SIXTH CIRCUIT: WAIVER OF RIGHT TO PARTICIPATE IN FLSA COLLECTIVE ACTION IN SEVERANCE AGREEMENT INVALID

It goes without saying that, when providing terminated employees with severance payments, it is advisable and desirable to obtain a signed separation agreement by which the employee releases the company from liability for any and all employment claims that the employee might have.  After all, it would be frustrating to provide an employee with severance payments, only to find out later that the employee used that money to fund his or her lawsuit against you! 

One complication arises when dealing with the Fair Labor Standards Act (FLSA), the federal statute which requires employers to (1) pay their employees at least the minimum wage and the (2) pay overtime compensation to non-exempt employees who work more than 40 hours in a particular work week.  Courts have consistently held that an employee cannot waive his/her rights under the FLSA in a separation agreement, and any language to that effect will be held invalid.  For that reason, most well-written separation agreements will contain language to the effect that the employee “hereby acknowledges that he/she had received from the employer all wages and compensation which he/she is owed or to which he/she is entitled by law as of his/her last pay period.” 

Even if an employee cannot waive all claims under the FLSA, could the separation agreement contain language limiting those rights?  As the U.S. Court of Appeals for the Sixth Circuit* recently held in Killion v. KeHe Distributors, LLC (July 30, 2014), the answer to that question is generally no. 

In a 2013 decision, the Sixth Circuit Appeals Court held that a provision contained in an employment contract which limited the time period within which an employee could bring an FLSA claim to 6 months was invalid.  Otherwise, the Court had held, “an employer could circumvent the Act’s requirements – and thus gain an advantage over its competitors – by having its employees waive their rights under the Act.” 

In the recent Killion case, the Court evaluated a separation agreement in which the employee had waived the right to participate in a collective action under the FLSA.  Relying upon its prior precedent in this area, the Court held that such a clause contained in a separation agreement would be invalid. 

The basic take-away from the Killion case is that an employer cannot limit an employee’s rights under the FLSA through language contained in an employment contract or separation agreement.  But how about an arbitration agreement, by which the employee agrees to bring any claims against the employer through arbitration (as opposed to litigation in court)?  Basically, the court distinguished arbitration agreements from employment/separation agreements, and for that reason, arbitration agreements may still contain class waivers.  Outside of the arbitration context, however, FLSA waivers (however limited or complete) will be deemed invalid.  

*  The Sixth Circuit is the federal appeals court for the states of Kentucky, Michigan, Ohio, and Tennessee.

If you have questions about this Employment Law Alert or wish to discuss the impact of this decision upon your business, please do not hesitate to contact Maury Nicely at Evans Harrison Hackett PLLC, 423/648-7851 or mnicely@ehhlaw.com.