The Transportation Department said Tuesday that it reviewed passenger complaints and found many cases of Southwest failing to promptly pay bumped passengers and give them written notices of their rights.
Airlines are allowed to sell more seats than they have because some passengers don't show up.
In other businesses, that would violate laws against deceptive sales tactics. Airlines get a break under the theory that they can offer lower fares if they don't get stuck with empty seats because of no-shows.
Last year, Southwest bumped 13,113 passengers - 80 percent more than the next closest carrier. However, Southwest carried the most U.S. passengers, and travelers faced a greater chance of being bumped on some other airlines, with American's regional affiliate, American Eagle, being the worst.
Federal rules require airlines to first ask for volunteers who will give up their seats in exchange for compensation. After that, airlines can begin to bump passengers who bought tickets. Most passengers bumped from flights are entitled to up to $800 in cash.
Airlines are required to give bumped passengers a written statement detailing their rights and explaining how the airline decides who gets bumped when flights are oversold.
The airlines can offer travel vouchers but only after telling the passengers that they are entitled to get cash or a check instead, and the amount that they're owed.
In a consent order, the Transportation Department said it would waive $90,000 of the civil penalty if Southwest doesn't break the rules again in the next year. Also, Southwest can use $20,000 of the fine to develop ways to notify passengers of their rights and the airline's policy on overselling flights.
In the consent order dated Tuesday, the company said it mostly follows the rules - the number of violations was not disclosed - but would provide more training for employees to improve compliance. The airline also said it would give customers more notice of their rights when they buy tickets on the company website.
Southwest spokeswoman Brandy King said the alleged violations involved "a small percentage" of the airline's flights.
"However, we take every violation seriously and are working to improve our procedures to ensure full compliance with DOT regulations and to provide the best possible experience for all of our customers," she said.