Obtaining a full release of claims from an employee who claims that he or she was not properly paid wages is complicated by California Labor Code § 206.5, which prohibits conditioning a release for wages that are undisputedly owed. However, in Chindarah v. Pick Up Stix, Inc., a California court of appeal confirmed that an employee may release a claim for unpaid wages where there is a bona fide dispute over whether any wages are owed.
In connection with a class action lawsuit for unpaid overtime based on alleged misclassification of workers as exempt from overtime, several of the defendant's current and former employees signed settlement agreements that included a release of claims for unpaid overtime and other Labor Code violations. The settling plaintiffs later attempted to revive their claims, alleging that the releases were void under Labor Code § 206.5 because a court or jury might ultimately conclude that overtime wages are owed (in short, they argued that any settlement of an overtime dispute violates 206.5). The trial court disagreed, and determined that the releases were valid because the parties disagreed that wages were actually owed (i.e., there were bona fide disputes over whether any wages were due). The court of appeal affirmed.
The Chindarah ruling is in accord with several federal court decisions in California, and validates the ability of employers to seek releases of wage claims where the amount owed is in dispute (provided the employer gives consideration for the release).