Labor & Employment Law Daily Employee’s ‘illegal alien’ status did not nullify settlement of overtime claims
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Thursday, October 3, 2019

Employee’s ‘illegal alien’ status did not nullify settlement of overtime claims

By Marjorie Johnson, J.D.

The employer discovered that employee had provided a false social security number and argued that enforcement of the settlement would be tantamount to condoning violation of U.S. immigration laws, but “payment under the terms of the settlement to an undocumented worker neither condones nor continues a violation of immigration law.”

An employer could not avoid honoring its court-approved $25,000 settlement of an employee’s FLSA and state law claims for unpaid overtime based on the worker’s status as an undocumented immigrant. Declining to stay execution of the judgment and/or to set aside the judgment, a federal magistrate judge in New York stated that circuits have made clear that the Supreme Court’s 2002 decision in Hoffman Plastic Compounds, Inc. v. NLRB did not give employers “carte blanche to exploit undocumented workers by violating wage-and-hour laws with impunity” and that holding otherwise “would actually encourage employers to violate the IRCA by hiring undocumented workers whom they could pay less than the law permits” (Saavedra v. Mrs. Bloom’s Direct, Inc., September 27, 2019, Wang, O.).

Unpaid overtime. The employee worked as a flower cutter and delivery person at the defendants’ flower shops for about two years before bringing this lawsuit against corporate and individual defendants (collectively, “the employer”) alleging violations of the FLSA and New York Labor Law. Among other things, she alleged that throughout her tenure she worked from 50-70 hours per week but never received overtime pay.

Evidence of immigration status excluded. The employer subsequently learned from the Social Security Administration’s E-Verify system that the employee had provided a false social security card. However, after it indicated its intent to present such evidence at trial, the district court granted the employee’s motion to exclude evidence of her immigration status, Social Security filings, and tax information.

After settlement, employer refuses to pay “illegal alien.” On the first day of the bench trial, the parties reached a $25,000 settlement which was approved by the court. However, the employee subsequently notified the magistrate judge (to whom the case had now been reassigned), that the employer had refused to comply with the agreement. In response, the employer explained that it would not make any settlement payments until she provided a valid Social Security number because paying wages to an “illegal alien” would violate the law.

Court orders employer to pay. The magistrate subsequently granted the employee’s motion to enforce the settlement agreement. Rejecting the employer’s contention that her immigration status nullified the agreement, the court found that “the precedent in this Circuit is clear that the immigration status of a plaintiff-worker is irrelevant under the FLSA.” Furthermore, the agreement itself contained no provisions making the settlement payments contingent upon the employee providing her immigration and Social Security documents.

Violation of the IRCA didn’t nullify the settlement. The employer subsequently filed the instant motions to stay execution of the judgment and to set aside the judgment in the federal case. In particular, it argued that the employee’s violation of the Immigration Reform and Control Act (IRCA) preempted her ability to recover for any FLSA or NYLL claims. But this argument had already been rejected in the court order enforcing the settlement agreement, which stated that “payment under the terms of the settlement to an undocumented worker neither condones nor continues a violation of immigration law.”

Violation of IRCA? The employer relied upon the Supreme Court opinion in Hoffman Plastic Compounds, Inc. v. NLRB for the proposition that employees who use fraudulent employment papers should not be entitled to backpay as it would be seen as condoning violations of the ICRA. However, Hoffman stood for the more limited proposition that employees who violate IRCA should not be entitled to receive backpay when their employer violates the NLRA by terminating them. The Supreme Court specifically found that because the NLRA’s remedy is to award backpay for the time not worked and/or to reinstate employment, permitting relief under the NLRA would be granting the employee a windfall and requiring employers to violate the IRCA by rehiring, or maintaining, employment of undocumented workers.

In contrast, circuits have been clear that Hoffman “did not give employers carte blanche to exploit undocumented workers by violating wage-and-hour laws with impunity” and “[t]o hold otherwise would actually encourage employers to violate the IRCA by hiring undocumented workers whom they could pay less than the law permits.” Accordingly, the employee was entitled to enforce the settlement agreement despite the existence of any IRCA violation.

False testimony didn’t nullify settlement. The court also rejected the employer’s contention that the employee committed fraud by falsely testifying that she did not know two certain workers. Significantly, the employer voluntarily settled the case before the court could rule on the credibility of the employee’s testimony and/or claims. Moreover, the employer did not assert that the contents of the settlement agreement were misrepresented to them or that the settlement negotiations were made in bad faith.

Neither did receipt of some overtime pay. Defendants also argued that they previously paid the employee all owed overtime compensation, pointing to her testimony that she had clocked in under another employee’s name when working overtime hours and then received the overtime pay in cash from that employee when he was paid by defendants. But this argument, like the previous one, attempted to relitigate an already-settled case. Rather than rely on this defense or call this other employee to testify at trial, defendants made the strategic decision to enter into a settlement. Moreover, the employer provided no evidence that she was paid the full overtime wages owed.

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