On October 15, 2024, the U.S. Department of Labor (DOL) announced that it will be targeting seven contractual provisions that the DOL considers to be “coercive.” If employers disobey, they open themselves up to legal liability.
The targeted contractual provisions are as follows:
A. Requiring Workers To Wave Wage and Hour Rights
Currently, some employers attempt to have employees waive certain rights, mandated by the Fair Labor Standards Act (FLSA), pertaining to minimum wage, overtime pay, and akin damages by including clauses that limit the time frame workers have to file claims or reduce the penalties for employers found at fault. However, federal law ensures that these wage and hour protections cannot be subject to negotiation. According to the report, these rights are vital for preventing exploitation and securing fair compensation. The DOL report asserts that such clauses are illegal as they hinder workers’ ability to hold employers accountable for unfair working conditions relating to compensation and hours.
B. Misclassifying Workers as Independent Contractors
It is not unusual for employers to classify workers as “independent contractors” in order to avoid providing benefits related to minimum wage, overtime pay, and safety and health regulations in the workplace. The report emphasizes that employers must examine the nature of the working relationship, as opposed to classifying an employee as an independent contractor to evade legal obligations.
C. Indemnification Provisions that Shift Liability
Some employers include provisions in contracts that attempt to shift liability for their own violations of employment laws to workers, such as requiring workers to indemnify the employer for legal costs and damages arising from claims related to misclassification. These provisions can discourage employees from reporting misclassification, as they may face financial penalties regardless of the outcome of their claims. The report cautions employers not to circumvent liability by placing the financial burden of their own misconduct on their workers.
D. “Loser pays”
Some contracts stipulate that workers must cover the employer’s attorney fees if they lose a legal dispute. Similar to above, these “loser pays” clauses create such a high financial risk that many workers are deterred from pursuing legitimate claims. The DOL asserts that this practice contradicts federal laws like the FLSA, which permits fee-shifting only in favor of workers—allowing employees who win their cases to recover legal fees while preventing companies from imposing costs on losing workers. As a result, these provisions significantly deter workers from asserting their rights, as noted by the DOL.
E. “Stay or Pay”
These provisions require workers to repay the employer if they leave before a specified period, typically covering expenses related to training, relocation, or a signing bonus. However, these hefty penalties can effectively trap workers in their jobs, particularly those who cannot afford to pay to leave, even in situations involving poor or unlawful working conditions. The DOL emphasizes that labor laws require wages to be paid “free and clear,” meaning without any conditions. Provisions that act as penalties, reduce workers’ wages below minimum standards, or primarily benefit the employer are prohibited under federal law.
F. Confidentiality, Non-Disclosure, and Non-Disparagement
The Department has identified broadly written confidentiality, non-disclosure, and non-disparagement provisions in employment agreements that seek to bar workers from discussing company policies and working conditions, communicating with government investigators without notifying the employer, or making statements about their employer without permission. These provisions can be interpreted by workers as prohibiting them from contacting the Department or filing complaints about potential legal violations, such as wage and hour or safety issues, and are often accompanied by threats of penalties or job loss. Such clauses can discourage workers from using their voices. The Department emphasizes that provisions preventing communication with government agencies are unenforceable and conflict with these laws, which rely on workers’ ability to freely share information with investigators. Such restrictive provisions continue to appear in employment agreements.
G. Requiring Workers to Internally Report Safety Concerns to Their Employer Before Resorting to Authorities
The DOL report highlights that some employers require workers to report safety concerns internally to the employer before reporting them to government agencies like OSHA. Federal laws protect workers’ right to report safety issues directly to government authorities without the threat of retribution or biased responses.
As an employer, you should examine all your workplace policies, applications, restrictive covenants, and employment agreements to identify any language that might be problematic. The agency has specifically indicated it will focus on “fine print” provisions, so it’s crucial to carefully review all of your language, particularly clauses that may have been in place for years without issue.
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Please note that the article is not legal advice, nor is it a substitute for proper legal research and advice. It is provided for informational purposes only.
