When is a release not a release? Non-waivable employment claims.
While you should never sign a general release and then sue, courts have upheld an employee's right to do just that with FLSA, FMLA and certain California wage claims. Even these courts, however, enforce releases in settlement of bona fide disputes. In general, assume what you sign is enforceable!
Releases of FLSA and FMLA claimsThe FLSA permits an employee to waive wage related rights only through one of two specific methods. First, the Secretary of Labor is authorized to supervise payment to employees of unpaid wages owed to them. An employee who accepts a settlement supervised by the Secretary of Labor thereby waives his or her right to bring suit for both the unpaid wages and for liquidated damages. The only other permissible route for "settlements" of an employee's wage claims is through a court-approved stipulated judgment obtained after the employer and employee present a proposed settlement and the court scrutinizes the agreement for fairness. Attempts to waive employees' FLSA claims outside of these statutory methods have failed. For example, in Brooklyn Savings Bank v. O'Neill, 324 U.S. 697 (1945), the Supreme Court invalidated a waiver signed by two employees which exchanged their FLSA rights for stipulated sums due for unpaid overtime wages. When the employees proceeded to bring actions against their employers for liquidated damages and attorneys' fees pursuant to the FLSA, the employers argued that the signed waivers barred adjudication on the employees' FLSA claims. The Court rejected the waiver's provisions, stating that waivers of private rights guaranteed by FLSA contradicted public policy and were void. In D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946), the Supreme Court again held that the FLSA precluded a settlement between an employer and employee that released the employer from FLSA enforcement actions. In Schulte, upon threat of suit by employees for unpaid overtime compensation, the employer paid the overtime compensation and obtained a release under seal signed by the employees releasing the employer from all FLSA obligations. In barring the waiver from being used to dismiss the employees' subsequent FLSA claim, the Court held that, "the remedy of liquidated damages cannot be bargained away by bona fide settlements of disputes over coverage." Schulte, 328 U.S. at 114. The Court affirmed that such waivers frustrate the public purposes of the FLSA, as the Act provides damages that are both compensatory and an aid to enforcement. Such historic precedents guide judicial enforcement of the Family and Medical Leave Act. In 2005, in the case of Taylor v. Progress Energy, 415 F.3d 364 (4th Cir. 2005), the United States Court of Appeals for the Fourth Circuit similarly held that an employee cannot waive rights to bring an enforcement action under the "FMLA" without the approval of a court or the Department of Labor. In doing so, the Taylor Court explained that Congress intended the FMLA to mirror the FLSA enforcement scheme. The FMLA itself does not contain any reference to the settlement or waiver of claims, but the Department of Labor's regulations provide that employees cannot waive, nor may employers induce employees to waive, their rights under the statute. Accordingly, the Taylor Court held that rights guaranteed by the FLMA cannot be waived by private agreement between employer and employee, unless the settlement is supervised by the Department of Labor or a court.
Releases of FLSA (and FMLA) claims valid when they are in settlement of a "bona fide dispute"In Martinez v. Bohls Bearing Equipment Co., 361 F. Supp. 2d 608 (W.D. Tex. 2005), the plaintiff had signed an agreement accepting "full payment" for unpaid overtime and releasing the employer from further claims. After Martinez subsequently brought an FLSA claim, the employer moved for summary judgment based on the settlement and release. After a detailed analysis of the FLSA and Supreme Court precedent, the Martinez court broke from the majority of courts and determined that private settlements without court approval may be enforceable in some circumstances: "[P]arties may reach private compromises as to FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due. A release of a party's rights under the FLSA is enforceable under such circumstances." The Fifth Circuit become the second court of appeals to directly address court approval of FLSA settlements when it approved of the Martinez court's reasoning in Martin v. Spring Break '83 Productions, L.L.C., 688 F.3d 247 (5th Cir. 2012). Martin involved the FLSA claims of unionized film employees of Spring Break Louisiana. When the employees filed a wage grievance, the union sent a representative to investigate the claims. The representative concluded it would be impossible to determine if the plaintiffs worked on the days they claimed, after which, the union and employer entered into a settlement agreement pertaining to the disputed hours. The district court below had relied on and adopted the Martinez holding, so the Fifth Circuit also analyzed the Martinez case and approved of its rationale. Like the Martinez case, Martin involved a bona fide dispute over the number of unpaid hours worked and the Fifth Circuit held that a settlement agreement "is an enforceable resolution of those FLSA claims predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights themselves." Id. at 255. The Martin court distinguished Lynn's Food on the facts, highlighting how, in contrast to the Lynn's Food plaintiffs, the film workers in Martin had the benefit of legal counsel, knew about their FLSA rights, and the agreement was not outside the context of a lawsuit because the workers had filed a complaint four months before the settlement. Id. at 256 n.10. Like the Martinez case, the only inquiry was whether there was a bona fide dispute over hours or wages and, finding such a dispute, the court upheld the agreement as enforceable.
Release of California wage claimsSee Chindarah v. Pick Up Stix, Inc., 171 Cal. App. 4th 796 (2009) and Watkins v. Wachovia Corp., 172 Cal. App. 4th 1576, which state that private parties can release California wage and hour claims where there is a bona fide dispute, but did so in the face of arguments that the release violated Labor Code Section 206's proscription against conditioning payment of wages due on a release. These decisions did not address the situation in which neither party even recognized a wage and hour issue in connection with a release (i.e., employer obtains release in connection with severance agreement as a matter of course, or to avoid an anticipated sexual harassment or other non-wage claim). Nevertheless, the reasoning of the decisions would seem to uphold such releases, since in that instance the release was not a condition of receiving wages due. Open question if the release would be valid if the employer believed that there was an issue but the employee was unaware of it.