Coyote Blog

A while back, I was in Houston and having dinner at the bar of one of my favorite steakhouses (Eddie V's).  The guy next to me was apparently the owner of a gate guard company.  Given that what he does is sort-of similar in some ways to what my company does, we chatted for a bit.

Anyway, he asked me at one point if my employees were independent contractors.  I told him no, even though by the text of labor law they probably could be.  However, even if it would be legal by statute, life was too short to try it because the Department of Labor HATES the independent contractor designation.  This designation has the effect of making the Department of Labor irrelevant (since most of what they enforce does not apply to independent contractors) and there is nothing worse than making a regulator irrelevant.  In effect, while defensibly legal, making such a designation would be like putting a big "kick me" sign on my back and inviting years of Department of Labor harassment.

This is when he told me that his gate guards are independent contractors and that he actually beat the Department of Labor.   Not only did he win his case and get awarded a million two in attorneys fees from the DOL, but he was also awarded $300,000 from the court for aggravation. I refused to believe him until he showed me a picture of him with the check. He had had it blown up into one of those huge golf tournament checks. I told him he was my hero and tried to buy him drinks the rest of the night, but when I got up to leave, I found he had actually paid my tab.  I drank that evening on the Department of Labor's dime, I guess.

The next morning, I couldn't shake the sense that he was having me on.  After all, one might eventually prevail against the bureaucracy (I once won my own case against the DOL).  But attorneys fees?  And a payment for aggravation?

But it turns out to all be correct.  A couple of weeks ago the indispensible Walter Olson featured the Gate Guard story in an article at Cato.  From the judge's decision:

It is often better to acknowledge an obvious mistake than defend it. When the government acknowledges mistakes, it preserves public trust and confidence. It can start to repair the damage done by erroneously, indeed vindictively, attempting to sanction an innocent business. Rather than acknowledge its mistakes, however, the government here chose to defend the indefensible in an indefensible manner. As a result, we impose attorneys’ fees in favor of Gate Guard as a sanction for the government’s bad faith.

At nearly every turn, this Department of Labor investigation and prosecution violated the department’s internal procedures and ethical litigation practices. Even after the DOL discovered that its lead investigator conducted an investigation for which he was not trained, concluded Gate Guard was violating the Fair Labor Standards Act based on just three interviews, destroyed evidence, ambushed a low-level employee for an interview without counsel, and demanded a grossly inflated multi-million dollar penalty, the government pressed on. In litigation, the government opposed routine case administration motions, refused to produce relevant information, and stone-walled the deposition of its lead investigator.

By the way, for small business owners, I wrote (a long time ago, at least in the blogging world) a multi-part article with a description and my advice from my run-ins with the Department of Labor.  Part 1 begins here.