In Chindarah v. Pick Up Stix (Feb. 26, 2009) 171 Cal. App. 4th 796 and now, Watkins v. Wachovia Corporation, et al (Apr. 16, 2009) the Appellate Courts for the Second (Watkins) and Fourth (Chindarah) Appellate Districts approved employer settlement agreements with individual, putative class members, effectively ending class-action litigation that alleged employee misclassification and unpaid overtime as issues common to the class. The Courts concluded that California Labor Code § 206.5 only prohibits employers from coercing settlements by withholding wages concedely due, not settlements arising from bona fide disputes as to whether wages are actually owed.
California Labor Code § 206.5 states that ” 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 this section by the employer is a misdemeanor.”
However, the Appellate Courts in these cases concluded that a “bona-fide dispute” existed as to whether wages were actually “due.” Therefore, the signed releases were not “null and void” or a violation of California Labor Code § 206.5. Where a good-faith, bona fide dispute exists as to whether wages are owed, then wages are not considered “due.” Therefore, a settlement of these claims would not violate California Labor Code § 206.5, or California Labor Code § 1194, which is construed as an unwaivable, statutory right to receive overtime pay. Finally, the Chindarah Court refused Plaintiffs’ request to void these releases as a violation of the Federal Fair Labor Standards Act (FLSA). While such releases might be prohibited under the FLSA, the Appellate Court in Chindarah noted that there is no requirement to impose this Federal standard upon California’s wage and hour laws.
These decisions provide employers and defense counsel with an alternative means to end class action, wage and hour litigation via settlement with putative class members, with or without the consent or participation of class counsel or the Court and, without violating California law. This will be an approach that will be utilized in the future, as an effective means to destroy class action, wage and hour claims in California.