DOL Targets Employment Contract Provisions It Claims Undermine Worker Rights

Most employers, including small to mid-sized employers, use some type of contract with some or all of their employees.  This past week, the U.S. Department of Labor’s (DOL) top attorney announced seven specific contract provisions that she believes hinder workers from asserting their rights under federal workplace laws.  Consequently, the DOL plans to scrutinize many contracts containing these provisions. U.S. Solicitor of Labor Seema Nanda’s October 15 Special Enforcement Report addresses what she describes as “coercive” contractual clauses, and announces potential groundbreaking lawsuits and friend-of-the-court briefs aimed at non-compliant employers

The Contract Provisions Under Review

Here’s a summary of the provisions that will be under increased scrutiny and what employers need to know.

Misclassifying Workers as Independent Contractors

Some contracts incorrectly designate workers as “independent contractors” to avoid providing benefits (like minimum wage and overtime) and safety protections. The report emphasizes that the appropriate legal classification of a worker is determined by the actual working relationship, not just labels. Employers are warned against misclassification, as the DOL actively challenges these designations on behalf of affected workers.

Shifting Legal Liability to Workers

Certain contracts include clauses that transfer the financial responsibility for legal violations to workers, compelling them to cover the employer’s legal costs, even if they win a claim. According to the DOL, this practice is illegal as it deters workers from asserting their rights, creating a chilling effect that discourages them from speaking out.

Loser Pays Attorney’s Fees

Contracts that mandate workers to pay the employer’s legal fees if they lose a dispute create significant financial risks for employees, according to the DOL. Such “loser pays” clauses are considered contrary to federal laws like the Fair Labor Standards Act (“FLSA”), which allows for fee-shifting only in favor of workers. These provisions can dissuade employees from pursuing legitimate claims.

Stay-or-Pay Clauses

“Stay or pay” provisions penalize workers who leave a job before a specified period, often charging them for training or relocation costs. The DOL warns that these penalties can trap workers in undesirable positions, violating labor laws that require wages to be paid without strings attached.

Broad Confidentiality and Non-Disclosure Clauses

Some contracts impose extensive restrictions on what workers can disclose about their employment, effectively silencing them on issues like working conditions or safety violations. The DOL emphasizes that employees must be free to report concerns to labor enforcement agencies without fear of repercussions.

Waiving Wage and Hour Rights

Employers may attempt to have workers waive their rights under the FLSA regarding minimum wage, overtime, and related claims through clauses that limit claim timeframes or reduce penalties. These rights are non-negotiable under federal law, and such clauses are illegal as they prevent workers from holding employers accountable for unfair pay practices.

Mandatory Internal Reporting of Safety Issues

Policies requiring workers to report safety concerns to management before notifying agencies like the Occupational Safety and Health Administration (“OSHA”) may discourage them from reporting violations. The DOL reaffirms that federal law protects workers’ rights to report safety issues directly, facilitating swift and unbiased responses to hazards.

The full report can be found on the DOL website at https://www.dol.gov/agencies/sol/reports/fy2024-enforcement-report.

What Should Employers Do?

Employers should thoroughly review all workplace policies, applications, and contracts for potentially problematic language, particularly in fine print. If any provisions appear to violate DOL guidelines, consulting with legal counsel is essential to assess potential risks.  Special attention should be given to independent contractor agreements, as these have been specifically flagged by the DOL. Simply labeling a worker as a contractor does not exempt them from being classified as an employee by regulatory bodies or courts. By proactively addressing these provisions, employers can mitigate legal risks and foster a more compliant workplace environment.

If you have any questions about what steps you need to take to update contracts and policies, feel free to contact our attorneys, Jay Rollins or Debra Schwartz by calling  404.844.4130.