Seyfarth Synopsis: The majority of courts have held that releases of FLSA rights require approval by a court or the US Department of Labor. A recent case in the Southern District of New York highlights a dilemma employers face when seeking “finality” through DOL-approved settlements.

In Wai Hung Chan v. A Taste of Mao, Inc., five employees asserted FLSA claims for unpaid minimum wage and overtime. Before the lawsuit was filed, the employer agreed with the DOL to pay back wages of $38,883.80 to 19 of its employees, including four of the five plaintiffs in the lawsuit. During negotiations on that agreement, the DOL confirmed that it had the authority to represent and resolve all of the employees’ claims, and it subsequently mailed WH-60 forms notifying them of the settlement and their right to a share of it. Meanwhile, the employer transmitted the settlement funds to the DOL for distribution to the employees.

The five Chan Plaintiffs did not sign the WH-60 forms and instead commenced the lawsuit, seeking back pay for a period exceeding that covered by the DOL settlement. The employer sought summary judgment on grounds that the DOL still possessed the settlement funds that it remitted on behalf of the plaintiffs, even though they did not sign the WH-60 forms.

District Judge William H. Pauley, III rejected the employer’s argument that the plaintiffs “constructively accepted the funds when the DOL, as their authorized representative, took possession of such funds.” He held that the plaintiffs’ refusal to sign the WH-60 forms was “tantamount to a rejection” of the settlement offer, invoking a presumption that “employees do not have to take the settlement unless they specifically opt into it.” The court held that the employer expressly acknowledged this possibility as part of its settlement with the DOL by agreeing that any unclaimed funds would be disbursed to the U.S. Treasury.

Judge Pauley also rejected the employer’s argument that the plaintiffs should be bound to the agreement on grounds that “employers who in good faith strive to settle claims should be afforded the benefit of knowing that they will not face liability in the future.” Although he was sympathetic to the employer’s predicament, he stated that “it is Congress – not this Court – which must force a solution to that quandary…even if it means compelling an outcome that forces [the employer] to address the same allegations it believed were resolved through the DOL Settlement.”

The Chan decision highlights yet another potential hurdle to complete and binding settlements of employee wage claims. In the Second Circuit and elsewhere, releases of FLSA rights require approval, and agreements submitted for judicial approval are subjected to close scrutiny that is difficult to bypass. In light of Chan, DOL approval doesn’t make the process any easier. The circumstances described in Chan demonstrate that employers may not be able to obtain true finality in such settlements and may still face the risk of subsequent litigation.