On this page
- How an FLSA Lawsuit Works for Employers
- What Happened to the 2018 FLSA Proposal on Early Discovery
- Your Burden in an FLSA Lawsuit When Time Records Are Missing
- How Courts Decide Exemption Claims After E.M.D. Sales v. Carrera
- Collective Action Notice Rules Depend on Where You're Sued
- DOL Investigations and the PAID Self-Audit Program in 2026
- Arbitration Agreements and Class Action Waivers
- How to Lower Your Risk of an FLSA Lawsuit
- Frequently Asked Questions
An FLSA lawsuit is a claim that you didn't pay an employee what the federal Fair Labor Standards Act (FLSA) requires, usually minimum wage or overtime. For a small business, one claim can mean 2 or 3 years of back pay, an equal amount added on top, and the employee's attorney's fees.
This guide explains how FLSA wage cases work in 2026, what you'll have to prove, and why your time records decide so many of them. It started in 2018 as a post about an FLSA proposal to speed up the evidence exchange in wage cases. It now covers what happened to that proposal, plus the court rulings and Department of Labor (DOL) changes since then.
Key Takeaways
- An employee can sue for unpaid minimum wage or overtime going back 2 years, or 3 years if the violation was willful.
- Courts add liquidated damages equal to the unpaid wages, which doubles what you owe, unless you prove you acted in good faith and had reasonable grounds to think you were following the law.
- An employee who wins a private FLSA lawsuit also recovers reasonable attorney's fees and court costs from you.
- If your time records are missing or wrong, the employee can prove their hours with a reasonable estimate, and it's up to you to prove otherwise.
- Since January 15, 2025, employers only have to prove an overtime exemption is more likely than not, under the Supreme Court's ruling in E.M.D. Sales v. Carrera.
- The DOL relaunched its PAID self-audit program on July 24, 2025, so you can find and fix pay errors, pay the back wages under DOL supervision, and get a release for those violations.
What's New for 2026
The DOL restarted its Payroll Audit Independent Determination (PAID) program on July 24, 2025, and it now covers certain Family and Medical Leave Act (FMLA) issues too. Since June 27, 2025, DOL investigators no longer ask for liquidated damages when they settle a case outside of court.
On January 12, 2026, the Supreme Court declined to hear Eli Lilly & Co. v. Richards. That leaves different federal appeals courts using different tests for when other employees get notice of a collective action, so where you're sued still matters.
How an FLSA Lawsuit Works for Employers
A federal wage claim usually reaches you in one of three ways: a lawsuit from one employee, a collective action on behalf of a group, or a DOL investigation. The money at stake is built from the same pieces in each one.
Individual FLSA Lawsuits From One Employee
One current or former employee files a lawsuit for unpaid wages. They can ask for back wages, an equal amount as liquidated damages, and their attorney's fees and court costs.
An employee generally can't bring a private suit for wages they've already been paid back under DOL supervision, or after the DOL has already sued you for those wages.
Collective Actions and the Opt-In Rule
A collective action is an FLSA lawsuit for a group of "similarly situated" employees, such as all the hourly cashiers who weren't paid for pre-shift work.
In a typical class action, people are included unless they opt out. An FLSA collective action works the other way: each employee has to opt in, usually by filing a written consent form with the court. Courts can approve a notice that tells your other workers about the case so they can decide whether to join.
Timing matters here. Each worker's claim reaches back only 2 or 3 years, so a delay in notice can hurt workers who join late. Some courts pause that clock (called equitable tolling) when notice is delayed.
The FLSA Statute of Limitations Is 2 Years, or 3 for Willful Violations
The statute of limitations for FLSA back wages is 2 years. If a court finds the violation was willful, it's 3 years. Without a willful violation, an employee can only recover wages from the 2 years before the claim.
What an Employee Can Recover in an FLSA Claim
| What can be recovered | What it means | Who can get it |
|---|---|---|
| Back wages | Unpaid minimum wage or overtime for the last 2 years (3 if willful) | The employee in a lawsuit, or the DOL |
| Liquidated damages | An extra amount equal to the back wages | The employee in a lawsuit, or the DOL when it sues. The DOL stopped asking for them in out-of-court settlements in June 2025. |
| Attorney's fees and court costs | The employee's legal bills, paid by you | An employee who wins a private lawsuit |
| Retaliation remedies | Reinstatement, lost wages and an equal amount as liquidated damages | An employee who was punished for a wage complaint, through a lawsuit or a DOL complaint |
| Civil money penalty | Up to $2,515 per violation for repeated or willful minimum wage or overtime violations (2026) | The DOL only |
Liquidated Damages and the Good-Faith Defense
Liquidated damages are required under the FLSA unless you show you acted in good faith and had reasonable grounds to believe your pay practice was legal. In practice, they double what you owe.
Only a court can decide that you acted in good faith. That's why the DOL now leaves liquidated damages out of its out-of-court settlements and seeks them only when it files a lawsuit.
Here's how fast a small, steady mistake adds up. Say an hourly employee earns $18 an hour and works 40 hours on the clock each week. They also spend 4 more hours a week working off the clock, answering texts and finishing closing tasks. Work you didn't ask for but allowed still counts as paid time, so those 4 hours are overtime at $27 an hour.
Overtime rate: $18 × 1.5 = $27 an hour
Unpaid overtime each week: 4 hours × $27 = $108
Back wages for 2 years: $108 × 104 weeks = $11,232
Liquidated damages (equal amount): $11,232
Total for 2 years: $22,464, plus the employee's attorney's fees and court costs
If a court finds it willful (3 years): $108 × 156 weeks = $16,848, doubled to $33,696
That's one employee. In a collective action, the same math applies to everyone who opts in. For help with the rate itself, see how to correctly calculate overtime pay rates.
What Happened to the 2018 FLSA Proposal on Early Discovery
In January 2018, the Federal Judicial Center published the Initial Discovery Protocols for Fair Labor Standards Act Cases Not Pleaded as Collective Actions. A committee of experienced wage and hour attorneys wrote them so both sides would share key documents early in single-employee FLSA cases. This early sharing is part of discovery.
Under the protocols, the employer hands over these items within 30 days after filing its first response to the lawsuit, unless the court orders otherwise:
- The employee's time and pay records.
- Any pay complaints the employee made inside the company, and your responses.
- Offer letters and any employment or pay agreements.
- Your pay policies and the index pages of your employee handbook.
- Job descriptions, if the employee's duties are in dispute.
- Documents that support a good-faith defense.
- Insurance policies that might cover a judgment.
The look-back period matches the statute of limitations: 2 years before the complaint, or 3 years if the employee says the violation was willful.
Status of the 2018 Protocols in 2026
The protocols never became a nationwide rule. They're a model that individual federal courts and judges can adopt by local rule or court order, and some have, including courts in the Southern District of Texas.
In 2019, the American Arbitration Association adapted them for wage cases in arbitration. There, they apply by default unless the arbitrator decides otherwise.
The main lesson of the 2018 proposal still holds. If you're sued, you may have about a month to produce up to 3 years of time and pay records. Digging through boxes of paper time cards makes that slow and costly, which is why time clock software that stores past records in one place helps.
Your Burden in an FLSA Lawsuit When Time Records Are Missing
The FLSA requires you to keep accurate records of hours worked and pay for every non-exempt employee. When those records are missing or unreliable, a 1946 Supreme Court case, Anderson v. Mt. Clemens Pottery Co., puts the burden on you.
Here's how it works. The employee only has to show the amount of work they did "as a matter of just and reasonable inference," which can be a reasonable estimate. Then it's your job to come up with evidence of the exact hours worked, or evidence that their estimate isn't reasonable. If you can't, the court can award damages even if the amount is only approximate.
WATCH OUT
In Mt. Clemens, the Supreme Court said an employer without proper records "cannot be heard to complain that the damages lack the exactness and precision of measurement." If your records are incomplete, the employee's estimate may become the number the court uses.
Records the FLSA Requires You to Keep
The FLSA doesn't require a particular form or timekeeping method, as long as the records are complete and accurate. For each non-exempt employee, your records should include:
- The employee's name, address, occupation and other identifying details.
- The day and time each workweek begins.
- Hours worked each day and each workweek.
- The basis of pay (hourly, weekly or piece rate) and the regular hourly rate.
- Straight-time earnings, overtime earnings, deductions and total pay for each pay period.
- The pay date and the pay period each payment covers.
Keep payroll records for at least 3 years. Keep the records you use to figure wages, such as time cards and work schedules, for at least 2 years. For more detail, see the DOL's recordkeeping fact sheet and our guide to employee time tracking compliance.
How Courts Decide Exemption Claims After E.M.D. Sales v. Carrera
Many FLSA lawsuits are misclassification claims. The employee says they were wrongly treated as exempt from overtime, and you have to prove the exemption applies.
On January 15, 2025, the Supreme Court ruled unanimously in E.M.D. Sales, Inc. v. Carrera that employers only have to prove an exemption by a preponderance of the evidence. The Fourth Circuit had required "clear and convincing evidence," a much higher bar, while six other federal appeals courts already used the lower standard.
The ruling makes exemption cases easier to defend, but the burden is still yours. You'll need to show the employee's real duties and pay meet every part of the exemption. For most white-collar exemptions, that includes a salary of at least $684 a week ($35,568 a year).
To check your classifications, see how to classify employees and our guide to the federal overtime salary threshold.
Collective Action Notice Rules Depend on Where You're Sued
The biggest early fight in a collective action is whether the court will send notice to your other employees. Notice is how most workers learn they can join, so it can grow the case quickly.
For decades, most courts used a lenient two-step test that traces back to a 1987 federal case in New Jersey, Lusardi v. Xerox Corp. Workers needed only a "modest factual showing" that they were similarly situated to get notice sent. Three federal appeals courts now ask for more.
| Federal appeals court | Leading case | What workers must show before notice goes out |
|---|---|---|
| Fifth Circuit (Texas, Louisiana, Mississippi) | Swales v. KLLM Transport Services (January 12, 2021) | That they're actually similarly situated, proven more likely than not at the start of the case |
| Sixth Circuit (Kentucky, Michigan, Ohio, Tennessee) | Clark v. A&L Homecare and Training Center (May 19, 2023) | A "strong likelihood" that they're similarly situated |
| Seventh Circuit (Illinois, Indiana, Wisconsin) | Richards v. Eli Lilly & Co. (August 5, 2025) | A real factual dispute about whether they're similarly situated, after the court weighs your rebuttal evidence |
| Most other circuits | The two-step approach from Lusardi | A "modest factual showing" |
On January 12, 2026, the Supreme Court declined to hear Eli Lilly's appeal in Richards. On February 23, 2026, it also turned down Cracker Barrel v. Harrington, which raised similar questions. The split remains, so the test depends on where the case is filed.
TIMECLICK TIP
In the stricter courts, you can put in your own evidence before notice goes out. Accurate records of what each employee actually worked and was paid are often the most useful evidence you'll have. See what time clock software is and how it records hours.
DOL Investigations and the PAID Self-Audit Program in 2026
You don't have to be sued to owe back wages. The DOL's Wage and Hour Division can investigate your business directly. In fiscal year 2025, it recovered more than $259 million in back wages for 176,957 workers.
How a DOL Wage and Hour Investigation Works
- Many investigations start with a worker complaint. Complaints are confidential, and the DOL won't tell you who complained or whether there was a complaint at all.
- The DOL also targets low-wage industries and sometimes reviews several businesses in one area.
- Investigators don't have to give advance notice, and some visits are unannounced.
- They review your payroll and time records and interview employees privately.
- At a closing conference, the investigator explains any violations, how to fix them and what back wages you owe. You can have an accountant or attorney there.
- If you don't pay, the DOL can sue for back wages plus liquidated damages, ask a court to stop the violations, seek civil money penalties, or refer the case for criminal prosecution.
Since June 27, 2025 (Field Assistance Bulletin 2025-3), the DOL no longer seeks liquidated damages in administrative settlements. It can still ask for them when it files a lawsuit. Repeated or willful minimum wage or overtime violations can bring a civil money penalty of up to $2,515 per violation in 2026, the same as in 2025.
How the PAID Program Works in 2026
The PAID program lets you find and fix possible minimum wage, overtime and tip violations under the FLSA, plus certain FMLA violations, before anyone files a claim. The DOL first ran it from 2018 to 2021 and relaunched it on July 24, 2025.
- Audit your own pay practices for the last 2 years. Identify the affected employees and calculate the back wages owed.
- Send your findings, calculations and supporting records to the Wage and Hour Division.
- The DOL reviews your submission and may ask for more information.
- You pay the back wages within 15 days of getting the DOL's summary, then send proof of payment.
Employees can accept the payment or turn it down. If they accept, the release covers only the violations and time periods that were paid. If they decline, they keep their right to sue, and you can't retaliate against them for saying no.
To qualify, you generally can't have a DOL or court finding of a minimum wage or overtime violation in the past 3 years, can't be under investigation or in a lawsuit over the same issues, and can't have used PAID in the past 3 years. The DOL decides case by case. If it turns down a good-faith request, it generally won't use that request as the reason for a later investigation of the same issues.
WATCH OUT
Paying back wages on your own, before the DOL reviews them, doesn't stop employees from suing you for the same wages. A DOL-supervised payment or a court-approved settlement is the safer route to a valid release.
Arbitration Agreements and Class Action Waivers
On May 21, 2018, the Supreme Court ruled 5 to 4 in Epic Systems Corp. v. Lewis that arbitration agreements requiring employees to bring claims one at a time must be enforced under the Federal Arbitration Act. That means a properly written agreement can keep FLSA claims out of court and out of collective actions.
Arbitration has its own procedures. Since 2019, American Arbitration Association wage cases use early document exchange rules much like the 2018 FLSA protocols, so you'll still need your records quickly.
If you're thinking about an arbitration agreement, have an employment attorney write it. Whether it holds up depends on how it's written and how your employees agree to it.
How to Lower Your Risk of an FLSA Lawsuit
Most of these risks come back to the same few habits. Here's where to start:
- Record every hour worked. Include time before and after shifts, work on phones and email, and any work you allowed without asking for it.
- Keep records long enough and make them easy to find. Hold payroll records for 3 years and time cards for 2 years, in a format you can pull quickly if you're sued.
- Audit your pay once a year. Check exempt classifications, salary levels and how you figure overtime. Our overtime laws guide covers the basics.
- Put your pay policies in writing. State when your workweek starts, how overtime is approved, that off-the-clock work isn't allowed, and how employees report a pay error.
- Fix mistakes fast. When you find an error, correct it going forward and pay what's owed. Consider PAID if you want a DOL-supervised release.
- Never retaliate. The FLSA protects employees who complain, in writing or out loud, and former employees too.
- Check your state's rules. State wage laws can add their own claims and penalties on top of the FLSA. For one example, see our guide to California overtime laws.
TIMECLICK TIP
Ask employees to review their own time records each pay period and report anything that looks wrong. You'll catch errors while they're small, and you'll have a record that the hours were checked.
Frequently Asked Questions
Quick answers to common questions about FLSA lawsuits.
How far back can an employee sue for unpaid overtime?
Under the FLSA, 2 years from when the violation happened, or 3 years if a court finds it was willful. State wage laws may allow different time limits.
Can I settle an FLSA claim privately with an employee?
It's risky. The Second and Eleventh Circuits have refused to enforce private FLSA settlements without court or DOL approval, though some other courts have enforced them. A DOL-supervised payment, through PAID or an investigation, is one of the few reliable ways to get a valid release. Talk to an employment attorney first.
Does the DOL still collect double damages?
Not in out-of-court settlements. Since June 27, 2025, DOL investigators don't ask for liquidated damages when they settle a case administratively. The DOL can still seek them in a lawsuit, and employees can still recover them in their own lawsuits.
What happens if I don't have time records for an employee?
Under Anderson v. Mt. Clemens Pottery Co., the employee can prove their hours with a reasonable estimate. You then have to show the exact hours worked or prove the estimate is unreasonable, which is hard to do without records.
Can I require employees to sign an arbitration agreement with a class action waiver?
Generally, yes. The Supreme Court held in Epic Systems Corp. v. Lewis (2018) that these agreements must be enforced under the Federal Arbitration Act. How it's written still matters, so have an employment attorney draft it.
Can I fire an employee who files a wage complaint?
No. The FLSA bans firing or punishing an employee for a wage complaint, whether it's written or spoken, and that protection covers former employees too. Remedies can include reinstatement, lost wages and an equal amount as liquidated damages.
What happened to the 2018 FLSA proposal on early discovery?
The Federal Judicial Center published the protocols in January 2018, but they never became a nationwide rule. Individual courts can adopt them, and some have. The American Arbitration Association adapted them for wage arbitrations in 2019.
This guide is general information and isn't legal advice. If you're facing a wage claim, talk with an employment attorney or contact the DOL's Wage and Hour Division.
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