Enforcing Releases of Mis-Classification Claims

California Labor Code Section 206.5 prohibits the enforcement of releases of claims for wages due, unless payment of those wages has been made. A simplistic way of thinking about this rule is to say that you can’t settle wage claims, i.e., an employer is never off the hook for paying an employee less than the wages that the employee is owed. But this section has also been held to prohibit employers from withholding compensation that is concededly due to an employee in order to obtain a settlement of additional, disputed amounts. InChindarah v. Pick Up Stix, Inc., No. G037190 (2/26/09), however, the Fourth District Court of Appeal upheld the validity of releases settling claims of alleged mis-classification, where there was presumably a dispute as to whether the employer owed any overtime wages at all.

The case involved a proposed class action to recover overtime wages on behalf of certain managers and lead cooks employed by Pick Up Stix, who had been classified, improperly according to the plaintiffs, as exempt employees. The settling employees signed a release acknowledging that they spent more than 50% of their time performing managerial duties, and agreed not to participate in any class action by the employees who did not settle. The appeal followed a summary adjudication in favor of the employer of its cross-complaint for breach of those releases, after a number of the settling employees went ahead and joined the proposed class action despite having signed these releases.

The Court of Appeal distinguished this situation from the settlement of claims in which the employer made payment of wages concededly due to the employee conditional on settlement of other claims. The court held that this rule did not bar enforceability of the settlements, since there was a bona fide dispute as to whether overtime wages were due at all.

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