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Enforceable Waivers of Minimum Wage and Overtime Claims Must Have Court or DOL Supervision

  • January 11, 2005

Employers attempting to incorporate a waiver of minimum wage and overtime claims as part of a settlement agreement must be mindful of a legal principle established by the U. S. Supreme Court in 1945. In Brooklyn Savings Bank v. O'Neill, 324 U.S. 697 (1945), the Court made clear that an employee cannot waive a minimum wage or overtime pay claim under the Fair Labor Standards Act unless the release is supervised by a court or by the U. S. Department of Labor.

To support its decision to disallow enforcement of a purported waiver of FLSA claims, the Court cited the legislative history of the FLSA and the congressional intent "to protect certain groups of the population from sub-standard wages and excessive hours … due to the unequal bargaining power as between employer and employee." The Court cited the statute's recognition of the need for "compulsory legislation to prevent private contracts … which endangered national health and efficiency and as a result the free movement of goods in interstate commerce." As the Court unequivocally stated, "No one can doubt but that to allow waiver of statutory wages by agreement would nullify the purposes of the Act." Brooklyn Savings Bank, 324 U.S. at 706-07.

Subsequent decisions have held that "private" settlement agreements addressing unpaid overtime or minimum wage claims also do not bar lawsuits seeking liquidated damages under the FLSA. In effect, an "unsupervised" settlement leaves the door open to subsequent FLSA claims.

This long-standing principle was reiterated and extended by a federal district court to encompass a state wage and hour law claim in O'Brien v. Encotech Constr. Serv. Inc., 183 F. Supp.2d 1047 (N.D. Ill. 2002). There, the court invalidated waiver agreements both under the Fair Labor Standards Act and Illinois law and permitted a class action to proceed. At first blush, the court had upheld the waiver under the Illinois Minimum Wage Law and the Illinois Wage Payment and Collect Act, since there was no evidence of fraud, duress, mutual mistake or unconscionability. However, upon reconsideration, the court reversed that ruling, finding that the public policy invalidating releases under the FLSA applied equally to the Illinois wage law claims.

Invalidating the releases, the district court judge found no anti-waiver provision similar to that in the federal FLSA in the Illinois law. However, the court stressed that in its attempted waiver agreement, the employer had made no effort to invoke the alternative dispute resolution and official supervision protections established by the federal law. On the contrary, the court pointed out the employer's release "denied liability and purports to offer 'some additional compensation' to enhance employees' job satisfaction. A private release in this context not only undermines the statutory goals involved but provides inadequate assurance that the practices giving rise to the dispute will be discontinued." O'Brien, 183 F. Supp.2d at 1050.

Accordingly, when seeking a waiver of potential claims under the FLSA, an employer must consider the statute's unique limitations upon settlement to obtain a binding release and waiver of claims. To discuss this and other wage and hour issues, please contact the Jackson Lewis attorney with whom you regularly work, or partners Paul J. Siegel or Richard I. Greenberg.

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