Walton v. United Consumers Club, Inc.

Citation786 F.2d 303
Decision Date07 April 1986
Docket Number85-2011,Nos. 84-2616,s. 84-2616
Parties27 Wage & Hour Cas. (BN 962, 20 Fed. R. Evid. Serv. 369 Trudy WALTON, et al., Plaintiffs-Appellees, v. UNITED CONSUMERS CLUB, INCORPORATED, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Mark L. Shapiro, Rudnick & Wolfe, Chicago, Ill., for defendant-appellant.

Timothy W. Woods, Jones, Obenchain, Ford, Pankow & Lewis, South Bend, Ind., for plaintiffs-appellees.

Before BAUER, FLAUM, and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

The United Consumers Club sells both memberships and merchandise. Those who purchase memberships then may buy the merchandise. The plaintiffs are six former sellers of memberships at United's store in Logansport, Indiana. According to plaintiffs' testimony, which the district court believed, most worked until 11:00 p.m. five or six days a week, plus occasional Sundays. United did not pay extra for this overtime work but instead treated the plaintiffs as independent contractors whose earnings depended on their sales. The district court held that the Fair Labor Standards Act, 29 U.S.C. Secs. 201-16, does not allow United's practice, and it awarded about $19,000 in back wages, which it doubled as liquidated damages under 29 U.S.C. Sec. 216(b). United no longer maintains that its salesmen were independent contractors.

I

The Department of Labor conducted an investigation of United's many stores and found that it was violating the Act. The Department and United negotiated a settlement under which United agreed to pay a total of $45,000 to some 200 employees. United would make out checks and send them to the Department, which would forward them to the employees. Section 3 of the settlement agreement states: "The USDOL ... accepts the aforementioned back-wages in full settlement of a disputed claim." Five of the six plaintiffs received checks under this settlement; all five cashed the checks. United insists that this bars these five plaintiffs' claims.

United's argument is based on Sec. 16(c) of the Act, 29 U.S.C. Sec. 216(c), which provides: "The Secretary [of Labor] is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee ... and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have" to additional recovery. According to United, as soon as the five plaintiffs cashed the checks they accepted the payment, which extinguished any right to bring a separate suit. The plaintiffs reply that the sums under the settlement were not "payment in full" of the back wages, as the statute requires. For example, plaintiff Jan Thomas, who received $6,000 (doubled to $12,000) in this suit, accepted $639.30 from United as part of the settlement. This argument rests on a misreading of "payment in full," however. Section 16(c) requires "payment in full" of the agreed amount, not of the underlying claim. The statute is concerned with settlements, and a settlement is a compromise--the employee surrenders his opportunity to get 100 cents on the dollar, in exchange for a smaller payment with certainty. On the plaintiffs' argument, no settlement could bar a suit; an employee always could sue for more on the ground that he had not yet been paid "in full" as he conceived his maximum claim. That cannot be right.

The more difficult question is whether the plaintiffs "agreed" to accept the money, which under Sec. 16(c) is one condition for the preclusion of litigation. United insists that the "agreement" may be found in accepting and cashing the check. Indeed, so powerful is the statute, United insists, that there could be no litigation if any plaintiff had accepted the check and then returned it uncashed, as the court held in Sneed v. Sneed's Shipbuilding, Inc., 545 F.2d 537 (5th Cir.1977). Yet in Sneed there was an "agreement". The employee signed a statement surrendering his right to sue, and he argued only that he could undo this signature by returning the employer's money; the court held that he could not. Our problem is determining whether there has ever been an "agreement."

United treats "agreement" as any act by which an employee accepts money. The difficulty with this construction is that it removes "agreement" from Sec. 16(c), treating the statute as if "payment in full" were itself sufficient to abrogate the employee's right to sue. There would be no role for "agreement" independent of payment. We do not readily excise words from statutes, and we do not excise them at all unless the legislative history or the other tools for finding meaning indicate that Congress meant the redundancy. The legislative history of Sec. 16(c) indicates no such thing.

The provision was part of the Fair Labor Standards Amendments of 1949. There was no House report on this bill, and the Senate's report, S.Rep. No. 640, 81st Cong., 1st Sess. (1949), reprinted in 1949 U.S.Code Cong. & Adm.News 2241, 2247, describes the new language this way:

Section 16 is amended by the bill by adding to it a new subsection (c) under which the Wage and Hour Administrator would have authority to supervise the payment of the unpaid minimum wages and the unpaid overtime compensation due an employee under the act. This subsection would further provide that the agreement of the employee to accept such payment will upon payment in full constitute a waiver by him of any right of action he may have ... to recover....

That is essentially the whole legislative history describing the meaning of Sec. 16(c). The Senate states "agreement" and "payment in full" as distinct requirements, so there is no reason to think that Congress wanted payment alone to do.

The reports give the background of Sec. 16(c) more fully than they discuss its meaning. The Senate report expressed concern about a "decline of voluntary restitution" in the years preceding 1949 and suggested that of the "variety of causes" for this

one of the most important ... is the fact that an employer who [voluntarily] pays back wages which he has withheld in violation of the act has no assurance that he will not be sued for an equivalent amount plus attorney's fees under the provisions of section 16(b) of the act. One of the principal effects of the committee proposal will be to assure employers who pay back wages in full under the supervision of the Wage and Hour Division that they need not worry about the possibility of suits for liquidated damages and attorney's fees.... [T]his provision ... should be welcomed by fair-minded employers who wish to make restitution for perhaps unwitting violations of the act by encouraging them to do so in such a manner to insure that their liability will be limited to the amount of wages due.

Ordinarily there would be no need for a statute allowing settlement of a dispute between employer and employees--people may resolve their own affairs, and an accord and satisfaction bars a later suit. Yet the Fair Labor Standards Act is designed to prevent consenting adults from transacting about minimum wages and overtime pay. Once the Act makes it impossible to agree on the amount of pay, it is necessary to ban private settlements of disputes about pay. Otherwise the parties' ability to settle disputes would allow them to establish sub-minimum wages. Courts therefore have refused to enforce wholly private settlements. See Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350, 1352 (11th Cir.1982). Yet a prohibition of settlement ensures costly litigation, even though the parties might be able to compromise their dispute without subverting the principles of the statute. Section 16(c) creates the possibility of a settlement, supervised by the Secretary to prevent subversion, yet effective to keep out of court disputes that can be compromised honestly.

When private disputes are compromised, the people memorialize their compromise in an agreement. This agreement (the accord), followed by the payment (the satisfaction), bars further litigation. Payment of money is not enough to prevent litigation. If a potential defendant in a tort suit pays $1,000 to the plaintiff, who cashes the check, this does not alone extinguish the plaintiff's right to sue. The $1,000 might be a part payment. There must also be a release.

United did not put a release clause on the back of its checks, and we need not decide what effect one would have under Sec. 16(b). The five plaintiffs cashed their checks without signing any document that looked remotely like a release. Several called the Department of Labor or counsel to ask whether cashing the checks would extinguish their claims; both the Department and counsel said no. Accordingly, there is no argument that the plaintiffs meant to settle their claims but neglected to sign the magic words.

The Department apparently distinguishes among settlements. When it thinks it has achieved "enough" for the employees--something close to full payment of the wages and overtime due--it sends them agreements explicitly releasing the right to sue, and it requests them to sign these forms if they wish to take the money. When the Department thinks it has fallen far short, it does not solicit these signatures. The Department's decision is the kind of supervision that Sec. 16(c) contemplates. The idea is that federal supervision replaces private bargaining, and that the right to receive full statutory wages and overtime is not to be extinguished without the assent of both employee and Secretary. If the Secretary withholds assent, he declines to send out the form soliciting agreement. Unless we were to hold that a compromise between United and its employees is enough to bar other litigation, we must let the Secretary decide when employees are entitled to sign an "agreement" under Sec. 16(c).

The Department of Labor did not send out...

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