Wage and Hour Attorney Fees: FLSA Fee-Shifting and Rule 68

Under the Fair Labor Standards Act, if you win an unpaid wage or overtime claim, your employer pays your attorney fees and litigation costs on top of what you recover. That rule, combined with contingency fee agreements, is what makes wage and hour attorney fees workable for ordinary employees: most workers hire a lawyer for a wage claim without paying anything upfront, and in many cases without the fee ever coming out of their recovery at all.

How FLSA Fee-Shifting Works

The FLSA governs minimum wage, overtime, and related pay protections.¹ Its fee-shifting provision uses mandatory language: a judge “shall” allow a reasonable attorney fee and costs to a prevailing employee.² This is not discretionary. The rule exists because many wage violations are too small to justify hiring a lawyer at market rates. Without fee-shifting, an employee owed $3,000 in unpaid overtime would never spend $10,000 on legal representation to recover it.

You have to be the “prevailing party” for the award to kick in. The Supreme Court in Buckhannon Board & Care Home, Inc. v. West Virginia Dept. of Health and Human Resources required a judicially sanctioned change in the legal relationship between the parties — a court judgment or a consent decree, not just an employer that quietly changes its practices after you file. A private settlement can qualify if it’s entered as a court order; an informal payoff usually does not. Many state wage laws mirror the federal framework, so the same principle often applies in state court.

One boundary matters here. The FLSA’s fee-shifting runs one way. If you lose, the statute does not let your employer recover its attorney fees from you. The employer can still recover ordinary litigation costs under Federal Rule of Civil Procedure 54(d), but not its lawyers’ bills.²

Contingency Fees and the Court-Ordered Award

Even with fee-shifting, few workers can pay a lawyer by the hour while the case runs. Contingency agreements solve that. The attorney takes the case with nothing upfront and receives a percentage of what you recover, typically between 33% and 40%. If the case loses, you owe nothing for the lawyer’s time.

The interesting part is what happens when the contingency percentage and the court-ordered fee award both exist. Most agreements give the attorney whichever amount is higher. Say you recover $10,000 in back wages at a 40% contingency rate. The contractual fee would be $4,000. But if the court orders the employer to pay $15,000 in statutory fees based on the hours your lawyer put in, the attorney takes the $15,000, and your $10,000 stays intact. The arrangement protects you when the statutory award is larger and protects the attorney when it isn’t.

Read the fee agreement before signing. Some contracts let the lawyer collect both the percentage and the statutory fee. Others treat the statutory award as an offset against the contingency. The difference can be thousands of dollars.

How Courts Calculate the Fee the Employer Pays

Judges don’t rubber-stamp whatever number a lawyer requests. The standard is the lodestar method: hours reasonably spent on the case multiplied by a reasonable hourly rate for the geographic area and the lawyer’s experience. That product is the baseline.

Billing records get scrutinized. Hours that look redundant, excessive, or poorly documented are cut. Time spent on clerical work — copying, scheduling, filing deliveries — is either billed at a clerical rate or excluded entirely, even if a lawyer or paralegal did it. The nature of the task controls, not the title of the person performing it.

The Supreme Court in Hensley v. Eckerhart set out factors that can push the lodestar up or down.³ The biggest is the results obtained. Win everything and the full lodestar typically stands. Win some claims and lose others, especially where the unsuccessful claims required separate research and briefing, and the fee may be reduced. Case complexity, the skill required, and whether taking the case kept the lawyer from other work also factor in. In practice, results obtained does most of the adjustment work.

Litigation Costs and What Else Gets Added

Attorney fees cover the lawyer’s time. Litigation costs are everything else: the administrative and technical expenses of running the case. The FLSA requires the employer to pay these costs along with fees when the worker prevails.²

Filing a civil complaint in federal district court costs $405, which is a $350 statutory filing fee plus a $55 administrative fee.⁴⁵ Process servers typically charge $50 to $150 per service. Expert witnesses, such as an accountant analyzing payroll records, can run several thousand dollars. Depositions require a court reporter and transcripts, and a single day of testimony can produce over $1,000 in transcription charges alone. State court filing fees vary widely by jurisdiction and claim amount.

If you win at trial, these costs get added to the judgment against the employer. If the case settles, costs are usually deducted from the gross settlement before you receive your share, unless the agreement says otherwise. Which category an expense falls into — attorney fee or litigation cost — matters because the contingency arrangement may cover one but not the other.

What You Actually Recover

Attorney fees sit on top of the money that goes to you. A prevailing FLSA worker gets the full amount of unpaid wages plus an equal amount in liquidated damages, which effectively doubles the wage recovery.² An employer that shorted you $5,000 in overtime typically owes $10,000 to you — the back wages plus $5,000 in liquidated damages — and your attorney fees on top.

Liquidated damages are mandatory unless the employer shows it acted in good faith with reasonable grounds to believe it was complying with the law. Courts treat that as a high bar. The combined effect of fee-shifting and doubled damages is what makes small-dollar wage cases financially workable for lawyers to accept.

The Rule 68 Trap

Federal Rule of Civil Procedure 68 gives the employer a tool that can turn fee-shifting against you. An employer can serve a formal offer of judgment more than 14 days before trial. If you reject the offer and the final judgment you obtain is not more favorable than what was offered, you lose the right to recover any costs incurred after the date of the offer.⁶

The Supreme Court in Marek v. Chesny held that “costs” under Rule 68 includes attorney fees when the underlying fee-shifting statute defines fees as part of costs.⁷ The FLSA awards fees “and costs of the action” together, which opens the door for Rule 68 to apply. Reject $8,000 and win $7,500 at trial, and you can be stuck paying your own attorney fees for every hour of work after the offer date. That can erase or exceed your recovery.

Employers don’t have to break the offer into separate amounts for damages and fees. A lump-sum offer is valid, which makes the comparison harder, because you’re weighing a single number against the eventual judgment plus fees. Any Rule 68 offer deserves a careful conversation with your lawyer before you turn it down.

Deadlines That Decide Whether Fee-Shifting Helps You

None of this matters if you file too late. FLSA claims carry a two-year statute of limitations from the date of each violation, extended to three years if the violation was willful, meaning the employer knew or showed reckless disregard for whether it was breaking the law.⁸ The clock runs on a rolling basis. Each missed paycheck starts its own period, so you can only recover wages going back two or three years from the date you file, even if the underpayment has been going on longer.

Delay is expensive here. If you’ve been underpaid for five years, waiting another six months loses six months of recoverable wages off the back end. State wage laws sometimes allow longer windows, but the FLSA’s two-year default is the baseline.

Taxes on the Fee Award

Here’s where workers get caught. If your employer pays your attorney fees as part of a judgment or settlement, the IRS treats that payment as part of your gross income. The employer reports the fees on information returns (such as a 1099) naming both you and the attorney, even if the check goes straight to the lawyer.⁹ Without a deduction, a worker who recovers $10,000 in wages and $15,000 in attorney fees could face tax on $25,000.

Federal tax law provides the fix. Under 26 U.S.C. § 62(a)(20), you can take an above-the-line deduction for attorney fees and court costs paid in connection with claims involving “unlawful discrimination,” a term the statute defines broadly enough to cover FLSA violations, National Labor Relations Act claims, whistleblower protections, and many other employment claims.¹⁰ The deduction is capped at the amount included in your gross income from the judgment or settlement for that tax year. In most FLSA cases, the deduction fully offsets the phantom income from the fee award. The mechanics matter, though, so talk to a tax professional before filing. Missing the deduction means paying tax on money your lawyer received.

The Free Alternative: A DOL Complaint

You don’t have to hire a lawyer at all. The Department of Labor’s Wage and Hour Division investigates FLSA violations and can pursue back wages on your behalf at no cost. Call 1-866-487-9243 or file through the online portal to start.¹¹ Complaints are confidential; the DOL will not disclose your name, the existence of a complaint, or its nature to your employer.

The tradeoff is control and speed. The agency handles a high volume of complaints and investigations can take months. If the DOL takes your case, it can recover back wages and liquidated damages, but you won’t have your own attorney negotiating terms. For small claims where private representation doesn’t pencil out, the DOL route is often the practical choice. For larger or more complex disputes, a private attorney working under the FLSA’s fee-shifting rule will usually move faster and push harder.

1
U.S. Department of Labor. Handy Reference Guide to the Fair Labor Standards Act
2
Office of the Law Revision Counsel. 29 USC 216 – Penalties
3
Justia. Hensley v Eckerhart, 461 US 424 (1983)
4
Office of the Law Revision Counsel. 28 USC 1914 – District Court Filing and Miscellaneous Fees
5
United States Courts. District Court Miscellaneous Fee Schedule
6
Legal Information Institute. Federal Rules of Civil Procedure Rule 68 – Offer of Judgment
7
Justia. Marek v Chesny, 473 US 1 (1985)
8
Office of the Law Revision Counsel. 29 USC 255 – Statute of Limitations
9
Internal Revenue Service. Tax Implications of Settlements and Judgments
10
Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined
11
U.S. Department of Labor. How to File a Complaint