This week, the United States District Court for the Southern District of Texas ordered the Department of Labor to fork over $565,527.61 in attorneys’ fees and costs to a Texas employer.  Why such a hefty fee award?  The DOL’s position that the employer misclassified gate attendants as independent contractors was not “substantially justified”—nor was the DOL’s demand that the employer pay over $6 million in back wages and unpaid overtime.

The DOL began investigating Gate Guard Services L.P. in 2010 after the DOL Lead Wage and Hour Investigator received complaints from two friends he had met through “parties” and “the bars and stuff like that.”  GGS locates gate attendants (responsible for keeping track of vehicles that enter and leave oilfield operation sites) for oilfield operators.  The investigator’s friends were two of approximately 400 gate attendants who had contracts with GGS.

On July 19 and with no warning before hand, the investigator showed up at GGS’s office and spoke with the manager. The investigator came back ten days later for an “opening conference” at the facility.  Based on these meetings, his friends’ reports, and an interview with a third GGS worker, the investigator started crunching the numbers and concluded that GGS owed more than $6 million in back wages under the Fair Labor Standards Act.

With these initial calculations out of the way, the investigator resumed his investigation, interviewing fewer than 17 gate attendants over the next few months.  The investigator kept detailed notes of the gate attendants’ answers—which he shredded or burned after preparing witness interview statements.  Having interviewed less than five percent of the gate attendants, the investigator informed GGS that these workers were actually GGS employees, and advised GGS to pay $6,192,752 in back wages and unpaid overtime to gate attendants and service technicians.  The DOL District Director, Targeted Enforcement Coordinator, and attorney all stood behind the investigator’s findings:  if GGS did not reclassify the gate attendants and pay the $6 million, the DOL would file suit.

GGS—whose estimated net worth was slightly less than the DOL’s demand—then filed an action for declaratory judgment, seeking a determination that it was in compliance with the FLSA.  The DOL also filed an enforcement action in another division, which was transferred and consolidated with GGS’ suit over the DOL’s objection.  The court granted summary judgment on all of GGS’ claims, and GGS moved for attorneys’ fees under the Equal Access to Justice Act, which requires courts to award attorneys’ fees to qualifying prevailing parties when the government was not substantially justified in its legal position.  Under the EAJA, the government bears the burden to prove that its position, at every stage of the proceedings, was substantially justified, i.e., that its actions had a reasonable legal and factual basis.

The court granted GGS’s motion for attorneys’ fees, concluding that the “DOL failed to act in a reasonable manner both before and during the course of [the] litigation.”  Specifically, the court held that no “reasonable person could think that the DOL’s position that GGS’s gate attendants are employees was correct” where the gate attendants: (1) were free to reject assignments without penalty; (2) receive no training on how to do their job; (3) work with no day-to-day supervision; (4) are authorized to hire relief workers; (5) have the ability to increase their profits or suffer a loss; (6) work on a temporary, project-by-project basis; (7) are not precluded from other work; and (8) enter into independent contractor agreements with GGS.

The court openly criticized the DOL’s investigation, pointing out that had the DOL “interviewed more than just a handful of GGS’s roughly 400 gate attendants before presenting GGS with a $6,000,000.00 demand . . . , it would have known the gate attendants were not employees.”  The court also noted that, once discovery revealed the underlying facts of the case, “the DOL should have abandoned this litigation.”  Instead of abandoning the litigation, the DOL only protracted it by, among other things, making constant, improper objections throughout the investigator’s deposition and sending mass mailings to all of the gate attendants.

While the fee award was a big win for GGS, employers should know GGS wasn’t exactly made whole.  For one thing, the court rejected GGS’ motion for attorneys’ fees under a provision of the EAJA that would have allowed GGS to recover as much as all of its “reasonable fees and expenses,” finding that GGS failed to show that the DOL acted in bad faith.  Instead, GGS recovered under a provision that caps attorney fees at $125 per hour, though that hourly rate can be (and was) adjusted for cost of living.  And not all employers can recover under that provision; an employer with more than 500 employees, or with a net worth exceeding $7 million, is out of luck.  But, particularly for smaller businesses, the court’s decision offers some measure of hope that the DOL will be taken to task when it files and pursues frivolous actions.