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Court Rules Releases Obtained in Settlements of Disputed Overtime Claims are Valid

By: Stephen P. Wiman
03/10/09

In Chindarah v. Pick Up Stix, Inc. (2009) ___ Cal.App.4th ___ [(Cal. Ct.App., Feb. 26, 2009, No. G037190) 2009 Cal.App. Lexis 265], the California Court of Appeal held that a release of an employer as part of a settlement of a disputed employee overtime claim is valid and enforceable. The release does not violate section 205.6 of the Labor Code barring a release with respect to "wages due or to become due." In other words, section 206.5 precludes an employer from obtaining a release from an employee in return for payment of an amount of wages that is less than the sum concededly due. The section does not ban a release where there is a bona fide dispute as to the amount of wages due.

The plaintiffs in Chindarah had settled certain overtime claims against the defendant Pick Up Stix, Inc. In return for payment of specified sums, the plaintiffs released the defendant from liability for the disputed overtime claims. Infused with a dose of buyer's remorse, the plaintiffs sought to invalidate the releases and pursue the defendant for further amounts claimed for overtime compensation. They asserted that the releases were invalid under section 206.5 of the Labor Code which states:

"An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee. Violation of the provisions of this section by the employer is a misdemeanor."

The plaintiffs also relied upon section 1194 of the Labor Code barring any agreement under which an employee agrees to work for a minimum wage or overtime compensation that is less than what otherwise is required by law.

The superior court granted the defendant's motion for summary judgment which relied upon the releases obtained from the plaintiffs. On appeal, the Court of Appeal affirmed.

In its opinion, the Court of Appeal observed that the plaintiffs "claim any settlement of a dispute over overtime compensation runs afoul of sections 206.5 and 1194." The Court of Appeal rejected this assertion.

According to the court, neither section 206.5 nor section 1194 of the Labor Code prevents "a settlement of a bona fide dispute over wages already earned. The releases here settled a dispute over whether [the defendant] had violated wage and hour laws in the past; they did not purport to exonerate [the defendant] from future violations. Neither did the releases condition the payment of wages concededly due on their executions."

It should be noted that plaintiffs have the opportunity, should they choose, to petition the California Supreme Court to review this decision. A very small percentage of such petitions, even if made, lead to any review by the Supreme Court.

Comment: Where there is a bona fide dispute over payment of overtime wages, employers are free to settle that dispute and obtain a release as to the wages in dispute. They may do so without violating sections 206.5 and 1194 of the Labor Code. However, employers may not condition payment of wages admittedly due (or in other words, wages about which there is no bona fide dispute) upon execution of a release. This is the second significant case in the past twelve months involving employee releases. Last year, in Edwards v. Arthur Anderson LP, the California Supreme Court upheld an employee's release that released "any and all claims." The Supreme Court concluded that the phrase "any and all" in the release did not in fact release nonwaivable statutory rights. The release was thus not void. These two appellate decisions manifest the courts taking a practical approach to resolving employee-employer disputes.

Steve Wiman is a Partner in Nossaman's Los Angeles office who served as Chair of Nossaman's Litigation Department from 2004 to 2007. His complex litigation practice focuses on trade secrets, unfair competition, business torts and employment. He can be reached at 213.612.7818 or swiman@nossaman.com.

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