Overtime Claims and Severance Agreements – What You Should Know

When a worker leaves a company, either voluntarily or involuntarily, it is not uncommon for the employer to ask them to sign a severance agreement.  Such documents often contain a clause that releases “any and all claims” that the worker would have against the company.  These clauses are designed to shield the employer from any further liability and convince the worker that any legal action against the company would fail.  However, what many companies and workers do not know is that ‘release of all claims’ clauses typically do not release unpaid overtime claims, and workers with such claims are generally able to assert them even if they have signed a separation or severance agreement containing a broad release of their former employer.  

Under the Fair Labor Standards Act (“FLSA”), private settlements between parties of overtime claims are usually disallowed without the supervision of the Department of Labor or the Court. A case from the Fifth Circuit illustrates this rule.  In Bodle v. TXL Mortg. Corp., 788 F.3d 159, 165 (5th Cir. 2015), two workers were involved in a state court lawsuit against their former employer involving alleged violations of non-compete and non-solicitation clauses.  The case was settled, and the parties signed a settlement agreement.  This settlement agreement contained a broad general release of the company which stated the following:

In exchange for the consideration identified above, DEFENDANTS hereby fully and completely release and discharge TXL and its agents, representatives, attorneys, successors, and assigns from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature, whether known or unknown, including but not limited to all claims and causes of action that were or could have been asserted in the Lawsuit and all claims and causes of action related to or in any way arising from DEFENDANTS’ employment with TXL, whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute, or regulation. This is meant to be, and shall be construed as, a broad release.

The workers later sued the company for overtime pay under the FLSA, and the company asked the district court for summary judgment based on the release, which was granted.  

On appeal, the workers contended that the district court erred in extending Martin’s limited holding, stating that in Martin, the settlement was reached in response to the filing of a FLSA lawsuit, as opposed to the state court action concerting a non-compete agreement, as present here in Bodle.  Specifically, the plaintiffs in Bodle argued that because they did not receive any FLSA compensation for unpaid overtime in the state court settlement, the reasoning set out in Martin does not apply here.  

The Fifth Circuit held that FLSA claims were not released by the settlement agreement. In reaching its decision, the court stated that not only did the prior state court action not involve the FLSA, the parties never discussed overtime compensation or the FLSA in their settlement discussions.  As such, there was no factual development of the number of hours worked. The Court went on to say that “[t]o deem the plaintiffs as having fairly bargained away unmentioned overtime pay would subvert the purposes of the FLSA: namely, the protection of the right to overtime pay… Where overtime pay was never specifically negotiated, there is no guarantee that the plaintiffs have been or will be compensated for the overtime wages they are allegedly due under the [FLSA].” Id.

Accordingly, the Fifth Circuit held “that the absence of any mention or factual development of any claim of unpaid overtime compensation in the state court settlement negotiations precludes a finding that the release resulted from a bona fide dispute under Martin.  The general prohibition against FLSA waivers applies in this case, and the state court settlement release cannot be enforced against the plaintiffs’ FLSA claims.” Id.  Other courts in the Fifth Circuit have applied the reasoning of Bodle in cases involving severance agreements, refusing to find such agreements sufficient to releasee overtime claims.  See, e.g., Lopez v. Southern Arch, LLC, No. 15-6302, 2016 WL 3617671 (E.D. La. July 6, 2016).

It is important for workers who have signed separation, severance or settlement agreements to understand that they may still be able to assert overtime pay claims against their former employer.  If you believe you may have a claim for unpaid overtime, it is important to talk to an experienced overtime attorney who will guide you in the right direction.  Josh Borsellino is an experienced overtime attorney that understands the FLSA rules and regulations and works with employees to recover their rightful overtime pay. He offers free consultations and can be reached at 817.908.9861 or 432.242.7118. 

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