Child Labor Violators’ Profits in Labor Solicitor’s Crosshairs

The US Labor Department is pursuing some of the toughest remedies for child labor violations, such as company profits, an escalation the agency’s top lawyer says is needed to end an alarming trend of minors working in dangerous conditions.

Just recently, the DOL obtained a $1.5 million “disgorgement” remedy as part of a consent judgment with Tuff Torq Corp., a manufacturer of components for major companies like John Deere, Toro, and Yamaha. The financial recovery was calculated from 30 days of profits tied to the company’s use of illegal child labor—with the money intended to go directly to the minors.

That action joins other child labor-related restraining orders and injunctions the agency has sought this year against companies including McDonald’s, Bojangles, and Jersey Mike’s franchisees. Last year, the agency found nearly 6,000 minors working in illegal conditions in the US, a nearly 50% increase from FY 2022.

“No one should be profiting off the backs of children,” Solicitor of Labor Seema Nanda said in an exclusive interview with Bloomberg Law. “And now we’re actually putting that into place and saying, guess what, if you profited off the backs of children unlawfully employed, you should disgorge those profits.”

Disgorgement—which requires companies to cough up profits made from illegal conduct—is an uncommon remedy for cases under the Fair Labor Standards Act, the federal law that governs worker wage-and-hour protections. Nanda said she believes it’s an “equitable remedy” that’s “well recognized” in the FLSA context.

But it’s more frequently pursued by agencies like the Securities and Exchange Commission in cases of financial fraud.

It’s “a very unusual, and a very, I think positive development,” said David Weil, who headed the DOL’s Wage and Hour Division under President Barack Obama.

He called the agency’s consent judgment with Tuff Torq “a model agreement in getting the company itself to both acknowledge and pay money to provide some benefit to those workers.”

This “evolution” of settlements secured by the solicitor and the wage division is “an increasing recognition of having to use all the tools available to really stop this kind of practice and bring our norms back to where we just say this should not be happening, period,” Weil said.

No Private Right of Action

Worker advocates and former agency officials say that DOL enforcement is currently the only way to correct child labor violations because the FLSA doesn’t allow workers to bring their own child labor lawsuits for damages.

“The Fair Labor Standards Act doesn’t have in its basic structure a direct payment to the child laborers, because they’re not supposed to be there,” said Weil, who is now a professor at Brandeis University. “It’s built for civil monetary penalties and not restitution for what was an illegal act to begin with.”

For example, in the cases where disgorgement was sought, the department found children doing tasks they are banned from performing at all under the FLSA’s hazardous occupation orders.

In the Tuff Torq case, wage division enforcers found a child operating a power-driven hoist. And the agency last month accused L & Y Food Inc. in California of having children unlawfully work with sharp knives to debone poultry.

The growing legal risk and publicity from these types of enforcement actions can serve as deterrent for employers and as a motivator for workers to self-report violations.

“If I’m a larger employer, I’m paying a lot of attention to it,” said Dana Kravetz, a managing partner at Michelman & Robinson, who represents employers. “It’s certainly to garner compliance and have people say, ‘Well, I don’t want to do that.’”

He expects the growing drumbeat of child labor related court actions from the DOL will “cause people to get serious about their compliance” and spur companies to review their liabilities related to their vendors or where they are sourcing their materials.

Budget Constraints

At the same time, these types of child labor enforcement actions require more DOL resources at a time the agency is currently facing budget caps.

Spending limits enacted by Congress in the 2023 debt limit deal forced the DOL’s wage division to request fewer enforcement staff for FY 2025, despite already having record low numbers of those workers.

Agency leaders have warned lawmakers that more money is needed in order to turn around the trend in child labor violations. Even a “modest” increase in funding would make a difference, acting Labor Secretary Julie Su said earlier this week.

Considering the limited cash on hand, Nanda said the agency’s pursuit of disgorgement and other remedies is intended to serve as a warning to other violators and create a ripple effect of compliance.

“We in the solicitor’s office are going to use every possible tool to stop and prevent child labor,” Nanda said. “And so to the extent that you are noticing more aggressive enforcement, more meaningful consent judgments and actions, that is purposeful.”