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McKeown et al v. Kinney Shoe Corp. (11/15/91), 820 P 2d 1068
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
JOSEPH McKEOWN, KEVIN ANDERSON,)
TERRANCE SMITH and ROBERT BOYER,)
)
Petitioners, ) File No. S-4024
)
v. ) 3AN 88 6151 Civ
)
KINNEY SHOE CORPORATION, d/b/a ) O P I N I O N
KINNEY SHOES, FOOTLOCKER and )
LADY FOOTLOCKER, )
)
Respondents. ) [No. 3774 - November 15,
1991]
________________________________)
Petition for review from the Superior Court
of the State of Alaska, Third Judicial
District, Anchorage, Brian C. Shortell,
Judge.
Appearances: David E. Grashin, David
Grashin & Assoc., Anchorage, John E.
Casperson, Faulkner, Banfield, Doogan &
Holmes, Seattle, for Petitioners. William F.
Mede, Scott J. Nordstrand, Owens & Turner,
Anchorage, for Respondents.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
This case requires us to decide whether an employer and an
employee may privately settle claims for liquidated damages
arising under the Alaska Wage and Hour Act. We conclude that
they may not.
I
Four individual plaintiffs brought class action wage and
hour claims against Kinney Shoe Corporation. The claims were
brought on behalf of six classes of past and present Kinney
employees. All of the claims alleged violations of the Alaska
Wage and Hour Act (AWHA), AS 23.10.050-.150; four of the
classes represented were past and present employees to whom
Kinney allegedly had not paid overtime wages required by the
AWHA.
On March 1, 1990, the superior court set oral argument on
class certification for April 25, 1990. On April 4, 1990,
Kinney sent individual settlement offers to putative class
members. The offers proposed monetary settlements tailored to
compensate each recipient for his or her specific unpaid
wages. In return, Kinney demanded waiver of "any rights [the
recipient] might have against Kinney . . . for all of the
claims which were or could have been asserted in the class
action lawsuit." Kinney made clear in its settlement offers
that the class action lawsuit sought "recovery of, among other
things, unpaid overtime, bonuses and certain deductions from
paychecks." Some of the solicited employees or ex-employees
chose to accept Kinney's offer.
One day before oral argument on certification, petitioners
moved to have the superior court declare void the private
settlements that some putative class members had entered into
with Kinney. The superior court decided to review the private
settlement issue in detail before ruling on class
certification. Further briefing and oral argument followed.
Finally, on June 18, 1990, the superior court both certified
the classes and denied petitioners' motion to declare void
Kinney's private settlement agreements with putative class
members. This court subsequently granted plaintiffs' petition
for review on the question whether the superior court erred by
not declaring the settlement agreements void.
II
The class action lawsuit underlying the present appellate
review involves a variety of statutory claims. Kinney's
settlement offers attempted to encompass all of those asserted
claims. Consequently, petitioners initially asserted multiple
challenges to the validity of the settlements. Both parties,
however, focus here upon a single question. We likewise limit
the scope of our review to the same narrow issue: whether an
employer's private settlement of a claim for unpaid overtime
and liquidated damages under the AWHA is injurious to
interests of the public and, therefore, void on the grounds of
public policy. 14 S. Williston, A Treatise on the Law of
Contracts 1629, at 8 (W. Jeager, 3d ed. 1972).
The stated policy behind the AWHA is to protect "the health,
efficiency, and general well-being of workers." AS
23.10.050(2). To that end, an employer who fails to pay
overtime as required by AS 23.10.060 faces several possible
civil and criminal penalties.1 The civil penalty most
pertinent to this case is the provision in the AWHA for
liquidated damages in the amount of actual unpaid overtime and
"an additional equal amount." AS 23.10.110(a). "Such damages
in the act are a type of punitive damages, not, as in other
contexts, a substitute for compensatory damages." Gore v.
Schlumberger Ltd., 703 P.2d 1165, 1166 (Alaska 1985).
As our opinion in Gore indicated, the liquidated damages
provision of AWHA is intended to further the policy behind the
AWHA by punishing the violating employer. See id.
Accordingly, when an employer violation is established,
"liquidated damages . . . must be granted as a matter of law."
Alaska Int'l Indus., Inc. v. Musarra, 602 P.2d 1240, 1249
(Alaska 1979); see also AS 23.10.110(a) (a violating employer
"is liable" for liquidated damages) (emphasis added). One
inherent characteristic of this punitive scheme, of course, is
that an employer's violation often must be established by
private action. If the employer entices the private actor --
the unpaid employee -- to settle a legitimate claim, a
violating employer may then escape without an adjudication of
liability and without punitive sanction. An interpretation of
the AWHA that would permit such escape countermands the very
purpose of the liquidated damages provision. If the
liquidated damages available under the AWHA were meant mainly
to compensate the wronged employee, one might reasonably argue
that compromise or settlement by the wronged employee might be
appropriate. Because the liquidated damages are not
compensatory, an employee's capacity to compromise or settle
for a lesser amount should be extremely restricted. Accord 3
N. Singer, Sutherland Statutory Construction 59.05 (C. Sands
4th ed. 1978) (punitive laws pertaining to public health and
safety must be given "substantial effect"-- especially "where
penalties are recoverable in civil actions prosecuted by
private individuals").
We note that further support for prohibiting employee
settlement of AWHA claims without judicial approval appears in
the federal courts' interpretation of the Fair Labor Standards
Act (FLSA).2 The traditional federal rule prohibits
compromise or release of liquidated damages liability under
the FLSA on the theory that such agreements "will tend to
nullify the deterrent effect which Congress plainly intended
[the liquidated damages provision] should have." Brooklyn
Sav. Bank v. O'Neil, 324 U.S. 697, 710 (1945). "To allow
contracts for waiver of liquidated damages approximates
situations where courts have uniformly held that contracts
tending to encourage violation of laws are void as contrary to
public policy." Id. Having reviewed recent federal precedent
on this point, we believe that under federal law the
settlements in the present case would be void, for much the
same reason that we find them void under Alaska law. See
generally Lynn's Food Stores, Inc. v. United States, 679 F.2d
1350, 1352-54 (11th Cir. 1982).3
In sum, permitting private settlement of liquidated damages
claims under the AWHA is contrary to the strong policy behind
the AWHA and its liquidated damages provisions. We thus
conclude that the superior court erred by not declaring void
the settlements in this case, insofar as the settlements
purported to compromise AWHA claims for unpaid overtime.
III
Finally, Kinney argues that if the settlements in this case
are found to be void, then the employees who have received
settlement payments from Kinney must tender back those
payments before they may join the class action lawsuit here.
Kinney's argument principally relies upon our decision in
Thorstenson v. Arco Alaska, Inc., 780 P.2d 371, 375 (Alaska
1989). There we wrote that "[t]ender of the benefits received
under an agreement is ordinarily a prerequisite to an action
at law for rescission of the agreement." Id.
Petitioners' argue in response that Thorstenson does not
control here. Petitioners' note that they moved the superior
court not for rescission of the settlement agreements, but for
an order declaring the agreements void ab initio as violative
of public policy. Thus, according to petitioners, the tender-
back requirement recognized in Thorstenson has no application
on these facts. We agree with petitioners.
An action to have an agreement declared void as violative of
a statute or of public policy is an entirely different action
than one for rescission. Rescission is an equitable remedy
that abrogates, annuls, or unmakes a contract entered into
through mistake, fraud, or duress. Dreiling v. Home State
Life Ins. Co., 515 P.2d 757, 767-68 (Kan. 1973). A void
agreement, on the other hand, never attains legal effect as a
contract. 1 A. Corbin, Corbin on Contracts 7 (1963); see
also Currington v. Johnson, 685 P.2d 73, 78 (Alaska 1984). As
a result, the tender-back require-ment that may arise as a
prerequisite to an action for rescission has no relevance in
an action to declare an agreement void. Thus, assuming they
are otherwise qualified, the potential class members who
entered into settlement agreements with Kinney now may join
the class action lawsuit without first tendering back any
settlement money received.4
The superior court order denying petitioners' motion to
declare void Kinney's settlement agreements with potential
class members is VACATED. The superior court is instructed to
enter an order declaring all settlements in this case void,
insofar as they purport to compromise claims for unpaid
overtime under the Alaska Wage and Hour Act.
_______________________________
1. As we previously have explained:
The [AWHA] prescribes with
comprehensive specificity the remedies
available for its violation. An employee may
recover his unpaid minimum wages or unpaid
overtime compensation, and an identical sum
as liquidated damages. Reasonable attorney's
fees are afforded. The Commissioner of Labor
may obtain injunctive relief and criminal
penalties may be imposed of not less than
$100 nor more than $2,000, or imprisonment
for not less than ten nor more than ninety
days, or both. The compre-hensiveness of
this remedial system implies that the
legislature did not intend to allow further
unenumerated remedies.
Gore v. Schlumberger Ltd., 703 P.2d 1165, 1165-66 (Alaska 1985)
(footnotes omitted).
2. We have recognized that the AWHA is based on the
Federal Labor Standards Act of 1938 (codified as amended at 29
U.S.C. 201-219 (1988)). E.g., Webster v. Bechtel, Inc.,
621 P.2d 890, 895 (Alaska 1980). The two Acts are not
identical, however. See id. (AWHA imposes on employers a
higher standard of overtime pay than does federal law). And,
of course, federal court interpretations of the FLSA are not
binding on Alaska court interpretations of the AWHA. See
Dresser Indus., Inc. v. Alaska Dep't of Labor, 633 P.2d 998,
1002 (Alaska 1981), cert. denied, 455 U.S. 1019 (1982).
However, we have found the federal court interpretations of
the FLSA helpful in interpreting consistent aspects of the
AWHA. See, e.g., Gore, 703 P.2d at 1166.
3. We recognize that the FLSA permits nonprivate
settlements, supervised by the Secretary of Labor or the
district court. See 29 U.S.C. 216 (1988); see also Lynn's
Food Stores, 679 F.2d at 1353-54. We have discovered no
federal decisions, however, that have adopted any exceptions
to the prohibition against private settlements of an FLSA
claim. See, e.g., Lynn's Food Stores, 679 F.2d at 1353 n.9.
4. Of course, Kinney may offset damages ultimately
awarded to particular employees by any amount that it has
already paid to those employees in its attempt to settle their
claims.
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