Labor & Employment Law

When Are Releases of Wage Claims Valid? -- Chindarah v. Pick Up Stix, Inc.

The California Labor Code contains a number of provisions that prohibit employees from waiving their rights to receive all wages due.  For example, Section 206.5 states that "an employer shall not require the execution of a release of  a claim or right on account of wages due . . . unless payment of those wages has been made."   Any release in violation of this requirement is declared "null and void."

It would plainly defeat the paternalistic objectives of the Labor Code if employees could simply contract away their entitlement to minimum wages, overtime, or other minimum protections.  For example, if an employer did not pay overtime but required its workers to sign a release in order to receive each bi-weekly paycheck, it is pretty clear the agreement would not be enforced. 

On the other hand, if a formal lawsuit or administrative claim has been filed, there would be no end to the dispute if the parties could not enter into a binding compromise.   Practitioners have always operated on the presumption that this type of settlement is enforceable.      

In between these two extremes, however, lies a vast gray area of factual scenarios in which a release of claims might, or might not be enforceable.   

The Fourth District Court of Appeal decision in Chindarah v. Pick Up Stix, Inc. casts some additional light on the analysis.   In Chindarah, the employer entered into individual settlement and release agreements with a number of employees who were also members of a putative class that was suing for unpaid overtime wages.    The lower court held that the releases were valid, and the Appellate Court affirmed.

In the process the Appellate Court seemingly created a new rule that Section 206.5 will not bar a release of wage claims so long as: (a) all wages that are "concededly"  due have already been paid; and (b) whether any additional wages are owed is the subject of a "bona fide dispute."  

As authority for this rule, the Court relied on a combination of dicta from cases that had rejected various release agreements as well as its conception of sound "public policy."   In practice, however, the holding may be problematic as an employer is essentially empowered to negate the protections of Section 206.5 by merely refusing to "concede" that anything is due.        

Full post as published by California Labor & Employment Defense Blog on March 01, 2009 (boomark / email).