It’s a rare day with the U.S. Department of Labor is assessed attorney’s fees against it for bringing a suit against an employer in bad faith.  However, in Gate Guard v. Secretary of Labor, the Fifth Circuit Court of Appeals ordered that a trial court award attorney’s fees to a Texas employer in a claim brought against it by the DOL.  In Gate Guard, the DOL brought suit against an employer following a DOL investigation that demanded the employer make fundamental changes to the manner in which it compensated its workers and to pay back wages and overtime of $6 million (virtually its entire net worth).

Gate Guard supplies on-site gate attendants for remote oil and gas drilling sites.  The attendants typically live on-site and record the license plates of vehicles entering and leaving the drilling site twenty-four hours a day.  Gate Guard treats the attendants as independent contractors and paid them $100-175 per day.  In July 2010, a DOL investigator received a tip from a former Gate Guard worker (who was also the investigator’s drinking buddy) that he thought his pay was miscalculated.  After the investigator spoke with his buddy and two other Gate Guard workers, he formed the conclusion that the attendants were misclassified as independent contractors and not properly paid overtime.

Despite having little training or experience with independent contractor misclassification cases, the investigator opened a formal investigation into Gate Guard’s practices.  He notified the employer of the investigation and scheduled an opening conference.  A week before the opening conference, and despite knowing that Gate Guard was represented by counsel, the investigator showed up unannounced and demanded payroll information from a low-level employee.  The investigator appeared later for the opening conference and thereafter, without any additional investigation, began calculating a potential back pay penalty.  He calculated Gate Guard owed $6 million in back wages.

The investigator continued his investigation by conducting additional interviews to support this conclusion.  He conducted handwritten notes of his interviews but destroyed those notes after composing formal witness interview statements.  The Court determined that the investigator did not conduct an impartial investigation.  He discounted witness responses that contradicted his early conclusions.  Only a few months later, and after interviewing only seventeen workers, the investigator presented his conclusions to the employer; demanded the $6 million penalty in back wages and unpaid overtime; and demanded that the employer treat the workers as employees going forward (including the requirement that it pay overtime)

Prior to the DOL filing an enforcement proceeding against the employer, the investigator’s supervisor reviewed the file.  The supervisor noted several violations of internal DOL policies including that the investigator: started making back-wage computations before determining the employer violated the FLSA; failed to follow protocol when presenting the findings to the employer by demanding back pay and unpaid overtime before securing voluntary prospective compliance; and inflated the amount of the employer’s penalty by $4 million, because he miscalculated the number of hours on which the workers should have been paid if they were nonexmpet employees.

The DOL then filed an enforcement action against Gate Guard.  The Department’s litigation tactics only continued the Department’s investigatory problems.  In the Court’s opinion, the DOL attorney opposed nearly ever motion, including routine case administration motions; made improper objections during depositions; withheld witness statements underlying the prosecution as privileged even though the Department filed some of the same statements in court to support its position.  The Department ultimately lost the case on the merits and Gate Guard moved for an award of its attorney’s fees incurred in defending against the government’s claim.

The Court held that the DOL’s conduct was oppressive and the case legally frivolous.  The court concluded that “the government’s extraordinary uncivil and costly litigation tactics strongly suggest that it hoped to prevail by oppressively pursuing a very weak case.”  Because of all of the Government’s misconduct (not all detailed here), the Court ordered that the trial court calculate and award attorney’s fees to Gate Guard.

You can read the full facts of the opinion here.

Follow me on Twitter @RussellCawyer.