By: David S. Levine

Seasoned human resources professionals understand that employers typically cannot obtain a valid waiver for non-payment of wages owed to an employee. As discussed below, there may be a different tool in the toolkit that can reduce such risks.

Class by Itself

In Illinois and across the country, employees separating from companies are sometimes offered compensation in exchange for signing a separation agreement. From the employer’s perspective, a key benefit of the separation agreement is what is known as the “release.” In a typical release, the employee will waive discrimination and other potential claims that the employee may have against the company. Through the separation agreement, the employee can thus receive some compensation, and the employer can receive some assurance that it will not face a lawsuit from the employee going forward.

This otherwise straightforward exchange, however, has some complications in one frequently litigated area: wage claims.  As described below, some courts have held that employees cannot privately—i.e., without the approval of a court or the Department of Labor—release their wage claims. By contrast, courts in Illinois and elsewhere have upheld provisions that significantly reduce the incentive for plaintiff’s lawyers to bring such claims. These provisions—called class and collective action waivers—are important potential tools for reducing the incidence of wage claims by former employees. As discussed below, class action waivers can be effective in reducing employers’ exposure to wage and hour claims, as illustrated by a recent case from southern Illinois.

Signed, Sealed, but Subject to Scrutiny

In the United States, the general rule is that parties are free to contract as they see fit. So if, for example, an employee signs a contract waiving his or her right to bring a discrimination suit against a former employer, a court will ordinarily enforce the agreement absent some other defect with the contract.

Wage claims can be one important exception to this general rule. Specifically, given particular language in the federal law at issue—the Fair Labor Standards Act (“FLSA”)—and U.S. Supreme Court decisions interpreting the law, many courts have declined to enforce private agreements purportedly waiving an employee’s right to bring a claim for unpaid minimum wages or overtime under federal law. Courts in states such as Illinois and elsewhere follow the same rule for their analogous state wage-and-hour laws.

The Waive of the Future

Although under certain circumstances a court may not enforce a waiver of an individual wage claim, courts in Illinois and elsewhere will ordinarily enforce provisions barring employees from bringing wage claims as class or collective actions (hereinafter “class actions”). Courts have reasoned as follows: Although an employee may not be able to waive the substantive right to minimum wages and overtime, an employee may waive the procedural right to bring a class action.

To understand this distinction—and why these class action waivers can be so powerful—it helps to understand why wage claims are often brought as class actions. In a typical class action for unpaid wages, an employee will claim that he or she is owed overtime for past work and seek to represent a class of similarly situated employees. For the particular former employee, whether or not his or her claim is brought as a class action may matter little. The former employee is owed what he or she is allegedly owed—and the employee may not care whether colleagues join the lawsuit.

For a plaintiff’s lawyer, however, the individual versus class distinction may mean everything. Plaintiff’s lawyers can sometimes receive up to 40% of any recovery—which may amount to little for an individual claim but can result in millions of dollars for a class action involving hundreds or thousands of employees. Accordingly, if a plaintiff’s lawyer sees that a potential client has waived his or right to bring a class action, the plaintiff’s lawyer may decline to represent the individual. And if the plaintiff’s lawyer brings a wage claim despite the class action waiver, the value of the case will likely be significantly less as a result of the waiver.

The recent Greenhill v. RV World, LLC, 2024 WL 1345655 (S.D. Ill. Mar. 29, 2024), illustrates this principle. In that case, the plaintiff brought a putative class action seeking purported unpaid overtime under the federal Fair Labor Standards Act, the Illinois Minimum Wage Law, and the Illinois Wage Payment and Collection Act. In response, the defendant invoked the class action waiver that the plaintiff had signed to argue that the plaintiff could not represent a class. The Court agreed. It was “unpersuaded by Plaintiff’s argument that the FLSA precludes the Agreement’s class action waiver,” the Court wrote, because the plaintiff’s “inability to proceed collectively” does not deprive him of the “substantive rights available under the FLSA” or Illinois law. The Court thus enforced the waiver barring the plaintiff from representing a class, resulting in a substantial reduction in the value of the case.

Waiver Wonderland

Given the above, employers in Illinois and across the country should consider the following in connection with their employment and severance agreements:

• A company’s standard separation agreement should likely include a class action waiver. The waiver should bar the employee from leading or joining a class or collective action related to his or employment with the company. The provision can also include repercussions for violating the restriction.
• Because courts in at least one jurisdiction have declined to enforce class action waivers where the agreement at issue did not also include an arbitration clause, employers should consult with their counsel regarding potentially adding an arbitration clause to the separation agreements. There are advantages and disadvantages to such clauses.
• Even though a court may not enforce a waiver of an individual wage claim, a separation agreement can include a representation by the employee that he or she was accurately paid for all time worked, including overtime. This representation would not bar a future claim, but it could deter later litigation or be used as evidence in such litigation.
• Although the focus of this article has been separation agreements, employers can also include class action waivers as part of onboarding or other documents. As with arbitration provisions, there are advantages and disadvantages to including such clauses as part of the onboarding process.

About the Author

David S. Levine

David Levine is an associate in the Firm’s Employment Law and Litigation Groups. David’s practice focuses on representing clients in a wide range of labor and employment matters, as well as other business disputes. As part of his litigation practice, David regularly defends employers in class, collective, and individual actions involving claims under the FLSA, Title VII, ADA, and other federal and state statutes. David also often litigates individual and class actions involving data privacy issues, in particular cases under the Illinois Biometric Information Privacy Act (BIPA). He practices in state and federal courts and before administrative agencies such as the EEOC, DOL, and DOJ.

Read more here.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.