Beware Draconian Settlements With the U.S. Department of Labor

By John E. Thompson

The scope of potential punishments in federal Fair Labor Standards Act lawsuits brought by the U.S. Department of Labor apparently is being limited only by the imaginations of its lawyers.

A recent consent judgment against an operator of residential-care facilities for developmentally disabled adults suggests that employers should not be surprised by unorthodox Labor Department settlement demands.

The court order recently agreed to in Solis v. Jasmine Hall Care Homes contained terms requiring the defendants to pay $850,000, to comply with the FLSA in the future, to accept particular interpretations of relevant FLSA principles, and to produce upon demand whatever documents the U.S. Department of Labor decides to “request.” These provisions are within the reasonable parameters of FLSA enforcement.

Beyond the pale

However, a provision entitled, “Surrender of License Upon Adjudicated Violation” obligates Jasmine Hall and its owners to:

Surrender their care home operating license if any of them or any entity they own or control is adjudicated in a final, enforceable judgment to be in violation of any state or federal minimum wage or overtime law . . . in any proceeding before a state or federal court or any state or federal administrative tribunal . . ..” Moreover, the provision says that “[USDOL] may intervene and participate in any proceeding in which Defendants’ licensing status is at issue . . . so that it may raise any wage and hour concerns or objections that it may have.”

This is remarkable for a number of reasons, including that:

Nothing in the FLSA calls for or so much as even contemplates compelling an employer essentially to go out of business as a remedial measure;
A triggering violation will not be limited to one involving the FLSA but could instead arise under a state law as to which the Labor Department has no enforcement authority whatsoever;
Presumably, license surrender will be necessary no matter how trivial, arcane, isolated, or unintentional a violation might be; and,
The U.S. Department of Labor is prepared to insert itself into future state or local-level license proceedings to “raise” unspecified varieties of “wage and hour concerns or objections” without any express limitation to those involving laws the Labor Department enforces, or indeed to any particular laws at all.
Of course, the defendants need not have agreed to this provision. They could have chosen instead to litigate into the indefinite future to an uncertain conclusion against an opponent with essentially unlimited resources.

What might the future hold?

If Labor Department settlement demands are to be unconstrained by the remedies provided for in the FLSA, then any number of interesting conditions could be in the offing. For instance, might another ultimatum require:

An employer to seat a U.S. Department of Labor-specified representative on its Board of Directors?
A resignation from or the termination of one or more management members?
The forced divestiture of an individual’s ownership interest in a business?

At some point, the Labor Department’s proposed terms could become so harsh, oppressive, and disconnected from the FLSA that simply letting the lawsuit move forward to an expeditious ruling on the merits might be a preferable alternative.

This was originally published on Fisher & Phillips’ Wage and Hour Laws blog.