Chan et al v. A Taste of Mao, Inc. et al

Filing 56

OPINION & ORDER re: 44 MOTION for Summary Judgment . filed by A Taste of Mao, Inc. Taste of Mao's motion for summary judgment is denied. The Clerk of Court is directed to terminate the motion pending at ECF No. 44. So Ordered. (Signed by Judge William H. Pauley, III on 7/12/17) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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WAI HUNG CHAN, et al.,
Plaintiffs,
-againstA TASTE OF MAO, INC. d/b/a
SZECHUAN PALACE, et al.,
Defendants.

15cv9723
OPINION & ORDER

WILLIAM H. PAULEY III, United States District Judge:
Defendants A Taste of Mao, Inc. d/b/a Szechuan Palace and its named owners,
officers, directors, managing agents, and stockholders (collectively, “Taste of Mao”) move for
summary judgment dismissing this lawsuit. Taste of Mao’s motion is denied.
BACKGROUND
This Fair Labor Standards Act (“FLSA”) action arises from Taste of Mao’s
alleged refusal to pay its employees minimum wage for hours worked and overtime. Plaintiffs
are a group of former waiters, delivery workers, and cashiers employed by Szechuan Palace, a
Manhattan restaurant owned by Taste of Mao.
In January 2016, Taste of Mao entered into a settlement supervised by the
Department of Labor (“DOL”) to resolve FLSA-related liabilities. (Back Wage Compliance and
Payment Agreement (“DOL Settlement”), ECF No. 45–1.) The DOL’s investigation, which
covered the period from August 2013 to August 2015, found that nineteen employees, including
four of the five Plaintiffs in this action, were entitled to back wages totaling $38,883.80. (DOL

Settlement at 1.) Taste of Mao agreed to settle the matter by paying the DOL $48,641.21. (DOL
Settlement at ¶¶ 3–4.)
To ensure that the DOL Settlement covered all nineteen employees, Taste of Mao
asked the DOL to provide an assurance that it “had the authority to represent the [e]mployees.”
(Def. Memo. of Law in Support of Summary Judgment (“Mot.”), ECF No. 46, at 2, ¶ 5.) The
DOL confirmed its authority to represent and resolve all employees’ claims. (Mot. at 2, ¶ 6.)
After finalizing the settlement, Taste of Mao paid the DOL. (See Mot. at 2, ¶ 4.) In July 2016,
the DOL mailed WH–60 forms to each employee, notifying them of the settlement and their right
to a share of it. To receive payment, employees were required to sign a WH–60 form and return
an executed copy to DOL.
Notwithstanding the settlement, five former Taste of Mao employees—one of
whom was not covered by the DOL Settlement—commenced this action in December 2015
seeking damages arising from FLSA violations exceeding the period covered by the DOL
Settlement.
DISCUSSION
“Summary judgment is warranted if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c); see also
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The moving party has the “burden
of demonstrating the absence of any genuine dispute as to a material fact.” Adickes v. S.H.
Kress & Co., 398 U.S. 144, 157 (1970). In determining whether there is a genuine issue as to a
material fact, “[t]he evidence of the non-movant is to be believed, and all justifiable inferences
are to be drawn in his favor.” Anderson, 477 U.S. at 255.

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Taste of Mao contends that the DOL Settlement bars the claims in this action.
(Mot. at 2–3.) Despite the Plaintiffs’ decisions not to sign the WH–60 forms and accept their
settlement payments, Taste of Mao argues that the “the funds are still constructively in Plaintiffs’
possession” because the DOL, as their agent, has not returned any of the settlement monies.
(Def. Reply in Support of Summary Judgment, ECF No. 53, at 3, ¶ 7.) Therefore, Taste of Mao
claims the non-return of DOL Settlement funds constitutes a waiver of Plaintiffs’ right to sue.
Plaintiffs argue that their decision not to sign the WH–60 form represents an
unequivocal rejection of the DOL Settlement, preserving their right to sue in this Court. (Pl.
Opposition to Motion for Summary Judgment (“Opp.”), ECF No. 49, at 4.) Moreover, they
assert that the relief provided by the DOL Settlement is insufficient when compared to the relief
they seek here because this action includes a former employee who was never covered by the
DOL Settlement and expands the time period for which FLSA damages are sought. (Opp. at 1–
2.)
Under FLSA, “[t]here are only two ways in which back wage claims . . . can be
settled or compromised by employees. First, under [29 U.S.C. § 216(c)], the Secretary of Labor
is authorized to supervise payment to employees of unpaid wages owed to them. Second[,] when
employees bring a private action for back wages under [ ] FLSA, and present to the district court
a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the
settlement for fairness.” Manning v. New York Univ., 2001 WL 963982, at *13 (S.D.N.Y. Aug.
22, 2001). With respect to the first option, Section 216 of FLSA further provides, in relevant
part:
The Secretary [of Labor] is authorized to supervise the payment of
the unpaid minimum wages or the unpaid overtime compensation
owing to any employee or employees under section 206 or section
207 of this title, and the agreement of any employee to accept such
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payment shall upon payment in full constitute a waiver by such
employee of any right he may have under subsection (b) of this
section to such unpaid minimum wages or unpaid overtime
compensation and an additional equal amount as liquidated
damages.
(emphasis added). Thus, an employee waives his right to sue once he accepts funds from a DOL
supervised settlement.
Waiver, however, requires (1) that the employee agree to accept payment which
the Secretary of Labor determines to be due, and (2) that there be payment in full, with both
elements satisfied independently. Parada v. Banco Indus. de Venezuela, C.A., 2011 WL 519295,
at *9 (S.D.N.Y. Feb. 15, 2011). Usually, the DOL notice informing employees about settlement
contains a waiver clause expressly setting forth the consequences of accepting payment.
Zhengfang Liang v. Cafe Spice SB, Inc., 911 F. Supp. 2d 184, 198 (E.D.N.Y. 2012) (waiver
under a DOL settlement occurs “pursuant to plaintiff’s receipt of a WH–58 form, which contains
explicit waiver language, or a similar form containing explicit waiver language”).
Here, each of the WH–60 forms contains a clear waiver clause stating that the
“amount of back wages, liquidated damages, or other compensation” in the DOL Settlement, if
accepted, results in “waive[r] [of] any right [Plaintiffs] have to bring suit on [their] behalf for the
payment of such unpaid minimum wages and/or unpaid overtime compensation for the period of
time indicated [in the form] and an equal amount in liquidated damages, plus attorney’s fees and
court costs under Section 16(b) of the FLSA.” (Declaration of Phillip Kim in Support of
Opposition to Summary Judgment, ECF No. 50, Ex. B.) Such language constitutes a waiver.
See Calfari v. Blackman Plumbing Supply, Inc., 988 F. Supp. 2d 261, 279 (E.D.N.Y. 2013).
Plaintiffs did not execute their WH–60 forms. Therefore, none of them can be
deemed to have accepted the DOL Settlement and waived their right to sue. Taste of Mao

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attempts to side step this requirement by arguing that Plaintiffs constructively accepted the funds
when the DOL, as their authorized representative, took possession of such funds. That argument,
however, overlooks the sole mechanism through which Plaintiffs can accept payment—signing
and returning the WH–60 forms—and their decision not to do so. Without that, there is no
waiver. Guzman v. Concavage Marine Construction Inc., 176 F. Supp. 3d 330, 338 (S.D.N.Y.
2016); see also Munoz v. Loh Enters., Inc., 2014 WL 12584307, at *3 (N.D. Tex. May 29, 2014)
(“When the DOL supervises the payments of unpaid overtime compensation, an employee
waives his right to sue . . . by (1) agreeing to accept the payment that the DOL determines to be
due and (2) accepting payment in full.”) (emphasis added). Further, the decision to sign and
accept payment must be informed, meaningful, and free from duress. See Guzman, 176 F. Supp.
3d at 338 (citing Woods, 803 F. Supp. 2d 789, 800 (M.D. Tenn. 2011) (noting that “[t]o
constitute a waiver, the employee’s choice to waive his or her right to file private claims—that is,
the employee[s] agreement to accept a settlement payment—must be informed and
meaningful”)). That issue need not be addressed, however, because Plaintiffs never signed their
forms.
While none of the Plaintiffs expressly rejected the DOL Settlement, their refusal
or failure to sign the WH–60 form is tantamount to a rejection for several reasons. (See also
Declaration of Zhang Cai He, ECF No. 51.) First, the WH–60 form simply does not provide the
option to expressly reject payment; it only requests a signature in the event an employee wishes
to receive the settlement payment as determined by the DOL. The presumption here is that
employees do not have to take the settlement unless they specifically opt into it. Second, FLSA
clearly contemplates a scenario in which an employee elects to decline a DOL-supervised
settlement. Thus, the statute provides that any amount “recovered by the Secretary of Labor on

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behalf of an employee . . . not paid to [such] employee because of inability to do so within a
period of three years shall be covered into the Treasury of the United States as miscellaneous
receipts.” 29 U.S.C. § 216(c). That provision is also memorialized in the DOL Settlement,
where the parties expressly agreed that “[i]n the event that any employees cannot be located, or
refuse to accept the back wages, the employer agrees after three years, any monies which have
not been distributed because of inability to locate the proper persons or because of their refusal to
accept payment” shall be disbursed to the U.S. Treasury. (DOL Settlement at ¶ 7.) Such
provisions clearly account for the possibility that an employee will preserve the right to
prosecute his claims in court to recover damages in excess of a DOL-supervised settlement, and
they impose the risk of loss resulting from unexpended settlement funds on the employer.
Notwithstanding that risk, a DOL-supervised settlement encourages employers to resolve their
FLSA liabilities efficiently among several potential claimants.
Taste of Mao nevertheless urges this Court to bind Plaintiffs to the DOL
Settlement, arguing that employers who in good faith strive to settle claims should be afforded
the benefit of knowing that they will not face liability in the future. Without recognizing the
finality of DOL settlements, Taste of Mao argues that employers have no incentive to settle.
And as a policy matter, Taste of Mao claims that a significant portion of FLSA would be
rendered meaningless if settlements supervised by the Secretary of Labor do not bind all covered
employees.
Taste of Mao raises an intriguing, though legally inapposite, point. FLSA
recognizes that many fair wage and labor disputes often involve dozens of aggrieved employees,
and provides the option for employers to settle their myriad claims on a collective basis. All
efforts to settle are centralized through one party—the Secretary of Labor—who is empowered

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to negotiate on behalf of the aggrieved employees, supervise the settlement on their behalf, and
equalize the balance of power between employers and low wage employees. But in doing so,
FLSA subjects employers to several risks that, as a practical matter, create a great deal of
uncertainty in their ability to conduct future business. By settling with DOL, employers
effectively forfeit their right to reclaim any settlement funds rejected by employees. Such funds,
along with those designated for those employees who could not be found, are instead diverted to
the U.S. Treasury as miscellaneous receipts. Therefore, employers must assume the risk that a
DOL-supervised settlement will extinguish some, but not all, of their liability. Adding salt to the
wound, monies originally paid to extinguish some claims may never be recouped. And, the
continued threat of FLSA liability may be an existential one, especially for small businesses that
rely on low wage labor. Here, based on the decisions of four employees to spurn the DOL
Settlement, Taste of Mao forfeits approximately $11,000 in settlement funds designated to
address back wage liability arising from their employment.
To be sure, the decision to settle with the DOL is presumed to be an informed
one. Employers know what will happen if their settlement payments cannot be distributed, and
they consciously choose to bear the risk of forfeiting such funds to the U.S. Treasury. Moreover,
they do so knowing that they have another option—to settle claims with individual employees
subject to judicial approval. And finally, although a DOL settlement has its risks, employers
have a strong incentive to settle FLSA violations on a collective basis potentially for less than
what they may have to pay through a court-supervised action.
But the statutory incongruity remains, forcing businesses such as Taste of Mao to
relinquish settlement payments to the U.S. Treasury when their settlements are spurned by the
very individuals on whose behalf DOL says it has the authority to act. Unfortunately for Taste of

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Mao, it is Congress—not this Court—which must forge a solution to that quandary. This Court’s
obligation is to interpret and apply the statute in its current form, even if it means compelling an
outcome that forces Taste of Mao to address the same allegations it believed were resolved
through the DOL Settlement.
With a modest revision of Section 216, Congress could provide finality to the
agreements that well-meaning employers enter into with the Secretary of Labor. It would
obviate the perverse result in this action or, at a minimum, afford greater flexibility for
employers to recoup any unexpended settlement funds and utilize them toward resolving the
claims alleged by employees who declined to participate in the DOL settlement. Until then,
employers must face the continued threat of liability when employees explicitly reject the
amounts offered under a DOL supervised settlement, do not respond to DOL notices of
settlement, or simply cannot be found.
CONCLUSION
For the following reasons, Taste of Mao’s motion for summary judgment is
denied. The Clerk of Court is directed to terminate the motion pending at ECF No. 44.

Dated: July 12, 2017
New York, New York

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