My New Hero, and How the Department of Labor Bought Me Drinks

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.


  1. Not Sure:

    "Not only did he win his case and get awarded a million two in attorneys fees from the DOL..."

    I seriously doubt the claim that he got the money from the Department of Labor. If, instead, he said the money came from American taxpayers... well, that'd be more believable.

  2. ColoComment:

    My thought, as well. Now, it would be a bit different if the lawyers involved, and their supervisors all the way up the food chain, indeed, anyone who had input into the decision to prosecute the case, had to kick personal funds into the pot to pay off the fee award.

  3. Matthew Slyfield:

    "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."

    Did you ever get the company wide audit?

  4. herdgadfly:

    If you run a 24/7 campground business, I find it doubtful that your employees would qualify as independent contractors. You tell them when and where they will work and likely have written instructions as to what work will be performed. With limited authority, these folks have to depend on supervision from above and guess what - that makes them your employees.

    My son does independent contractor work but his employment is controlled by limited term contracts - work ends, job ends, bye-bye. Perhaps seasonal employees could be handled that way.

  5. rso3:

    . . . seriously? So you are also saying that when the DOL issues idiotic fines that the entity being fined is paying the taxpayers? Yeah, no.

  6. Not Sure:

    "So you are also saying..."

    No, I'm not also saying.

  7. MJ:

    It's good to hear that this guy was willing to take on the Dept. of Labor and strike a victory against such an arbitrary abuse of power by a prominent government bureau. Organizations like the DoL need to get the message that they can't just push people around.

    However, for every one of the businesses who decide to take firm stand against such abuse, there are many more who are deterred from doing so either because of concerns about the cost of fighting these cases in court or because of the perception that they simply aren't worth the hassle and the time commitment necessary, which may be a large distraction from the day-to-day operations for the typical small business owner.

    In light of this, I'm reminded of the most recent book by Charles Murray, By the People in which one of the main arguments is that businesses should essentially form the equivalent of mutual aid societies, something akin to a legal defense fund for members, to protect against the risk of petty or arbitrary administration of laws and regulations by large government bureaus like the Department of Labor. It is hoped that by repeatedly challenging such abuse, a signal will be sent that these bureaus will need to more strictly adhere to their constitutional limitations.

  8. frankania:

    I had a TV repair shop in MS in the 70's and had 4 "indep. contractors" as helpers. Makes paperwork alot simpler. These days, I don't know if big-brother-USA would let me or not. That is one reason I moved to Mexico 25 years ago where I can do just about ANTHING I want without govt. permits etc.