadership under Secretary Eugene Scalia cited the pandemic and economic recession as justification for making the change.

‘Inhibiting Economic Recovery’

Deputy Labor Secretary Patrick Pizzella, in a memo accompanying the online directive, drove home the administration’s reasoning. He wrote that “continuing to recover pre-litigation liquidated damages as the rule, rather than the exception in limited cases, appears to be an administrative enforcement practice that” Trump’s May 19 executive order “describes as potentially inhibiting economic recovery in these challenging times for American workers.”

Critics of the move rejected that argument.

“DOL can try to dress this up as something responsive to the pandemic and recovery, but no one should be naive enough to believe it,” said Judy Conti, government affairs director for the National Employment Law Project, which advocates for low-wage workers. “Corporate America has long wanted interest-free loans in the form of wage theft, and in the Trump/Scalia Department of Labor, they finally got what they wanted.”

Worker advocates and Obama DOL alums say the reversal deprives the agency of the ability to make workers whole for time spent waiting to get paid for earnings they’re owed. The change removes a powerful incentive for employers to comply with wage laws—the risk of owing twice as much money—that also gives the agency leverage in settlement talks, they said.

Now, businesses may feel emboldened to take a risk by not paying workers overtime in a legally ambiguous compliance scenario, knowing that if they’re caught they’ll only have to pay what they would’ve owed in the first place, worker advocates said.

The DOL said the change will allow for faster wage recovery for cash-strapped workers, instead of cases that drag on for years. The agency’s online directive said investigations involving liquidated damages take 28% more time to conclude than those seeking back wages only.

“As workplaces experience new circumstances and challenges caused by coronavirus, the Department is committed to making workers whole by getting wages back to them as quickly as possible,” a DOL spokeswoman said in a prepared statement. “Employees do not need to accept WHD’s settlement in any investigation and can pursue their own private right of action, including in cases where liquidated damages are not pursued.”

But David Weil, who ran the Wage and Hour Division during the Obama administration, said the recession triggered by the pandemic makes the ability to collect double damages an even more important weapon.

“This is a particularly damaging policy, given the deep recession we are in the middle of and the increased risk of wage theft that many low-wage workers in essential jobs face during a severe economic downturn,” said Weil, now dean of the Heller School for Social Policy and Management at Brandeis University.

Sign-off Required

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.”

Effect on Courts

Prominent members of the management bar have decried what they described as the inconsistent application of liquidated damages, and Pizzella’s memo faulted the Obama administration for not issuing guidance to support its policy.

DeCamp and other management lawyers who regularly negotiate settlements with the Wage and Hour Division said they frequently advised clients to push back when investigators assessed double damages. This would prolong cases, sometimes taking disputes to court that would’ve otherwise been resolved much sooner.

They’re applauding the Trump administration for providing a clear, public-facing standard on when to expect liquidated damages in a particular case, regardless of the region.

“It’s going to be huge. Liquidated damages have been something that Wage-Hour has been grappling with for years,” said Dane Steffenson, who recently left his post as a senior trial attorney at DOL to serve as special counsel at management-side firm Littler Mendelson. “Employers are going to be thrilled, and there are going to be so many cases that can be settled that were not previously settled.”

The agency’s policy bulletin wasn’t intended to apply to litigation, but Steffenson said it could influence enforcement cases that have proceeded into the court system.

“The fact that Wage and Hour takes this position, you’ll certainly see all of us on the defense side using this as a reason to seek reductions in liquidated damages—both with the Solicitor’s Office and also at trial,” he said.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editor responsible for this story: John Lauinger at jlauinger@bloomberglaw.com

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