Employers Can Now Settle Their Employee Wage Claims Without Court Approval

Good news for Texas employers! A federal court of appeals recently confirmed Texas employers can settle wage disputes with their employees. Prior to this decision, an employer could not enter into an enforceable private settlement agreement with an employee to resolve a disputed amount of wages or hours worked—unless the settlement agreement was approved by a court or resolved through a DOL investigation. For example, if Employer ABC identified a minimum wage or overtime error, Employer ABC could offer the affected employee a settlement agreement to correct and resolve the error. However, the big problem was that such a settlement agreement was not enforceable. So even after entering into such a settlement agreement, the employee could file a lawsuit contending that she did not agree to the amount paid by the employer and pursue her claim through litigation.

The law has changed in favor of employers, at least in Texas, due to a decision by the Fifth Circuit Court of appeals. The court held that such settlement agreements are enforceable. Using the same example as above, once Employer ABC and the employee enter into a settlement agreement regarding a dispute about owed wages or hours worked, this settlement agreement is final and enforceable. An employee can no longer side step the settlement agreement and decide to later file a lawsuit for more money (e.g., wages owed, liquidated damages, and attorney’s fees). Employers no longer have to “wait it out” to find out if their employee is going to sue for a wage claim they formally resolved through a settlement.

Even though this is good news for employers, companies should still consult with their employment attorney to settle any wage and hour matters.

Daniel N. Ramirez is a named partner at Monty & Ramirez LLP. He is also board certified in labor and employment law by the Texas Board of Specialization and has been recognized as a Rising Star by Super Lawyers magazine.