A wage and hour settlement ends a claim for unpaid wages. 4 things to know about them are:
- you may be entitled to more than just your unpaid wages,
- class action settlements can take longer to disburse,
- you generally have to sign a release to get paid, and
- most of your settlement will be taxable.
1. You may be entitled to more than your unpaid wages
Wage and hour lawsuits brought under the federal Fair Labor Standards Act (FLSA) may be eligible to recover liquidated damages. Known as double damages, you can recover twice the amount of your unpaid:
Awarding these damages is at the discretion of the court. These liquidated damages are meant to compensate you for the delay in getting your rightful pay caused by your employer’s FLSA violation.
However, employers can avoid making liquidated damage payments if they can show that they:
- acted in good faith, and
- were under the reasonable belief that they were complying with the FLSA.
This requires employers to take steps towards determining how to comply with the FLSA. Those steps have to be objectively reasonable, like relying on guidance from the U.S. Department of Labor (DOL) or an employment lawyer.
In addition to these liquidated damages, you may also be entitled to recover the following damages in a successful FLSA claim:
- attorneys’ fees, and
- court costs.
Because these damages may be available to you if you took your FLSA claim to court, your settlement should reflect them. By getting the legal advice of an employment law attorney, you can make an informed decision about how much to seek when settling a wage and hour case that is based on the FLSA.
2. Disbursing settlement funds can take longer in class actions
If your wage and hour claim was a class action, disbursing the settlement funds can take longer. Because there are numerous plaintiffs in your case, your employment attorney will have to:
- deduct court costs and attorneys’ fees, if they were not covered by the employer in the settlement,
- apportion each plaintiff their proper amount,
- resolve claims against the settlement,
- handle disputes about the amount, and
- disburse the funds into each plaintiff’s account.
This can take several weeks after the settlement is struck.
3. You often have to sign a release to finalize the settlement
When wage and hour claims settle, your employer will often require you to sign a release form before the settlement goes into effect. This form releases your employer from further legal claims. These releases, however, may not be enforceable against FLSA wage and hour claims.
The settlement form is often the culmination of a wage and hour lawsuit. It details:
- how much compensation your employer will pay, and
- which legal claims you agree to drop in order to receive that compensation.
The settlement form will require you to drop your current wage and hour claims in order to receive the payment. However, many settlement forms require you to drop other claims against your employer as well. If you agree to do so, you can waive your rights to bring a subsequent wage and hour claim.
The Supreme Court of the United States, however, has stated that the FLSA does not allow you to waive your rights to statutory wages or to liquidated damages. This is because employers have more bargaining power, putting workers at risk. Instead, you may only be allowed to waive FLSA claims in a settlement form if there is a bona fide dispute about your employer’s FLSA liability. Broad release forms in cases unrelated to the FLSA may not be enforced.
4. Your settlement may be taxable
Because a wage and hour lawsuit demands unpaid wages, and because wages are taxable, most of your settlement proceeds can be taxed.
According to the Internal Revenue Code, all income is taxable unless it is explicitly excluded. It is up to you to prove that your settlement proceeds are not taxable. For lawsuit settlements, the only damages that are excluded are those for your personal physical injuries or sickness. This means that payments for the following are taxable:
- back wages,
- front pay,
- liquidated damages,
- punitive damages,
- emotional distress damages,
- attorneys’ fees, and
- interest on other payments.
You will want to keep these tax payments in mind before agreeing to a wage and hour settlement.
What is a wage and hour claim?
A wage and hour claim is a formal demand for unpaid wages. Employers can deprive their workers of their rightful wage in a wide variety of ways. Wage and hour lawsuits can claim that you lost pay because:
- you were misclassified as an independent contractor,
- you were misclassified as an exempt employee,
- you are owed unpaid overtime wages for working too many hours in a workday or workweek,
- your employer made you work off the clock,
- you were not paid during rest breaks,
- you were made to work during your meal break,
- you were not paid the minimum wage, or
- your employer did not provide hazard pay.
These allegations can be based on federal law or on state law. Legal actions based on federal wage laws will go through federal court, while state claims go through state court.
Some state wage and hour laws provide better protections for employees than federal law. For example, California law has more stringent rules regarding the misclassification of workers, which can support some additional wage and hour lawsuits.
What is a wage and hour class action?
A wage and hour class action is a claim by numerous employees who have lost pay because of their employer’s policies. Because these claims are related and the facts are similar, they can be consolidated together. The collective action behind these class action lawsuits streamlines numerous cases and increases the pressure on your employer to settle the case. Class members can also include former employees who suffered wage theft.
Having an experienced labor law attorney from a reputable law firm is essential for class action litigation.
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 29 USC 216.
 29 USC 260.
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 29 USC 216(b).
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 26 USC 104.