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Illinois Court: Wage & Hour Settlements During Class Certification Are Invalid

Posted on July 6th, 2010 by Tim Eavenson | No Comments »
Filed under: Wage & Hour | Print This Post

In a matter of first impression here in Illinois, the First District Court of Appeals has held that settlements and releases of wage-and-hour claims, obtained from individual employees while a petition for class certification is pending, are void as a matter of law (decision here).1

The Plaintiff had sought class certification in a wage-and-hour suit against her employer, Giordano’s Enterprises, over a $0.25-per-hour deduction used to cover employee meals.2 The Plaintiff wanted two separate classes certified – employees who were paid below minimum wage after the deduction, and employees who still received more than minimum wage after the deduction. The Defendant asked the court for additional time to respond, claiming they wanted to negotiate settlement.

During the court’s extension, the Defendant executed some 350 settlement and release agreements with individual employees. The settlements released the company from the wage claims in exchange for $10. When the Plaintiff learned of the releases, she moved the court to enjoin the Defendant from executing any additional settlements, and to void the already-obtained agreements as against public policy. The court granted the injunction, and certified the question of the settlements’ validity for interlocutory appeal.3

On appeal, the court noted that the Wage Payment Act itself states that payment of minimum wage is a matter of public policy, and that any contract that results in less-than-minimum wages is void. The Act also requires employers to pay employees all wages not in dispute, and that acceptance of a paycheck can’t be tied to release of wage claims. Thus, the Act itself prohibited the settlements signed by any member of the putative “below-minimum” class.

As to the other class – those who still received more than minimum wage after the $0.25 deduction – the court looked to Federal courts’ interpretation of the FLSA4 for guidance. Though there are exceptions, the court noted a steady line of cases prohibiting private settlements of wage claims. The reasoning was transferrable to Illinois – the legislature’s determination of a public right to minimum wage payment meant that the right cannot be waived.

Finally, and most importantly, the court held that all the settlements were void because the Plaintiff had already petitioned for class certification. Illinois courts have long held that, where a class hasn’t been certified yet, the Defendant can execute settlements with individuals who would eventually be members of the class. However, no court in the state had ever dealt with settlements executed while a petition for class certification was pending. The court of appeals held that a trial court has a duty to protect the interests of a putative class, and the legitimacy of the judicial process, and that this duty was affected by the Defendant’s attempts to settle with members of the class. As a result, the court of appeals held that any releases signed by members of a putative class while a petition for certification is pending are void as a matter of law.

It will be interesting to see how the Defendant’s specific actions in this case – asking the trial court for an extension so it could “negotiate settlement”, not notifying either the Plaintiff or the court of its intentions, offering a blanket sum of $10 rather than negotiating individual claims, etc. – affect the trajectory of this decision’s precedent. Future courts could limit the holding to circumstances where the defendant tried to deceptively execute releases, or it could stand on the holding as it reads – that any release executed while a motion for class certification is pending is outright void.

Either way, for now the message is clear: In Illinois, everything changes when that petition to certify is filed.

~~ Footnotes ~~

  1. This opinion was released in December ’09, when I was not blogging as much. I haven’t seen it reported anywhere, though, and it’s an important issue for employers facing wage and hour class actions in Illinois. |↩|
  2. The Plaintiff is arguing that the deduction is generating a profit for the restaurant, which is a violation of the Illinois Wage Payment and Collection Act – 820 ILCS 105/1 et seq. |↩|
  3. An interlocutory appeal is basically an appeal taken during litigation at the trial court. |↩|
  4. the Fair Labor Standards Act |↩|

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