Employment Law Daily Restaurant settlement with DOL didn’t bar suit by workers who didn’t sign WH-60 form
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Tuesday, July 18, 2017

Restaurant settlement with DOL didn’t bar suit by workers who didn’t sign WH-60 form

By Lorene D. Park, J.D.

Despite the Department of Labor’s reassurance to a restaurant employer that it had the authority to settle minimum wage and overtime claims on behalf of 19 employees, a subset of those employees (and one additional plaintiff) was not precluded from subsequently filing suit under the FLSA, ruled a federal district court in New York. None of the plaintiffs in this case had signed the agency’s WH-60 forms, which accepted the settlement and contained a waiver clause, so none had waived the claims they now asserted (Chan v. A Taste of Mao, Inc. dba Szechuan Palace, July 12, 2017, Pauley, W., III).

DOL confirmed authority to settle FLSA claims. This FLSA suit arose from a Manhattan restaurant’s alleged refusal to pay employees minimum wage and overtime. In January 2016, the restaurant entered into a settlement supervised by the DOL to resolve FLSA-related liabilities. The DOL’s investigation, which covered August 2013 through August 2015, found that 19 employees were entitled to back wages of $38,883. The restaurant agreed to settle the matter by paying the DOL $48,641. The restaurant asked the DOL to assure that it “had the authority” to represent all 19 employees. The DOL confirmed that it had authority to resolve the claims and the settlement was finalized.

Employees sue despite notices of settlement. In July 2016, the DOL mailed WH-60 forms to each employee, notifying them of the settlement and their right to a share of it. To receive payment, employees were required to sign a WH-60 form and return an executed copy to the DOL. Despite the DOL settlement, five former employees sued the restaurant seeking damages for FLSA violations exceeding the period covered by the DOL settlement; four of the employees were covered by the DOL settlement.

Did employees waive claims? Moving for summary judgment, the restaurant argued that the DOL settlement barred the suit even though the employees did not sign the WH-60 forms. It asserted that “the funds are still constructively in Plaintiffs’ possession” because the DOL, as their agent, did not return any of the settlement monies. Thus, according to the restaurant, they had waived their right to sue. The employees responded that their decision to not sign the WH-60 form constituted an unequivocal rejection of the DOL settlement and preserved their right to sue. They also claimed the settlement was insufficient compared to the relief sought here, because one plaintiff was not covered by the settlement and the suit expanded the time period for which FLSA damages were sought.

Denying summary judgment, the court explained that under FLSA Section 216, the Secretary of Labor is authorized to supervise payment of unpaid minimum wages or overtime owing to any employee under Sections 206 or 207, and “the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have” to such unpaid wages or overtime and liquidated damages. Thus, waiver requires: (1) that the employee agree to accept payment which the Secretary determines to be due; and (2) that there be payment in full. Both elements must be satisfied.

Plaintiffs didn’t sign, so they didn’t waive claims. Here, each of the WH-60 forms contained a clear waiver clause, but the plaintiffs didn’t sign. The court therefore held that none could be deemed to have accepted the DOL settlement. The restaurant’s argument that the employee’s constructively accepted the money when their authorized agent took possession ignored the fact that the sole mechanism for accepting payment—signing and returning WH-60 forms—was not done here. Consequently, there was no waiver.

The court noted that even though the employees did not expressly reject the settlement, the fact that they didn’t sign the WH-60 form was tantamount to rejection for two reasons. First, the form did not provide the option of expressly rejecting payment. Second, the FLSA contemplates a scenario in which an employee declines a DOL-supervised settlement, stating that funds recovered on behalf of an employee but not paid within three years are to be turned over to the U.S. Treasury as “miscellaneous receipts.” That provision was also reflected in the settlement here. The parties agreed that “[i]n the event that any employees cannot be located, or refuse to accept the back wages, the employer agrees after three years, any monies which have not been distributed because of inability to locate the proper persons or because of their refusal to accept payment” shall be disbursed to the Treasury. That accounted for the possibility that an employee would preserve the right to prosecute his claims and imposed on the employer the risk of loss from unexpended settlement funds.

Acknowledging the uncertainty raised by this risk of loss for employers, who may settle with the DOL and effectively forfeit the right to reclaim settlement funds rejected by an employee, the court noted that with only a “modest revision of Section 216, Congress could provide finality to the agreements that well-meaning employers enter” with the DOL. Until then, employers face the threat of liability if employees reject DOL settlements or do not respond to DOL notices.

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