Section 16(b) of the Fair Labor Standards Act makes an employer who violates the minimum-wage or overtime provisions liable to the affected employees not only for the unpaid wages, but also for “an additional equal amount as liquidated damages” — in practice, a judgment that doubles the back pay owed. The courts have described this doubling as “not penal in its nature,” but rather as constituting “compensation for the retention of a workman’s pay” where the required wages are not paid “on time” (§ 790.22(a) n.137). Before the Portal-to-Portal Act — a 1947 law affecting employer liability under the Fair Labor Standards Act — an employer’s liability for this doubled amount became fixed the moment the underpayment occurred, and courts had no discretion to relieve the employer of any part of it.

The Portal-to-Portal Act changed that by giving the court discretion — never a right the employer can simply claim — to award less than the full doubled amount, or none at all. That discretion opens only if the employer shows the court, to its satisfaction, two separate things: that the act or omission was in good faith, and that the employer had reasonable grounds for believing the act or omission was not a violation of the Fair Labor Standards Act. Both are mixed questions of fact and law — meaning the court weighs both what actually happened and how the legal standard applies to it. § 790.22(c) directs the court to decide both by objective tests, not by what the employer personally believed. For good faith, that objective test asks whether the employer acted as a reasonably prudent person would have acted under the same or similar circumstances. Reasonable grounds is likewise judged by an objective test rather than the employer’s own sense of what was reasonable, though the regulation does not say the two tests are one and the same. If the employer fails to satisfy either one, the court has no discretion left to exercise — it must award the full liquidated damages.

Good faith also requires honesty of intention and no knowledge of circumstances that ought to have prompted further inquiry. § 790.15(b) illustrates this with a specific case: an employer relies on an Administrator’s ruling that was itself based on certain court decisions, then learns from its attorney that a higher court reversed those decisions or cast doubt on their correctness, and does nothing further beyond continuing to rely on the earlier ruling. On facts like these, a court could find that the employer knew facts that would put a reasonably prudent person on inquiry, and therefore had not proved good faith.