Court Halts DOL’s Use of Liquidated Damages Pre-Litigation
A recent federal court ruling and policy update from the U.S. Department of Labor (DOL) have significantly narrowed the agency’s enforcement powers under the Fair Labor Standards Act (FLSA). As of June 27, 2025, the DOL’s Wage and Hour Division (WHD) is prohibited from seeking liquidated damages—often equal to the amount of unpaid wages—during pre-litigation investigations and settlements. This change, outlined in Field Assistance Bulletin (FAB) No. 2025-3, limits recoveries to unpaid minimum wages and overtime only.
The move reinstates a Trump-era policy and responds to judicial concerns about agency overreach. Employers and counsel should be aware that although the policy reduces exposure during the pre-litigation phase, it may result in an increase in formal enforcement actions going forward.
What Are Liquidated Damages?
Liquidated damages under the Fair Labor Standards Act (FLSA) are additional payments equal to the amount of unpaid wages, effectively doubling an employee’s recovery. They are intended to compensate workers for delayed payment and deter wage violations. While generally presumed if a wage violation is proven, courts may reduce or deny liquidated damages if the employer demonstrates a good-faith belief that they were complying with the law.
Why This Change?
The DOL changed its policy to align with the FLSA’s statutory language, which permits the agency to supervise only the recovery of unpaid wages—reserving liquidated damages for court proceedings. This shift aims to promote fairer, faster resolutions, reduce settlement costs for employers, and encourage voluntary compliance, while also improving administrative efficiency.
Key Implications of the 2025 Policy
- Pre-Litigation Focus Limited to Back Wages: The DOL’s Wage and Hour Division (WHD) may now only seek unpaid minimum wages and overtime during administrative investigations—liquidated damages are excluded.
- Liquidated Damages Reserved for Courts: Employers will only face liquidated damages if a case proceeds to court, where a judge determines eligibility based on good faith or willfulness.
- Faster, More Efficient Resolutions: By removing liquidated damages from pre-litigation settlements, the DOL aims to streamline investigations and encourage quicker, fairer outcomes.
- Reduced Financial Exposure for Employers: Employers cooperating with WHD investigations can resolve matters with lower settlement costs, without the risk of “double damages” before litigation.
- Statutory Alignment: The policy reflects the FLSA’s intent, which allows the DOL to supervise back wage payments but reserves authority over liquidated damages to the courts.
- No Retroactive Effect: The policy applies only to cases and settlements initiated after June 27, 2025; prior settlements involving liquidated damages remain valid.
- Civil Penalties Still Apply: WHD may still impose separate civil monetary penalties for repeated or willful violations, even though liquidated damages are off the table administratively.
This policy marks a notable shift in enforcement, narrowing WHD’s authority while promoting efficiency and encouraging voluntary employer compliance.
What Employers and Employees Should Know
Employers under investigation by the Department of Labor (DOL) for wage and hour violations can now expect a less punitive administrative process, as the agency is limited to seeking repayment of unpaid wages and overtime, excluding any liquidated damages. This change is expected to encourage more cooperative and timely settlements during the pre-litigation phase, reducing the likelihood of prolonged investigations and adversarial posturing. However, if a case proceeds to court, employees may still pursue liquidated damages through the judicial system, where such remedies remain fully available. Overall, the policy provides employers with reduced financial exposure before litigation while maintaining protections for workers through the courts.