Suppose that you are an employer who has been found to have violated the Fair Labor Standards Act (FLSA). In an attempt to curb future liability, you calculate the overtime owed to your employees who were mistakenly misclassified as exempt and print checks informing the employees that the amount of those checks represents “full payment . . . [for] wages earned, including minimum wage and overtime, up to the date of the check.” Can employees then turn around and sue you (again) under the FLSA?
According to the Eighth Circuit, at least, the answer is “yes.” In Adams v. ActionLink, LLC, the court considered precisely this scenario and “conclude[d] the release language on the checks was insufficient to notify employees of the consequences of cashing the checks[,]” such that even employees who cashed their checks did not waive FLSA claims. No. 13-3380 (8th Cir. Mar. 20, 2015).
Following an investigation by the Department of Labor (DOL), ActionLink, LLC, a marketing company that serves electronics and appliance manufacturers, was found to have misclassified a number of its “brand advocates” as exempt employees. The brand advocates were charged with visiting stores, training the employees on how a company’s electronics worked, and encouraging the sales staff to sell that company’s electronics to customers. Many of them worked 50-75 hours every week, but were paid only about $42,000 a year, and no overtime.
ActionLink then calculated the overtime these brand advocates should have received and issued checks. Critically, the checks were not reviewed by the DOL investigator prior to being given to the effected employees (although the investigator later reviewed the language). Each check informed the brand advocate, “By cashing this check, the employee to whom [sic] is made is agreeing that he or she has received full payment from Actinlink [sic] or [sic] wages earned, including minimum wage and overtime, up to the date of the check.” (At least one of the checks also included a personalized message passing along the company’s “Best wishes for a happy birthday.”)
When some of the brand advocates later claimed that, despite receiving the checks, they were still owed more under the FLSA, ActionLink claimed that the employees waived their claims by cashing the checks, pursuant to the printed language. Reversing the district court’s ruling in favor of the company, a three-judge panel of the Eighth Circuit concluded that the company should not have been granted summary judgment.
As the court noted, the FLSA does allow for employee waiver of claims, but “only if they agree to accept full payment of a settlement offered by their employer, they receive full payment of that settlement, and [unlike most other employment laws] the settlement was supervised by the Secretary of Labor” (if agreed to before commencing litigation) or approved by a district court (if agreed to after the start of litigation). See 29 U.S.C. § 216(c).
In an issue of first impression, the court held that an FLSA-compliant “agreement” must be separate from a check. In the court’s words, “[s]imply tendering a check and having the employee cash that check does not constitute an ‘agreement’ to waive claims.” Helpfully for employers, however, the existence of a valid, signed agreement proves a waiver of claims; it is not necessary that the employee actually cash the check, as long as he or she receives it.
At a minimum, as the Adams Court explained, employees must be “given notice of the rights that they are waiving” before an agreement will be upheld as valid. There are no “magic words” that are required, although case law has provided helpful guidance on the subject.
The DOL WH-58 “Receipt for Payment of Back Wages, Employment Benefits, or Other Compensation” form – which no longer appears on the DOL website – provided model language that has been approved by several courts. See Dent v. Cox Commcn’s Las Vegas, Inc., 502 F.3d 1141, 1146 (9th Cir. 2007); Niland v. Delta Recycling Corp., 377 F.3d 1244, 1248 (11th Cir. 2004); Walton v. United Consumers Club, Inc., 786 F.2d 303, 305-07 (7th Cir. 1986); Sneed v. Sneed’s Shipbuilding, Inc., 545 F.2d 537, 539-40 (5th Cir. 1977). That language states, in pertinent part:
Your acceptance of this payment of wages and other compensation due under the FLSA means that you have given up the right you have to bring suit on your own behalf for the payment of such unpaid minimum wages or unpaid overtime compensation for the period of time indicated above and an equal amount in liquidated damages, plus attorney’s fees and court costs under Section 16(b) of the FLSA. Generally, a 2-year statute of limitations applies to the recovery of back wages. Do not sign this receipt unless you have actually received this payment in the amount indicated above of the wages and other compensation due to you.
The important takeaways for employers are threefold. First, when resolving FLSA disputes, remember that a standalone check will not be sufficient; there must be a separate (though short) agreement issued to each affected employee, signed by employee and employer. Second, the agreement itself should inform the employee of the rights he or she is agreeing to waive. Third, until the Secretary of Labor (before litigation) or a court (after the start of litigation) approves the agreement, an employer risks the “insult to injury” situation of paying wages owed to employees without getting any corresponding assurance that it no longer faces FLSA exposure.