29 C.F.R. § 790.22 : Labor — REGULATIONS RELATING TO LABOR — WAGE AND HOUR DIVISION, DEPARTMENT OF LABOR — STATEMENTS OF GENERAL POLICY OR INTERPRETATION NOT DIRECTLY RELATED TO REGULATIONS — GENERAL STATEMENT AS TO THE EFFECT OF THE PORTAL-TO-PORTAL ACT OF 1947 ON THE FAIR LABOR STANDARDS ACT OF 1938 —Restrictions and Limitations on Employee Suits — Discretion of court as to assessment of liquidated damages

(a) Section 11 of the Portal Act provides that in any action brought under the Fair Labor Standards Act to recover unpaid minimum wages, unpaid overtime, compensation, or liquidated damages, the court may, subject to prescribed conditions, in its sound discretion award no liquidated damages or award any amount of such damages not to exceed the amount specified in section 16 (b) of the Fair Labor Standards Act. 137

137 Section 16(b) of the Fair Labor Standards Act provides that an employer who violates the minimum-wage or overtime provisions of the act shall be liable to the affected employees not only for the amount of the unpaid minimum wages or unpaid overtime compensation, as the case may be, but also for an additional equal amount as liquidated damages. The courts have held that this provision is "not penal in its nature" but rather that such damages "constitute compensation for the retention of a workman's pay" where the required wages are not paid "on time." Under this provision of the law, the courts have held that the liability of an employer for liquidated damages in an amount equal to his underpayments of required wages become fixed at the time he fails to pay such wages when due, and the courts were given no discretion, prior to the enactment of the Portal-to-Portal Act, to relieve him of any portion of this liability. See Brooklyn Savings Bank v. O'Neil,324 U.S. 697; Overnight Motor Transp. Co. v. Missel,316 U.S. 572.

(b) The conditions prescribed as prerequisites to such an exercise of discretion by the court are two:
(1) The employers must show to the satisfaction of the court that the act or omission giving rise to such action was in good faith; and
(2) he must show also, to the satisfaction of the court, that he had reasonable grounds for believing that his act or omission was not a violation of the Fair Labor Standards Act. If these conditions are met by the employer against whom the suit is brought, the court is permitted, but not required, in its sound discretion to reduce or eliminate the liquidated damages which would otherwise be required in any judgment against the employer. This may be done in any action brought under section 16(b) of the Fair Labor Standards Act, regardless of whether the action was instituted prior to or on or after May 14, 1947, and regardless of when the employee activities on which it is based were engaged in. If, however, the employer does not show to the satisfaction of the court that he has met the two conditions mentioned above, the court is given no discretion by the statute, and it continues to be the duty of the court to award liquidated damages. 138

138 See Conference Report, p. 17; remarks of Representative Walter, 93 Cong. Rec. 1496-1497; President's message of May 14, 1947, to the Congress on approval of the Portal Act, 93 Cong. Rec. 5281.

(c) What constitutes good faith on the part of an employer and whether he had reasonable grounds for believing that his act or omission was not a violation of the Fair Labor Standards Act are mixed questions of fact and law, which should be determined by objective tests. 139 Where an employer makes the required showing, it is for the court to determine in its sound discretion what would be just according to the law on the facts shown.

139 Cf. §§790.13 to 790.16.

(d) Section 11 of the Portal Act does not change the provisions of section 16(b) of the Fair Labor Standards Act under which attorney's fees and court costs are recoverable when judgment is awarded to the plaintiff.

29 C.F.R. § 790.22