NEW PRECEDENT UPHOLDS VALIDITY OF WAGE CLAIM SETTLEMENTS

Section 206.5 of the Labor Code, enacted in 1959, prohibits employers from requiring that their employees sign a release of claims in order to receive wages due. But what happens when the employer and employee disagree about the amount of wages due, or disagree about whether any wages are due at all? Under section 206.5, are releases void whenever they resolve a wage dispute in which wages, although disputed, could later be found owed to those signing the release? In Chindarah v. Pick Up Stix, Inc., 171 Cal. App. 4th 796 (2009), a California Court of Appeals upheld the validity of releases where the employer proved it had a good faith dispute that any wages were owed to those who had signed the releases. Because of Chindarah, employers can take comfort in knowing that wage claim releases will be enforced when the employer can prove it has a good faith dispute that any wages are owed. However, when employers know that some wages are due (i.e., when employers cannot dispute in good faith that at least some portion of the requested wages are due), they should be sure to pay the undisputed amount before seeking to settle claims for the disputed amount. Section 206.5 could still be interpreted as forbidding any release covering both disputed and undisputed wages. Employers should also bear in mind, when settling wages claims, that settlements of claims under the federal Fair Labor Standards Act still must be approved by a court or the U.S. Department of Labor.