In Brooklyn Savings Bank v. O’Neill, 324 U.S. 697 (1945), the Court made clear that an employee cannot enter into a contract releasing minimum wage or overtime pay rights under the Fair Labor Standards Act unless the release is approved by a court or the Department of Labor. The case is important because it confirms that employers cannot require employees to sign private contracts that would waive their statutory rights to minimum wages or overtime pay, as such a contractual provision would be void.
Brooklyn Savings Bank owned and operated an office building, where O’Neill was employed as a night watchman. Due to the nature of his job, O’Neill was entitled to overtime compensation under Section 7 of the Fair Labor Standards Act, 29 U.S.C. § 207.
The Bank initially failed to pay O’Neill overtime wages at the time he earned them. However, over two years after O’Neill left, the Bank computed the overtime pay it owed him and offered O’Neill a check for the overtime wages — in exchange for a release of all of his rights under the FLSA. O’Neill signed the release and took the check. Since this payment did not include any payment for liquidated damages provided for in Section 16(b) of the FLSA, 29 U.S.C. § 216(b), O’Neill subsequently filed suit to recover the liquidated damages and attorney fees. The complaint was initially dismissed on the grounds that O’Neill by signing the release had released any claim for liquidated damages or attorney fees under the FLSA.
The Supreme Court took the case (and another similar case) to answer the question of whether an employee’s release of all claims and damages under the FLSA, given at the time he received payment of the overtime compensation owed to him, was a defense to an action subsequently brought solely to recover liquidated damages and attorney fees. 324 U.S. at 699-700.
The Court’s Decision
O’Neill presented a question about the interpretation of Section 16(b) of the FLSA. That section provides that an employer who violates the FLSA’s minimum wage or overtime pay provisions shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. 29 U.S.C. § 216(b). In relevant part, O’Neill addressed whether an employee covered by the FLSA can waive or release his right to receive from his employer liquidated damages under Section 16(b).
The Court determined that neither an employee or employer can waive or release the employee’s rights under the FLSA in the absence of court approval. It held that in the absence of a bona fide dispute between the parties as to liability, an employee’s written waiver of his right to liquidated damages under the FLSA does not bar a subsequent action to recover liquidated damages. 324 U.S. at 704.
The O’Neill Court did not reach the question of waivers where there was a bona fide dispute as to liability, though that question has been answered the same way by subsequent courts: a release of FLSA rights is not valid unless approved by a court or the Department of Labor. See, e.g., Lynn’s Food Stores, Inc. v. U.S. Department of Labor, 679 F.2d 1350 (11th Cir. 1982) (holding that dismissal with prejudice, pursuant to Federal Rule of Civil Procedure 41, of a pending FLSA lawsuit requires review and approval by either the DOL or a court.).
The Court reached this decision by reflecting on the Congressional purposes behind the FLSA:
The legislative history of the Fair Labor Standards Act shows an intent on the part of Congress to protect certain groups of the population from substandard wages and excessive hours which endangered the national health and well-being … The statute was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency … To accomplish this purpose standards of minimum wages and maximum hours were provided. Neither [party] suggests that the right to the basic statutory minimum wage could be waived by any employee subject to the Act. No one can doubt but that to allow waiver of statutory wages by agreement would nullify the purposes of the Act. We are of the opinion that the same policy considerations which forbid waiver of basic minimum and overtime wages under the Act also prohibit waiver of the employee’s right to liquidated damages.
The O’Neill Court’s decision made clear that neither an employer nor an employee has the authority to waive the FLSA statutory requirements for minimum wages and overtime compensation for hours worked in excess of 40 in any workweek. The Court observed that the policy considerations of Congress in enacting the FLSA “forbid waiver of basic minimum and overtime wages under the Act.” 324 U.S. at 707. The Court further explained that, “while in individual cases, hardship may result, the restriction will enure to the benefit of the general class of employees in whose interest the law was passed, and so to that of the community at large.” 324 U.S. at 713, quoting West Coast Hotel v. Parrish, 300 U.S. 379 (1937). See also D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 113 n.8, 116 (1946) (holding that “neither wages nor the damages for withholding them are capable of reduction by compromise of controversies over coverage. Such a compromise thwarts the public policy of minimum wages, promptly paid, embodied in the Wage-Hour Act, by reducing the sum selected by Congress as proper compensation for withholding wages.”)
In sum, O’Neill clarified that an employee cannot enter into a contract releasing minimum wage overtime pay, or liquidated damages rights under the FLSA unless the release is approved by a court (or the Department of Labor). The case is important because it confirms that employers cannot require employees to sign private contracts that would waive their statutory rights to minimum wages, overtime pay, or liquidated damages, as such a contractual provision would be void.
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