On March 20, 2015, in Beauford v. ActionLink, LLC, the Court of Appeals for the Eighth Circuit held that a valid FLSA settlement requires that employees receive written notice of the statutory rights they are waiving, that employees enter into a valid agreement waiving those rights and that the DOL supervise the settlement process. In a matter of first impression for the Eighth Circuit, the Court found that employees who were misclassified as exempt did not waive their right to sue for unpaid overtime merely because they cashed a settlement check from their employer. The language on the back of the check was also insufficient to constitute an agreement to waive their rights, as it did not mention the FLSA or address the legal claims and damages they were purportedly waiving by cashing their checks. (No. 13-3265, (8th Cir. Mar. 20, 2015).)

The employer, ActionLink, provides marketing services for electronics and appliance manufacturers. In late 2010, ActionLink hired a group of employees known as "brand advocates" to assist with a key marketing contract. Although the brand advocates were not responsible for making sales, ActionLink classified the brand advocates as exempt "outside salespersons," paying them an annual salary of approximately $42,000 with no incentive-based compensation. The brand advocates typically worked 50 to 75 hours per week and did not receive overtime pay.

In September 2011, the DOL received a complaint about ActionLink's exempt classification of the brand advocates. In December, the DOL investigator found that the brand advocates had been misclassified and coordinated with ActionLink to determine a plan for remedying ActionLink's failure to pay them overtime. ActionLink then reclassified the brand advocates as non-exempt, calculated the unpaid overtime pay for each brand advocate and sent them overtime checks..

ActionLink included the following fine print language on the check stub:

The DOL investigator did not approve the waiver language or the payment amounts before the checks were sent to the employees.

In January 2012, after ActionLink had sent the checks, the DOL investigator sent WH-56 Forms to ActionLink indicating the amounts that should have been paid to each employee. ActionLink signed the forms and sent the investigator copies of the checks that it had sent to the brand advocates.

In March 2012, some of the brand advocates sued ActionLink, claiming they had not received all pay due to them under the FLSA. Some brand advocates had cashed their checks while others had not. Both groups moved for partial summary judgment on the issue of whether they were misclassified as exempt. The district court granted the workers' motion for partial summary judgment, finding the brand advocates were non-exempt.

The district court also granted ActionLink's motion to dismiss the claims of the brand advocates who had cashed their checks, finding that the DOL had supervised the repayment process and the brand advocates who had cashed their checks had waived their rights to further remuneration. The check-cashing brand advocates appealed the district court's ruling, arguing that they had not waived their right to sue by cashing their checks. ActionLink appealed the district court's ruling that the brand advocates were non-exempt. The brand advocates who had not cashed their checks settled separately with ActionLink, and were not involved in the appeal.

The Eighth Circuit affirmed the district court's finding that the brand advocates were non-exempt. The court found that the brand advocates did not qualify for:

However, the Eighth Circuit reversed the district court's ruling on the issue of whether the check-cashing brand advocates had waived their right to sue. As a matter of first impression in the Eighth Circuit, the court held that:

Examining the language on the check stubs accompanying the checks, the court found that the language did not sufficiently notify the brand advocates of the rights they were giving up because it:

The court noted that although the DOL had been involved in the settlement process earlier, the DOL investigator was on vacation when ActionLink sent checks to the brand advocates. As a result, the DOL did not approve the settlement check amounts or review the language of the purported waiver on the check stubs before ActionLink sent them to the brand advocates.

The court found that whether brand advocates cashed their checks was not relevant to the analysis of whether a valid FLSA settlement was reached, and that employees could validly waive an FLSA without cashing a settlement check.

The Eighth Circuit's holding about the requirements for a valid FLSA settlement is consistent with decisions from the Fifth, Seventh and Ninth Circuits (see, for example, Dent v. Cox Commc'ns Las Vegas, Inc., 502 F.3d 1141 (9th Cir. 2007); Walton v. United Consumers Club, Inc., 786 F.2d 303 (7th Cir. 1986); Sneed v. Sneed's Shipbuilding, Inc., 545 F.2d 537 (5th Cir. 1977)).

The Eighth Circuit's decision in Beauford v. ActionLink, LLC illustrates the risks faced by employers handling an FLSA settlement on their own, without DOL supervision and approval. When faced with a DOL investigation or employee claim for unpaid overtime or misclassification, employers should coordinate and cooperate with the DOL throughout the investigation and settlement process, including:

Although employers are not required to use any specific forms, employers settling FLSA claims should use the DOL's WH-58 Form which contains waiver language that the DOL has approved for settlement of FLSA claims.