Brooklyn Savings Bank v. O'Neil

Supreme Court of the United States
324 U.S. 697, 65 S. Ct. 895, 1945 U.S. LEXIS 2604 (1945)

ELI5:

Sections

Rule of Law:

An employee cannot waive or release their statutory right to liquidated damages under Section 16(b) of the Fair Labor Standards Act, even upon receipt of the full amount of overdue wages, because the statute serves a public interest that private contracts cannot override. Additionally, interest is not recoverable on judgments that include these liquidated damages.

Facts:

Petitioner Brooklyn Savings Bank employed respondent O'Neil as a night watchman for two years.
During this employment, the bank failed to pay O'Neil the overtime compensation required by the Fair Labor Standards Act.
Two years after O'Neil left the job, the bank calculated the overdue overtime wages at $423.16.
The bank offered O'Neil a check for that specific amount in exchange for signing a release of all rights and claims under the Act.
O'Neil signed the release and accepted the check, which covered the wages but did not include liquidated damages.
In the companion case (Dize v. Maddrix), an employer tendered $500 to an employee who was owed more than that amount, and the employee signed a general release.
The employee in the companion case later refused a second tender of the remaining wage balance because it lacked liquidated damages.

Procedural Posture:

O'Neil sued Brooklyn Savings Bank in the New York City Municipal Court.
The Municipal Court dismissed O'Neil's complaint.
The New York Appellate Term reversed the dismissal.
The New York Appellate Division affirmed the reversal.
The New York Court of Appeals affirmed the judgment in favor of O'Neil.
In the companion case, Maddrix sued Dize in the U.S. District Court.
The District Court granted judgment for Maddrix, invalidating the release.
The Circuit Court of Appeals for the Fourth Circuit affirmed the District Court's decision.

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Issue:

Does the Fair Labor Standards Act allow an employee to validly waive their right to liquidated damages in exchange for the payment of past-due overtime wages?

Opinions:

Majority - Justice Reed

No, an employee cannot waive their right to liquidated damages because such waivers would contravene the legislative policy behind the Fair Labor Standards Act. The Court reasoned that the Act was passed to protect certain segments of the population from substandard wages and excessive hours due to their unequal bargaining power. Congress intended for Section 16(b) liquidated damages to be mandatory compensation for the delay in payment, recognizing that failure to pay on time is detrimental to a worker's standard of living. Allowing employees to waive this right would nullify the Act's purpose and allow employers to gamble on violating the law to gain a competitive advantage. Furthermore, regarding the separate issue of interest, the Court held that because liquidated damages are already compensation for delay, adding interest would constitute double compensation.

Dissenting - Chief Justice Stone

Yes, legally competent parties should be free to release private claims for liquidated damages. The dissent (dissenting in the O'Neil case but concurring in the Dize result) argued that while the statute makes failure to pay wages a criminal offense and a public wrong, it treats liquidated damages purely as a private civil liability. The dissent emphasized that there is no specific language in the Act prohibiting the waiver of liquidated damages, unlike the mandatory command regarding wages. Therefore, in the absence of a bona fide dispute, a release given for liquidated damages should be valid under general contract law principles.

Analysis:

This decision reinforces the principle that statutory rights created to protect vulnerable parties and serve a public interest are not subject to private waiver. By prohibiting the waiver of liquidated damages, the Court ensured that the enforcement mechanism of the FLSA—financial deterrence against employers—remained intact. The ruling implies that the "freedom of contract" is subordinate to specific legislative schemes designed to remedy economic imbalances. Practically, this prevents employers from pressuring workers into cheap settlements and ensures that the full cost of violating labor laws (double damages) is imposed regardless of post-violation agreements.

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