On October 15, 2024, U.S. Solicitor of Labor Seema Nanda released a Special Enforcement Report highlighting five employment contract provisions that the Department of Labor (DOL) deems harmful to workers' rights. The report signals the DOL’s intent to aggressively pursue legal action, warning employers to review their contracts for provisions that may be illegal. The agency also plans to take innovative enforcement steps, such as groundbreaking lawsuits and amicus curiae briefs.
For more information on employment compliance and its potential impact on your organization, contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Here’s a look at the five provisions under scrutiny and what steps employers should take to ensure compliance.
1. Misclassifying Workers as Independent Contractors
One of the most common tactics that employers use to avoid wage, benefit, and safety obligations is misclassifying employees as independent contractors. The DOL has clarified that contractual labels don’t define a worker's status. Instead, the actual working relationship determines whether someone is an independent contractor or employee. Misclassification can lead to significant liabilities, including back pay and penalties. Employers should review their independent contractor agreements and ensure they align with federal and state standards.
2. Confidentiality Clauses That Restrict Workers’ Rights
Some contracts contain provisions that prevent workers from discussing their working conditions or reporting violations. The DOL warns that such clauses can silence employees and obstruct their ability to cooperate with investigations or report workplace issues. These restrictions may violate federal labor laws, which guarantee workers the right to freely communicate with regulatory agencies. Employers should revise these clauses to ensure they are not too broad and do not discourage whistleblowing.
3. "Loser Pays" Attorney’s Fees Provisions
Some contracts include clauses requiring employees to cover the employer’s legal fees if they lose a dispute. The DOL sees this as a significant deterrent to workers pursuing legitimate claims, as the financial risk of losing a case may be too high. Employers should eliminate such provisions and instead follow federal laws that allow workers to recover legal fees if they win their cases, without imposing financial burdens on workers who lose.
4. Waiving Wage and Hour Rights
Some employers include contract clauses that attempt to limit workers' ability to bring claims for overtime, minimum wage, or other FLSA rights. These clauses may include shortening the statute of limitations or capping potential damages. The DOL stresses that such provisions are illegal because they undermine the core protections provided by federal labor law. Employers should review their wage and hour policies to ensure that they are not infringing on workers' rights.
5. Shifting Liability to Workers
Some contracts attempt to shift liability for legal violations to employees, requiring them to bear the financial costs if the company faces a lawsuit or regulatory action. The DOL considers these provisions illegal, as they discourage employees from filing claims by creating a significant financial risk. Employers should remove any indemnification clauses that unfairly place the burden of legal violations on workers.
Next Steps for Employers
To avoid liability, employers should conduct a thorough review of all employment contracts, agreements, and workplace policies. Particular attention should be paid to provisions that limit workers’ rights or place undue financial burdens on employees. Independent contractor agreements, in particular, should be scrutinized to ensure proper classification of workers.
While the DOL report doesn’t carry the force of law, it signals the agency’s aggressive stance on these issues. Employers should consult with legal counsel to identify potential risks and update their contracts in compliance with federal and state laws. Taking proactive steps now can help employers avoid costly lawsuits and maintain a fair and legally compliant workplace.
For more information on employment compliance and its potential impact on your organization, contact our Managing Partner, Richard Liu, at richard.liu@consultils.com.
Richard Liu, Esq. is the Managing Counsel of ILS. He serves clients as a management-side defense lawyer specializing in employment and business litigation. Richard is also an expert on litigation prevention and compliance. He regularly advises Fortune 500 companies and startups on employment, labor, and commercial matters.
Email: richard.liu@consultils.com | Phone: 626-344-8949