In an interesting turn of events and what I’m sure will be gratifying for some employers, the Department of Labor has agreed to pay Gate Guard Services $1.5 million to settle claims involving the DOL’s overly aggressive and bad faith tactics in investigating whether Gate Guard’s gate attendants were improperly classified as independent contractors under the Fair Labor Standards Act.

Initially, the district court awarded attorneys’ fees to Gate Guard under the Equal Access to Justice Act (EAJA) in the amount of $565,000. The EAJA provides for attorneys’ fees under both its substantially justified and bad faith provisions. The district court awarded fees solely under the substantially-justified provision finding that the DOL’s conduct was not sufficiently egregious to warrant an award under the bad faith provision.

However, the Fifth Circuit Court of Appeals determined that the DOL’s conduct was egregious, frivolous, and legally unsupportable. In its opinion, the Fifth Circuit reasoned that

[a]t nearly every turn, this Department of Labor (DOL) investigation and prosecution violated the department’s internal procedures and ethical litigation practices.”

A number of the unethical practices centered on the lead investigator who the court determined was not trained to conduct the investigation. Indeed, the investigator concluded that Gate Guard violated the FLSA after only three interviews,

destroyed evidence, ambushed a low-level employee for an interview without counsel, and demanded a grossly inflated multi-million dollar penalty.”

Additional egregious conduct by the DOL included: opposing routine motions and filing “specious” motions of its own; objecting 102 times in a deposition of the DOL’s lead investigator, while also instructing the investigator not to answer a question 18 times; refusing to provide witness statements to Gate Guard by falsely claiming privilege; and continuing litigation after discovering precedent that would support the classification of Gate Guard’s garage attendants as independent contractors. Based on the DOL’s conduct, the Fifth Circuit remanded the case to the district court to determine an award under the bad faith provision of the EAJA.

Certainly such a damning opinion did not bode well for the DOL. Shortly after the Fifth Circuit issued its opinion, the DOL entered into the $1.5 million settlement mentioned above. While some may consider this opinion an outlier, it certainly got the attention of the DOL. If nothing else, employers can use this decision to oppose and defend against overly aggressive an unethical conduct by the DOL or other government agencies.