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Recently in Adams v. ActionLink, LLC, No. 13-3380 (8th Cir. Mar. 20, 2015), the United States Court of Appeals for the Eighth Circuit, which has jurisdiction over employers with employees in Arkansas, Iowa, Minnesota, Missouri, Nebraska, and the Dakotas, found that a disclaimer on a payroll check that the sum constituted “full payment” of “wages earned including minimum wage and overtime” did not provide proper notice to the employees or serve as a release of their rights. The Eighth Circuit specifically found that any waiver that might be encompassed by the cited language could reach only the wages themselves and not other statutory rights, such as liquidated damages or attorneys’ fees.

District Court Proceedings

The Department of Labor (“DOL”) began investigating a complaint in September 2011 that ActionLink, LLC (“ActionLink”), an Ohio company doing business in Arkansas, misclassified its brand advocates as exempt and failed to pay them overtime wages. During the DOL investigation, ActionLink agreed to reclassify the employees and pay back wages. Thereafter, ActionLink sent employees payments that included a disclaimer stating that the checks represented full payment of “wages earned, including minimum wage and overtimes, up to the date of the check.”

Two categories of employees, those who cashed the checks and those who did not, sued ActionLink alleging that they did not receive all the payments they had a right to receive under the Fair Labor Standards Act (“FLSA”). ActionLink argued that the employees who cashed the check were not entitled to additional payments because they waived their FLSA claims. The district court agreed with ActionLink and dismissed the claims.

Eighth Circuit Proceedings

On appeal, the employees argued that they were not bound by the settlement because, among other things, the checks did not include sufficient language informing them of the consequences of cashing the checks. The Eighth Circuit agreed with the employees, stating that although the issue of what constitutes a valid settlement is an issue of first impression in the Eighth Circuit, the Fifth, Seventh, and Ninth Circuits have held that employees cannot “agree to accept payment” unless they are given notice of the rights they are waiving. Citing to a Ninth Circuit case, the Eighth Circuit court noted “[s]imply tending a check and having the employee cash the check does not constitute an ‘agreement’ to waive claims; an agreement must exist independently of payment.”

As ActionLink’s disclaimer did not mention FLSA, the waiver of claims, or any additional damages to which employees may be entitled, it fell short of what is required for a valid release.

Employer Takeaway

While the Eighth Circuit declined to specify any “magic words” required to constitute a valid release language, the takeaway from this case is that employers should always have their employees sign a release that is separate and apart from the settlement check that, at a minimum, clearly informs the employee of the consequences of cashing the check, including exactly what rights the employees is waiving and any additional damages to which the employee may be entitled.

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