Watch Out For Liquidated Damages in 2014!


“What? I have to pay double?”

Welcome to the world of liquidated damages. Until recently, if your business was found in violation of minimum wage or overtime regulations by the US Department of Labor: Wage and Hour Division during an audit you were usually required to pay back wages to your employees for violations found in the last two years. Now, you pay that amount – twice.

Let’s use an actual example to see the impact that liquidated damages can have on an employer’s bottom line.

Company ABC didn’t pay overtime to its salespeople for the last two years because it thought they were exempt. However the salespeople only made sales from inside company headquarters over the phone and internet and did not qualify for the 7(i) exemption because more than 50% of their pay was in base salary. The 40 salespeople at the company averaged 50 hours of work per week over the two year period and were paid an average of $600 per week in base salary and commissions. Company ABC has never been investigated by the Wage and Hour Division before, they had no idea that their employees weren’t exempt, and they maintain perfect time, attendance, and pay records.

Back wages owed: $249,600.00

NEW!  Liquidated Damages owed: $249,600.00

Total: $499,200.00

Historically, liquidated damages were only collected when the Wage and Hour Division (WHD) won a court settlement. Then, in 2011, the WHD began a pilot program on the East Coast; assessing liquidated damages along with back wages in routine investigations during the final conference with the employer.   By 2013 this practice had spread across the country to all regions.  Now the WHD wants liquidated damage assessment to become a normal part of most investigations and it stands to reason that 2014 will see a significant increase in the number of businesses affected by this practice.

If your business is violating minimum wage or overtime regulations found in the Fair Labor Standards Act (FLSA) there is little you can do to avoid a liquidated damage assessment.  A violation does not have to be repeat or willful for such assessment.  The only wiggle room is what’s called a “good faith defense.” The Portal to Portal Act of 1947 amended the FLSA by establishing a good faith defense against liquidated damage assessment if the employer can prove that he/she was acting in good faith and that he/she had reasonable grounds for believing that the action was not a violation of the FLSA. An example of a good faith defense would be legal advice from a labor lawyer.  Unfortunately, blissful ignorance is not a good faith defense.

The only way to avoid liquidated damages in the future is to review your employment practices now. The majority of employers have violations and don’t know it.  Get that lurking employment liability out of the way and start 2014 worry free! Contact the Labor Brain today and we’ll get you on the right track.

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–       By Kalen Fraser

The Labor Brain Inc. is not a law firm and its employees do not practice law or provide legal services.  The information provided on our website,  in email correspondence with representatives of The Labor Brain, and at outreach events is for informational and educational purposes only.  The information provided is not a substitute for the advice of an attorney.