When employees cash paychecks stamped “full payment,” are their OT claims waived?

I’ve gotta hand it to the company in this recent federal appellate court opinion. The company almost — soooooo close — avoided several claims for unpaid overtime.

Let me set the stage for you. So, there I was wearing nothing but feathers and a coy smile. Back in 2011, the U.S. Department of Labor began investigating a complaint that a marketing company had misclassified some employees and failed to pay overtime. During the DOL investigation, the company sent the employees checks for back wages. Each check bore the following note in fine print:

“full payment from Actinlink [sic] or [sic] wages earned, including minimum wage and overtime, up to the date of the check.”

A bunch of employees deposited these checks. So, the marketing company claimed that, voila, those employees had agreed to waive their right to any additional back pay.

A little primer on back pay waivers.

The Fair Labor Standards Act requires employers to pay minimum wage to all employees and overtime premiums to non-exempt employees. There are two ways for employees, like the ones in this case, to waive their rights to unpaid overtime under the FLSA:

  1. Before they sue, 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 Secretary of Labor.
  2. After commencing litigation, the parties agree on a settlement amount and the district court enters a stipulated judgment.

A note on a paycheck is not a waiver.

So, let’s see what we have here: While the DOL was investigating, the marketing company cut checks noting “full payment,” and many employees deposited them. But, the Eighth Circuit Court of Appeals held that these facts were not enough to support an FLSA waiver:

Simply tendering a check and having the employee cash that check does not constitute an “agreement” to waive claims; an agreement must exist independently of payment. Indeed, an employee may waive his rights to sue even if he does not cash a settlement check, provided that he signs a waiver of any legal claims and receives a valid check from the employer….The DOL investigated ActionLink and worked with ActionLink to determine the appropriate amount of back wages due to a number of brand advocates. But when ActionLink printed and distributed the checks, the DOL investigator was on vacation.

Plus, the appellate court concluded that fine-print note on the check did not “adequately notify employees of the rights they are waiving or even suggest that employees are waiving any statutory claim.”

Takeaway for employers.

Wage and hour claims can quickly morph into a big hot mess. And, as you can see, they can be tough to resolve too. S0, If it’s been a while since you’ve audited your pay practices, consider moving that up on your HR checklist.