DOL Ends Liquidated Damages in Administrative FLSA Settlements: What It Means for Employers

In a major policy update from Acting Administrator Donald M. Harrison, III, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) has announced that it will no longer seek or supervise the payment of liquidated damages in administrative settlements under the Fair Labor Standards Act (FLSA). This change, effective June 27, 2025, is outlined in Field Assistance Bulletin (FAB) No. 2025-3 and marks a return to a more limited interpretation of DOL’s enforcement authority.

 

What Are Liquidated Damages?

Liquidated damages are a form of monetary compensation awarded to employees in addition to unpaid wages. Under the FLSA, they are typically equal to the amount of unpaid minimum wages or overtime compensation owed. In essence, they double the amount an employer must pay when found in violation of wage laws.

For example, if an employee is owed $1,000 in unpaid overtime, the employee may also be entitled to an additional $1,000 in liquidated damages—bringing the total recovery to $2,000.

These damages are not punitive but are intended to compensate workers for the delay in receiving their rightful wages. They are mandatory in most lawsuits unless the employer can prove it acted in good faith and had reasonable grounds for believing its actions were lawful. If the employer’s proof is acceptable, courts have the authority under 29 U.S.C. § 260 to deny liquidated damages.

 

Why the Change?

The DOL’s new policy is based on a legal principle: federal agencies can only exercise powers clearly granted by Congress. While the FLSA allows the WHD to supervise the payment of unpaid wages under Section 216(c), it does not authorize the agency to supervise or collect liquidated damages outside of court proceedings.

Historically, liquidated damages were only pursued through litigation. But starting in 2010, the WHD began seeking them during the administrative investigation stage.

Now, with FAB 2025-3, WHD has ended the practice, affirming that only courts can award liquidated damages.

 

Key Takeaways from the New Policy

• No More Liquidated Damages in Administrative Settlements: WHD can no longer request, supervise, or negotiate liquidated damages as part of an administrative audit/enforcement. Liquidated damages may only be sought if a lawsuit is filed.
• Applies Prospectively: The change affects only cases moving forward. Any agreements involving liquidated damages made before June 27, 2025, remain valid.
• Litigation Still an Option: WHD and private plaintiffs can still pursue liquidated damages through court actions.

 

Implications for Employers

This change reduces potential financial liability during administrative audits/investigations, potentially encouraging quicker resolutions. Employers who believe they have some potential liability will be incentivized to settle promptly with WHD because a lawsuit is filed that would likely double the amount that would have to be paid to the employees (plus attorneys’ fees in a lawsuit by employees).Though the potential for damages from a WHD administrative audit/investigation are reduced, employers should still ensure compliance by:

• • Conducting reviews of exemption classifications
  • Auditing pay practices
  • Providing training to managers on wage and hour rules
  • Resolving any issues in a timely manner before they attract outside attention

 

If you have any questions about DOL wage-and-hour audits, other wage-and-hour issues, or other employment issues, please contact Michael L. Jackson, Sean C. Pierce, or any of the attorneys in our Employment Law practice group.

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