## Facts

- D.A. Schulte, Inc. owned a 23-story loft building in New York City and employed building service and maintenance workers.
- Between 1938 and 1942, the employees worked overtime for which overtime premiums were not paid.
- After a Supreme Court decision clarified that similar building maintenance workers could be covered by the Fair Labor Standards Act (FLSA), the employees demanded unpaid overtime and liquidated damages under FLSA §§ 7(a) and 16(b).
- The employer denied liability, asserting its tenants’ goods did not move directly in interstate commerce because they were delivered within the state to intermediaries who later used or shipped them out of state.
- Under threat of suit, the employer calculated and paid the full unpaid overtime compensation (not disputed by the employees) and obtained sealed releases purporting to discharge further liability, including liquidated damages.
- The employees then sued only for liquidated damages under § 16(b), arguing the releases were invalid.
- The district court enforced the releases as a bona fide settlement of a bona fide dispute; the Second Circuit reversed.

## Issues

1. Whether an employer may avoid FLSA § 16(b) liquidated damages through a private settlement and release that resolves a bona fide dispute over FLSA coverage after paying full unpaid overtime compensation.
2. Whether building maintenance employees are covered by the FLSA when the building’s tenants’ manufacturing activity is part of production for commerce, even though goods move into interstate commerce through in-state intermediaries.

## Decision

- The Supreme Court affirmed the judgment for the employees.
- A private compromise of a bona fide coverage dispute does not validly release an employer from statutory liquidated damages under FLSA § 16(b), even when unpaid overtime compensation is paid in full.
- The employees were covered by the FLSA because their work maintaining the building was closely related and directly essential to production of goods for commerce where tenants’ goods were destined, through ordinary commercial channels, for interstate movement.

## Legal Principles

- FLSA § 16(b) imposes an integrated statutory liability for unpaid overtime (or minimum wages) plus “an additional equal amount as liquidated damages.”
- Employees cannot waive or compromise away statutory liquidated damages through private agreement, including settlements of bona fide disputes over coverage.
- General policy favoring settlement yields where Congress created wage-and-hour rights serving a public purpose and prescribed a mandatory remedial scheme.
- Maintenance employees may be engaged in “production of goods for commerce” when their work is closely related and directly essential to tenant manufacturing whose output is reasonably anticipated to move in interstate commerce, including via independent intrastate intermediaries.
- Coverage requires proof from the record, but may be shown by evidence allowing a reasonable inference that interstate movement of goods was reasonably anticipated.

## Conclusion

The Court held that FLSA liquidated damages are not subject to private waiver through settlement of a coverage dispute and that building maintenance employees were covered where tenant production foreseeably fed interstate commerce through ordinary distribution channels.


D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946)