The Employer's Legal Resource: Employees Do Not Waive FLSA Claims By Cashing Settlement Checks for Underpaid Wages

04.01.15

When attempting to resolve employee claims for unpaid wages, employers must be aware that the FLSA imposes greater restrictions than other employment laws regarding what is considered sufficient for employee settlements and waivers to be valid. Employers must do more than issue a settlement check containing a general disclaimer that the check represents full payment of wages earned.

The Eighth Circuit recently held that employees who cashed settlement checks for back wages were not barred from seeking additional compensation from their employer. ActionLink provides marketing services for electronic and appliance manufacturers and the company employs "brand advocates" who visit retail stores to train salespeople on a manufacturer's product and convince them to recommend it to their customers. ActionLink initially classified these "brand advocates" as exempt employees not subject to the FLSA's overtime requirements. But after receiving a complaint in late 2011, the DOL conducted an investigation and determined that these "brand advocates" were actually non-exempt employees and therefore entitled to overtime payments. ActionLink worked with the DOL and reclassified the employees following the investigation, notifying the "brand advocates" of their employment reclassification by letter. The company also calculated the amount of unpaid overtime and sent a settlement check with the reclassification letter to each employee who was owed back wages. The check stub, on the same page as the check but beneath a perforation, contained the following language in fine print: "By cashing this check, the employee to whom [sic] is made is agreeing that he or she has received full payment from ActionLink or [sic] wages earned, including minimum wage and overtime, up to the date of the check." The DOL investigator involved was out of the office on vacation when ActionLink mailed the letters to employees, and he did not approve the payments or view the language on the checks until he returned nearly a month later.

Several "brand advocates" (including some who received and cashed settlement checks) then sued ActionLink, claiming that they were entitled to additional pay under the FLSA. The district court granted ActionLink's partial motion for summary judgment on the basis that the employees who cashed the previous back-wages checks had waived their rights for additional remuneration under the FLSA. The Eighth Circuit reversed the district court's decision and rejected the employer's argument because "the release language on the checks was insufficient to notify employees of the consequences of cashing the checks." When an employer fails to pay required overtime pay, the FLSA provides that an employee may recover back wages, liquidated damages, and attorneys' fees. Because FLSA rights are expressly statutory, they generally cannot be waived, and employers can settle wage claims only in two ways. Before employees sue, they can waive their FLSA rights only if they agree to accept full payment of a settlement offered by their employer, they receive full payment of that settlement, and the settlement was supervised by the DOL. After commencing litigation, employees can waive their rights only if the parties agree on a settlement amount and the district court enters a stipulated judgment.

The Eighth Circuit followed the Ninth, Seventh, and Fifth Circuits' position and held that a valid settlement under the FLSA requires a specific agreement by the employee to accept a certain amount of back wages and requires the employer to pay those wages. "Simply tendering a check and having the employee cash that check does not constitute an agreement to waive FLSA claims; an agreement must exist independently of payment." But employees cannot provide the necessary "agree[ment] to accept payment" as settlement unless they are given sufficient notice of the rights they are waiving by doing so. The Eighth Circuit held the purported waiver on ActionLink's checks to be inadequate because the language on the check stub alone did not adequately notify employees of the rights they were waiving or even suggest that employees were waiving any statutory claim under the FLSA, specifically noting that "[a]ny waiver that might be encom passed by the cited language could reach only wages themselves and not other statutory rights such as liquidated damages or attorneys' fees." No particular "magic words" are necessary to constitute a valid release, but the court emphasized that the language in this case made no mention of the FLSA, waiving legal claims, or any additional damages to which employees may be entitled.

The FLSA also requires that any purported settlement be "supervised" by the DOL in order for it to be a valid waiver of FLSA claims. In ActionLink's case, the DOL conducted an investigation and worked with the company to determine the appropriate amount of back wages due to certain employees. However, the DOL did not approve the amounts of the checks actually issued to employees until a month after the checks were distributed, nor was it clear that the DOL investigator ever approved or authorized the specific waiver language included on the checks, but he certainly did not do so before the checks were distributed to employees. Although the Eighth Circuit expressly noted this additional restriction, because the language on the check stubs was insufficient as a matter of law to constitute a valid waiver by the employees, the court did not address the specific "role the DOL must play in communicating or authorizing release language" or consider whether there was sufficient DOL supervision under the circumstances involving ActionLink.

By Rebecca D. Stanglein, rstanglein@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment
litigation and counsels clients regarding everyday employment matters. 

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