7 provisions not to include in your employment contracts

Supplemental materials for LEAP 2025 session Avoiding Costly Misclassification Mistakes: Employee vs. Independent Contractor

The Department of Labor has read the fine print for you on employment contracts, and it doesn’t like what it’s seeing. It’s identified seven fine-print provisions in employment contracts that it believes violate the Fair Labor Standards Act and the Occupational Safety and Health Act. Would your employment contracts and job applications stand up to a DOL investigation?

1. Contract provisions requiring employees to waive statutory protections

The FLSA is remedial legislation, which means employees can’t waive away their rights. The DOL has observed the following:

• Contract provisions requiring employees to agree to a shortened statute of limitations to bring FLSA claims. Under the FLSA, employees have two years to sue you for failing to pay them minimum wages or overtime pay. They have three years if your violation is willful.
• Contract provisions requiring employees to agree to forego liquidated damages. If all you had to pay employees in damages was their back pay, you’d have no incentive to comply with the law. So courts routinely impose liquidated, or double, damages to ensure your compliance.

2. Contract provisions requiring employees to agree they are independent contractors

Employees can’t agree to be called independent contractors, even if they want to. Whether a worker is an employee or an independent contractor is based on whether you have a right to control their wages and working conditions. Actual control isn’t necessary.

In January, the DOL released final worker status regulations. And there are Memorandums of Understanding all over the place entitling other federal agencies to tip off the DOL to any questionable employment practices they happen upon. The IRS will be equally unamused if it sees contract provisions calling workers independent contractors.

3. Indemnification-type provisions and related counterclaims

It’s a neat trick, but no, you can’t make employees reimburse you for your FLSA violations. Indemnification includes offsetting damages against employees’ pay.

4. “Loser pays” provisions

Here’s how the FLSA is structured:

• Employees win their FLSA lawsuit and you’re on the hook for their legal costs and your legal costs.
• Employees lose their FLSA lawsuit and you’re on the hook for your legal costs, but not employees’.

Contract provisions altering this statutory arrangement are void.

5. Stay-or-pay provisions

The DOL never hinted it was interested in stay-or-pay provisions, unlike the CFPB and the NLRB. But it is now, and the FLSA contains an interesting twist: You can’t require employees to kick back wages when the kickbacks would bring their pay to below the minimum wage or cut into their overtime pay. Rather, the FLSA requires wages to be paid free and clear.

6. Confidentiality, nondisclosure and nondisparagement provisions

You can insist on some decorum during working hours, but on their own time, employees can say mean things about you on social media or face-to-face among friends or even potential employees, and there isn’t much you can do about it. In addition, employees don’t need your permission to speak to a government investigator before speaking to you or never speaking to you.

7. Company policies requiring employees to report safety concerns to you before contacting the authorities

You can’t retaliate against employees for reporting safety concerns or other violations to OSHA before reporting them to you.

Interested in joining HR Employment Law Advisor? For a limited time, LEAP 2025 attendees can get an annual membership at 30% off at https://www.hremploymentlawadvisor.com/leap30. 

See other supplemental materials available.