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the termination of petitioner's employment.
On March 16, 1993, an action was filed in the U.S. District
Court for the District of Iowa against PayLess by three of its
former employees for themselves and on behalf of other present
and former employees of PayLess. The complaint alleged that the
purpose of the action was to recover on behalf of the class of
employees unpaid overtime compensation, liquidated damages,
attorney's fees, and costs under section 16(b) of the Fair Labor
Standards Act of 1938, ch. 676, 52 Stat. 1069, currently codified
at 29 U.S.C. secs. 201-209 (1994). Petitioner was not one of the
plaintiffs instituting the action; however, petitioner qualified
for participation as a member of the class of employees for whom
the action was filed. Petitioner never elected to be excluded
from the class, nor did petitioner ever claim or institute any
separate action against PayLess. The class action did not
proceed to trial but was settled. PayLess agreed to pay $5
million for the benefit of all qualifying members of the class,
including petitioner. As part of the settlement, the plaintiffs
in the class action executed a written Settlement Agreement and
Release (the Settlement Agreement) effective January 25, 1995, in
consideration for payment of the $5 million by PayLess. The
Settlement Agreement included a release by the plaintiffs of
PayLess that was embodied as section 3 and provided in pertinent
part:
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