D.S. Schulte, Inc. v. Gangi

The Fair Labor Standards Act (FLSA) required an employer to pay employees no less than one and one-half times the regular rate for overtime. Employers who violated this provision were liable for the unpaid-overtime compensation as well as liquidated damages. Building maintenance employees (the employees) (plaintiffs) of D.S. Schulte, Inc. (the employer) (defendant) requested payment for overtime wages pursuant to the FLSA. The employer denied the request on grounds that the employees were not engaged in interstate commerce, a condition of FLSA’s coverage. Because there was a bona fide dispute regarding the application of FLSA, the employer settled the dispute with the employees, agreeing to pay the overtime wages owed in exchange for a release that precluded the employees from recovering any additional compensation. The employees filed suit in district court, seeking the liquidated damages mandated by the FLSA. The district court held that the release was valid and that the employees waived their right to liquidated damages. On appeal, the United States Court of Appeals for the Second Circuit reversed the district court’s ruling on grounds that the release was invalid. The employer petitioned the Supreme Court for writ of certiorari, arguing that the release was proper based on traditional policy encouraging settlement of disputes as opposed to litigation. The Supreme Court granted certiorari.