(CN) – A former PepsiAmericas employee may be able to recover unpaid overtime wages she is allegedly owed after the 5th Circuit revived her lawsuit.
Pepsi had managed to dismiss Karen Martin’s lawsuit in Mississippi federal court by arguing that the severance package it provided to Martin upon laying her off eclipsed her maximum potential recovery for the overtime.
The three-judge federal appeals panel wrote that most courts are hesitant to allow employers file counterclaims for money allegedly owed by their employees in labor cases.
“We continue to look with disfavor on set-offs unless the money being set-off can be considered wages that the employer pre-paid to the plaintiff-employee,” Judge Emilio Garza wrote for the court.
After losing her job as a route settlement supervisor, Martin had agreed to waive all claims against the company in exchange for a severance package with benefits. As part of the agreement, Martin relinquished the right to file “any complaints, charges, lawsuits, or any other claims against the company arising out of the employment relationship and/or termination of employment.”
Martin sued her former employer anyway, claiming the company violated the Fair Labor Standards Act by failing to pay her overtime wages from the hourly position she held before being promoted to supervisor.
Pepsi argued that Martin’s breach of the severance agreement entitled it to set-off damages. The district court agreed, finding that Pepsi was entitled to more than $22,900 in set-off damages whereas Martin could recover a maximum of just over $19,300.
But the New Orleans-based appeals court said the federal judge had erred in setting off the value of Martin’s severance benefits against her potential recovery at trial.
“The money and benefits Pepsi paid to Martin were not wage payments, advance or otherwise,” the ruling states. “They were not related to her labor at all.”
The 5th Circuit vacated the judgment and remanded the case for further proceedings.