Category: Compliance

When you settle a lawsuit with an employee, you are bargaining for finality. You are paying that employee to resolve all disputes between you, whether asserted or unasserted. You want to be done with that individual forever.

Except that is not always the case.

An employer cannot release or otherwise waive one’s FLSA rights by contract without a court-approved stipulation or settlement, or a DOL-supervised settlement. Which is why, in Nasrallah v. Lakefront Lines, an Ohio federal court recently permitted a plaintiff to continue with her FLSA lawsuit for unpaid overtime despite her signing a general release and waiver in a prior discrimination case.

When Tamara Nasrallah settled her discrimination claim, she and Lakefront Lines signed a settlement agreement, under which Lakefront paid her $40,000, and for which she agreed to a general release “of and from any claims … and expenses (including attorneys’ fees and costs) of any nature whatsoever, whether known or unknown, against [Lakefront] which Nasrallah ever had, now has or asserts or which she … shall or may have or may assert, for any reason whatsoever from the beginning of the world to the date hereof.” The release is “unrestricted in any way by the nature of the claim including, … all matters which were asserted or could have been asserted in the Charge, including, but not limited to, matters arising out of Nasrallah’s employment with the company, and any other state or federal statutory … claims, including, … all statutory claims under federal [and] state laws regulating employment, including …the Fair Labor Standards Act [and] any and all Ohio Wage and Hour Laws.”

I signed the Settlement Agreement based on my understanding it was unlawful to compromise my overtime claims without Department of Labor or court approval in any manner and that any attempt to do so—including by any “representations” made therein—was legally null and void. Thus, when I entered the Settlement Agreement and made the “representations” therein, I believed my representations about being paid in full and being owed no wages were ONLY representation for purposes of my non-overtime claims (e.g., contract claims for claims for discriminatory pay).

According to Lakefront, a private settlement agreement can preclude a future FLSA claim as long as the underlying dispute did not involve a FLSA dispute. In other words, the only time an employee can waive a FLSA claim is when there is no bona fide dispute over hours worked, and therefore, likely no discussion or negotiation over compensation due. This is precisely the opposite of what the case law holds. … [S]uch a situation clearly implicates Congress’s concerns about unequal bargaining power between an employer and employee and undermines FLSA’s goals. Rather, … even the most liberal interpretation of the ability to privately compromise FLSA claims only allows such compromises when they are reached due to a bona fide FLSA dispute over hours worked or compensation owed. … [T]he prior dispute between the parties did not involve the FLSA and there is no evidence that the parties ever discussed overtime compensation or the FLSA in their settlement negotiations. Thus, while the Settlement Agreement contains a general statement that Nasrallah was paid for all hours worked, there was no factual development of the number of unpaid overtime hours nor of compensation due for unpaid overtime.

You could file a lawsuit that simply asks the court to approve the settlement, but that seems likes overkill in almost all situations (even though it is the safest court of action under the strictest interpretation of the FLSA’s requirements for waivers).

The Equal Pay Act requires that an employer pay its male and female employees equal pay for equal work.

The jobs need not be identical, but they must be substantially equal, and substantial equality is measured by job content, not job titles. This act is a strict liability law, which means that intent does not matter. If a women is paid less than male for substantially similar work, then the law has been violated, regardless of the employer’s intent.

This strict liability, however, does not mean that pay disparities always equal liability. The EPA has several built-in defenses, including when the pay differential was “based on any other factor other than sex.” So, what happens if two comparable employees, one male and one female, come to you with different salary histories. Does the Equal Pay Act require that you gross up a lower earning female to match the salary of a higher paid male, or do the mere disparate prior salaries justify the pay disparity under the Equal Pay Act?

The plaintiff and the EEOC … argue that prior salary alone cannot be a factor other than sex because when an employer sets pay by considering only its employees’ prior salaries, it perpetuates existing pay disparities and thus undermines the purpose of the Equal Pay Act. …

[W]e do not see how the employer’s consideration of other factors would prevent the perpetuation of existing pay disparities if … prior salary is the only factor that causes the current disparity. For example, assume that a male and a female employee have the same education and number of years’ experience as each other, but the male employee was paid a higher prior salary than the female employee. The current employer sets salary by considering the employee’s education, years of experience, and prior salary. Using these factors, the employer gives both employees the same salary credit for their identical education and experience, but the employer pays the male employee a higher salary than the female employee because of his higher prior salary. In this example, it is prior salary alone that accounts for the pay differential, even though the employer also considered other factors when setting pay. If prior salary alone is responsible for the disparity, requiring an employer to consider factors in addition to prior salary cannot resolve the problem that the EEOC and the plaintiff have identified.

Before everyone rejoices, note that Rizo is contradictory to the law of the 6th Circuit (which covers Ohio employers)—Balmer v. HCA, Inc. (“Consideration of a new employee’s prior salary is allowed as long as the employer does not rely solely on prior salary to justify a pay disparity. If prior salary alone were a justification, the exception would swallow up the rule and inequality in pay among genders would be perpetuated”). Rizo is also contradictory to other circuits, such as the 10th and 11th. In fact, Rizo very much appears to be the minority view on this issue.

So what is an employer to do? Follow the law of your jurisdiction. In Ohio, that means that you cannot rely solely on an employee’s prior salary history to justify a pay disparity between similar male and female employees (although you can rely on prior salary plus other factors such as experience, skill, or training). It also means that we wait for the appeal of Rizo to the Supreme Court, and see if SCOTUS decides to take this case and provide some national clarity on this issue.

Jon Hyman is a partner at Meyers, Roman, Friedberg & Lewis in Cleveland. Comment below or email editors@workforce.com. Follow Hyman’s blog at Workforce.com/PracticalEmployer.

Writing at Inc.com, Suzanne Lucas (aka Evil HR Lady) reports on a study published by the Economics Policy Institute, which says that employers short their employees $15 billion in wages per year.

According to Suzanne, “Wage theft isn’t always the case of a corrupt boss attempting to take advantage of employees.” She is 100 percent correct. In fact, most instances of an employer not paying an employee all he or she is owed under the law results from our overly complex and anachronistic wage and hour laws, not a malicious skinflint of a boss intentionally stealing from workers.

This is as good a time as any to revisit a topic I haven’t addressed in a few years — ”wage theft” (or, as I call it, a term coined by the plaintiffs’ bar and the media recast employers as the arch nemesis of the American wage earner).

Here is what I wrote on this issue three-plus years ago:

I have a huge problem with the term “wage theft.” It suggests an intentional taking of wages by an employer. Are there employees are who paid less than the wage to which the law entitles them? Absolutely. Is this underpayment the result of some greedy robber baron twirling his handlebar mustache with one hand while lining his pockets with the sweat, tears, and dollars of his worker with the other? Absolutely not.

If you are a private employer, it is 100 percent illegal for you to provide employees comp time in lieu of overtime for hours worked by non-exempt employees over 40 hours in a work week. If a non-exempt employee works overtime, you must pay them overtime, and you violate the FLSA if you provide comp time in its place.

The Working Families Flexibility Act introduced earlier this year in Congress, seeks to change this rule.

If enacted, the bill would enable employees to earn compensatory time off at a rate not less than one and one-half hours for each hour of employment for which overtime compensation would otherwise be required. It also:

• Caps the amount of comp time an employee may accrue at any given time at 160 hours.
• Requires that employers annually pay out any unused comp time.
• With 30 days’ notice, permits employers to pay out any unused comp time in excess of 80 hours.
• Provided for payment of unused comp time upon termination of employment for any reason.
• Prohibits retaliation.
• Gives employers the flexibility to schedule requested time off within a reasonable amount of time after it is requests, such that operations are not disrupted.