The U.S. Department of Labor’s (DOL) top attorney issued a Special Enforcement Report. The report signals a major shift in its approach to employment-related contract provisions. The report targets certain contract clauses the DOL believes may unlawfully limit employees’ rights.
Here is a look at the seven provisions the DOL is targeting.
1️⃣ Waivers of Wage and Hour Rights
Employers sometimes include contract provisions that attempt to waive or limit workers’ rights to minimum wage, overtime pay, or related damages under the FLSA. The DOL report emphasizes that these wage and hour protections are fundamental and non-negotiable under federal law. Clauses that attempt to reduce or eliminate these protections undermine workers’ ability to hold employers accountable for unpaid wages or excessive work hours. The DOL sees such waivers as illegal and in direct conflict with the FLSA’s core protections.
2️⃣ Misclassification of Workers as Independent Contractors
Employers routinely misclassify workers as independent contractors in contracts to avoid, among other things, paying minimum wage and/or overtime. The DOL report notes that worker’s classification is not determined solely by a contract’s language. Instead, classification depends on the actual nature of the working relationship. The report indicates that the DOL will scrutinize contracts that improperly label workers as contractors when they should be classified as employees under the law.
3️⃣ Shifting Liability for Legal Violations to Workers
The report also targets contract provisions that shift the financial risk of legal violations from employers to workers. Some contracts contain indemnification clauses, requiring employees to cover the employer’s legal costs in case of a dispute, even when the worker is successful in their claim. The DOL asserts that this tactic is illegal because it creates a significant disincentive for workers to pursue their rights. Effectively silencing workers through the threat of financial ruin.
4️⃣ Loser Pays” Attorneys’ Fees Clauses
Some employment contracts contain provisions that require employees to pay the employer’s attorney fees if they lose a legal dispute. These “loser pays” clauses create a large financial risk, potentially deterring workers from filing legitimate claims. The DOL views these provisions as running counter to the FLSA. The FLSA allows employees who win their claims to recover legal fees. It does not allow employers to demand the same from workers.
5️⃣ “Stay-or-Pay” Provisions a/k/a Retention Bonuses
These provisions require employees who leave a job before a set period to reimburse the employer for costs such as training or relocation expenses. The DOL report raises concerns that such provisions may function as de facto penalties. These provisions may trap workers in jobs they wish to leave by making it financially prohibitive to move on. Under federal law, wages must be paid “free and clear,” meaning workers cannot be subjected to deductions or penalties that reduce their pay below minimum wage standards or that primarily benefit the employer. The DOL also refers to recent actions by the National Labor Relations Board (NLRB) condemning these provisions, which further solidifies the agency’s stance against this practice.
6️⃣ Overly Restrictive Confidentiality, Non-Disclosure, and Non-Disparagement Clauses
Employment contracts sometimes include broad confidentiality, non-disclosure, or non-disparagement clauses that restrict workers from discussing working conditions. The DOL argues that these provisions silence workers and violate their right to report workplace violations to authorities.
7️⃣ Mandatory Internal Reporting of Safety Concerns
Clauses requiring employees to internally report workplace safety concerns before reporting to OSHA or other government agencies are a concern. The DOL says that such clauses can delay or discourage reporting. This is especially so if employees fear retaliation or believe employers will not address concerns internally.
What Should Employers Do?
In light of this report, employers should take proactive steps to review their employment agreements and ensure they are in compliance with federal labor laws. The DOL specifically noted it would be focusing on “fine print” provisions, so employers need to conduct a thorough audit of all their workplace policies, applications, forms, and contracts. Employers should:
Review All Employment Contracts and Policies: Make sure that none of the targeted provisions are present in any employee agreements, especially clauses that have been in use for years without scrutiny.
Seek Legal Counsel: Employers should consult with employment law attorneys to evaluate their risk of non-compliance. The DOL’s report does not carry the force of law but signals the agency’s enforcement priorities, which could be tested in court.
Focus on Independent Contractor Agreements: Independent contractor misclassification was specifically called out. So, employers should pay special attention to ensure that their employee classifications align with federal and state standards. Courts and agencies are likely to focus on the actual working relationship rather than the contractual label.
Update Confidentiality and Reporting Policies: Employers should ensure that their contracts do not include overly restrictive confidentiality, non-disparagement, or internal reporting clauses.
By taking these steps, employers can mitigate legal risks and stay in compliance with evolving labor enforcement priorities.