Did Settlement-Check Disclaimer Bar Additional FLSA Claims?

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By Christine Pulfrey

“We are entitled to pursue our claims for wages we are owed,” said Bonnie, on behalf of workers whose claims the company sought to dismiss.

“You waived your right to pursue claims when you cashed the settlement checks we sent you,” said James, the company spokesman.

FACTS: A marketing services company hired brand advocates to train retail store employees to operate the electronics and appliances sold by companies with which it contracted and to encourage employee product recommendations for customers.

The brand advocates typically were trained for five days and initially were classified by the company as outside salesmen, exempting them from the Fair Labor Standards Act’s overtime requirements. They received an annual salary but no incentive-based pay and no overtime, despite the 50 to 75 hours a week schedules that many of them worked.

After receiving a complaint that the company may have been misclassifying brand advocates as exempt, the Labor Department’s Wage and Hour Division investigated and found the workers were misclassified.

The company informed workers that they were reclassified and sent settlement checks to those it believed were owed additional wages. The check stubs said that by cashing the check, the employees acknowledged that they received all wages owed.

The Labor Department investigator was out of the office when the checks were sent and did not approve the payments or view the language.

Some of the brand advocates, including those who cashed the checks and those who did not, brought a lawsuit against the company claiming that they did not receive all amounts they were owed under the FLSA. A district court declared them to be nonexempt under the FLSA.

The company reached a settlement agreement with the brand advocates who did not cash their checks, but asked the district court to dismiss the claims of those who did cash the checks because they accepted a settlement that waived their FLSA claims. The court agreed with the company and dismissed the claims of those who cashed their checks.

The workers who cashed their checks appealed, claiming in part that they were not bound by the settlement because the FLSA requires settlements to be supervised by the Labor Department, and the assigned investigator did not authorize the waiver’s language. 

They also claimed the checks did not include sufficient language to inform them of the consequence of cashing the checks.

ISSUE: Did workers who cashed their settlement checks waive the right to bring FLSA claims for amounts owed?

DECISION: The brand advocates who cashed their checks did not waive their right to pursue other damages, an appeals court said.

The brand advocates were nonexempt workers entitled to overtime pay, the appeals court said, affirming part of the district court’s ruling. However, a disclaimer on the check stubs that the sum constituted “full payment” of wages earned including minimum wage and overtime did not provide proper notice to the employees or serve as a release of their rights, the appeals court held.

“Any waiver that might be encompassed by the cited language could reach only wages themselves and not other statutory rights such as liquidated damages or attorney's fees,” the appeals court said.

“Although the issue of what constitutes a valid settlement is an issue of first impression in our court, other circuits have held that the plain language of [the FLSA] requires an agreement by the employee to accept a certain amount of back wages and requires the employer to pay those wages,” the appeals court said, pointing out that other federal appeals courts have held that employees cannot “agree to accept payment” unless they are given notice of the rights they are waiving.

Having found the language on the checks insufficient as a matter of law, the appeals court declined to address what role the Labor Department must play in communicating or authorizing release language.

By signing a claims waiver and receiving a check from the employer, an employee may waive the right to sue even if the check is not cashed, but the company’s disclaimer did not mention the FLSA, the claims waiver or any other damages to which employees may be entitled, the appeals court said, ruling that the misclassified employees may proceed with FLSA claims (Adams v. ActionLink LLC, 8th Cir., No. 13-3380, 3/20/15).

POINTERS: The secretary of the Labor Department is authorized to supervise an employer's payment of any unpaid minimum wages or overtime compensation owed to employees under the FLSA.

Where back wages are owed to a number of employees because of a pattern of noncompliance by an employer, the employer usually will be responsible for calculating the actual amount of unpaid wages due employees. However, employees must consent to the amount of the employer's voluntary settlement. Moreover, to protect employees, any proposed settlement is subject to the scrutiny of the Wage and Hour Division.

For more information, see Payroll Administration Guide's “FLSA: Enforcement and Penalties” chapter.

This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.