Labor and Employment

Good Faith Defenses to an Employee's Wage Claim

By Lisa Guerin, ​J.D., Boalt Hall at the University of California at Berkeley
Even if your company violates the Fair Labor Standards Act, you may be able to limit your damages or escape liability if one of these defenses applies.

Under the federal Fair Labor Standards Act (FLSA), all but the smallest employers have to pay at least the minimum wage and overtime to their employees who are not exempt under the Act. Many wage and hour lawsuits are about whether employees really are exempt or should have been classified as nonexempt and, therefore, eligible for minimum wage and overtime.

There are many possible claims an employer can make to defeat an employee’s FLSA claims. For example, an employer might present evidence that an employee didn’t work more than 40 hours in a week, and is therefore not eligible for overtime. Or, an employer might show that an employee really was an exempt manager or professional employee.

In addition to these factual defenses, employers can bring two good-faith defenses to an employee’s FLSA claim. In making a good-faith defense, the employer concedes that the employee has a valid claim, but argues that it had a legitimate and well-intended reason for violating the law. If you can prove a good-faith defense, you may limit your damages or even escape liability altogether.

The Good-Faith Defenses

There are two good faith defenses available to employers facing wage-hour claims. These are based on §§ 10 and 11 of the Portal-to-Portal Act, 29 U.S.C. § 251 et seq. The first defense allows employers to avoid liability altogether; the second limits the damages an employee may collect.

Section 10: The Absolute Good-Faith Defense

The good faith defense based on Section 10 of the Portal-to-Portal Act excuses an employer’s violation of the FLSA’s minimum wage and overtime requirements if the employer can prove that it acted in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation of the Wage and Hour Division of the U.S. Department of Labor. In other words, if the Department of Labor interpreted the FLSA to allow the employer’s actions, the employer won’t be liable for them.

Even if the Department of Labor later rescinds the ruling on which the employer relied, the employer can avoid liability as long as its actions were allowed when taken. For example, if an employer decides that its assistant managers are not entitled to overtime based on an opinion letter of the Administrator of the Wage and Hour Division, it will not be liable for that decision – even if the opinion letter is overturned later.

This defense applies only in relation to a written ruling, policy, regulation or order of the Wage and Hour Administrator. It cannot be based on conversations between an attorney and a district director of the Wage and Hour Division. Nor can the reliance relate to the rulings or regulations of another governmental agency.

To escape liability, your actions must conform to the opinion, regulation, or other ruling you are relying on. If there are material differences between the facts underlying the ruling and those in your case, you can’t use the defense. Reliance is done in good faith if the employer acted as a reasonably careful person would have acted under the same or similar circumstances.

If you succeed in proving that this defense applies, you won’t be liable to the employee for damages.

Section 11: Good-Faith Defense to Liquidated Damages

Under Section 11 of the Portal-to-Portal Act, you can avoid or reduce a liquidated damages award if you can prove that you acted in good faith, with reasonable grounds to believe you were not violating the FLSA. The FLSA allows for two types of damages:

  • back pay: the wages and other compensation the employee should have received if you had followed the law, and
  • liquidated damages: an award equal to the back pay award, intended to punish employers for violating the law.

If you can use the Section 11 defense, you will still be liable for breaking the law and will have to pay the back pay award. However, you can reduce or avoid the additional award for liquidated damages.

To use the Section 11 defense, you must show that you acted with actual good faith: an honest intention to do the right thing, with no reason to believe you were violating the law. You must also show that you reasonable grounds to believe you were not violating the law. In some cases, for example, employers have succeeded in using this defense by showing that they relied on their lawyer’s legal advice that their conduct was correct under the FLSA.

For information on the Fair Labor Standards Act, see our Wage and Hour FAQ. Find out more about FLSA damages in Liquidated Damages and Punitive Damages Under the FLSA.

Questions for Your Attorney

  • Can I rely on an opinion letter to another employer, or must my company request an opinion letter from the Department of Labor?
  • We don’t have a lawyer, but I determined that our employees were not eligible for overtime after reading several trade publications on the topic. Can I use a good-faith defense?
  • If we acted in reliance on a regulation that was later rescinded, can we rely on a good-faith defense for violations that happened after the rescission?

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