Fifth Circuit Holds Private FLSA Settlement Agreement Is Enforceable

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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The Fifth Circuit Court of Appeals recently enforced an agreement settling claims under the Fair Labor Standards Act (FLSA), even though the settling parties never received approval from the district court, and the agreement was forged without U.S. Department of Labor (DOL) supervision. Martin v. Spring Break ’83 Productions, LLC, No. 11-30671 (5th Cir. July 24, 2012). This decision may be a welcome development for employers.

Background

The scope of private parties’ authority to settle FLSA claims has been in question since at least 1945. That is when the U.S. Supreme Court made clear in Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945), that employees are unable to waive the substantive protections of the FLSA in releasing claims. The high court reasoned that Congress, in enacting the statute, had found that “unequal bargaining power” between employers and employees “required federal compulsory legislation to prevent private contracts” that resulted in substandard wages and excessive hours. If employers and employees could contract around the FLSA’s guarantees with release agreements, the statute’s purpose would be nullified. The Supreme Court thus refused to enforce an agreement that released an employee’s claim for liquidated damages under the FLSA in exchange for the payment of overtime wages that were indisputably due to him. The Court did, however, leave open the possibility that an agreement settling a “bona fide dispute” between an employer and employee with respect to the amount due under the FLSA might be enforceable. A year later, the Court hinted in dicta in D.A. Schulte v. Gangi, 328 U.S. 108 (1946), that the way to obtain an enforceable agreement settling an FLSA claim would be to enter a stipulated judgment in an FLSA suit that the parties submitted to judicial scrutiny.

Fast forward to 1982. The Eleventh Circuit Court of Appeals, apparently the first court of appeals to confront the issue head on and following Brooklyn Savings and D.A. Schulte, declared that private parties, absent DOL supervision, can only settle an FLSA claim in the context of an FLSA suit where the court enters a stipulated judgment “after scrutinizing the settlement for fairness.” Lynn’s Food Stores, Inc. v. U.S., 679 F.2d 1350 (11th Cir. 1982).

In the wake of Lynn’s Food Stores, defense attorneys now almost universally advise their clients that releases with employees entered outside of litigation are likely unenforceable with respect to FLSA claims. And in FLSA cases, parties generally submit their settlement agreements for court approval as the fair resolution of a bona fide dispute.

The Fifth Circuit’s New Decision

Now, nearly 30 years further down the line, enter Martin. The case involved four plaintiffs who worked for several months as lighting and rigging technicians on the production of the movie, Spring Break ’83. The plaintiffs were represented during their employment by the International Alliance of Theatrical State Employees, Local 478 as their exclusive representative. At some point, a number of employees, including the plaintiffs, filed a grievance under the applicable collective bargaining agreement alleging that they had not been paid for all time worked. After conducting an investigation, the union concluded that it was impossible to determine whether the plaintiffs had worked on the days they alleged. The union and the employer ultimately entered a settlement agreement with respect to the disputed working time, and the plaintiffs received and cashed settlement payments.

But the plaintiffs were not satisfied with the union’s representation. During the union’s investigation and negotiations, the plaintiffs retained their own counsel and filed suit under the FLSA. After the union’s settlement agreement was finalized, the district court granted summary judgment against the plaintiffs on the ground that their claims were released under the union’s settlement agreement.

On appeal, the plaintiffs argued that the union’s settlement agreement could not be enforceable because it had not been supervised by the DOL or approved by any court. The Fifth Circuit Court of Appeals disagreed. Distinguishing Brooklyn Savings, the court held that the FLSA claims at issue were predicated on a bona fide dispute about time worked and did not constitute a compromise of substantive rights guaranteed under the FLSA. The court also distinguished Lynn’s Food Stores on its facts, noting that in the Eleventh Circuit case the plaintiffs had not been represented by counsel when they first agreed to compromise their claims, had not been aware of their rights under the FLSA, and, in some instances, had not understood English when they signed the settlements at issue. In contrast, the plaintiffs in Martin were represented by counsel and the union, and they knew about their FLSA rights. Overall, the court seemed persuaded that there was little danger under the circumstances of the plaintiffs being disadvantaged by unequal bargaining power.

Practical Impact

Martin’s reasoning is commonsense. Certainly where a plaintiff is represented by counsel and expressly invokes his or her FLSA rights, there is little risk of the plaintiff being the victim of unequal bargaining power in compromising those rights. Plaintiffs validly release rights under other statutes in those circumstances all the time without court supervision.

If Martin gains traction and displaces Lynn’s Food Stores, it will be a significant and positive development. Getting FLSA settlement agreements approved by courts is becoming more and more problematic. Not because courts are withholding their approval. Approval is often granted. The problem is that federal courts are increasingly refusing to allow parties to submit their FLSA settlement agreements under seal. See, e.g., Carpenter v. Colonial Management Group, LP, 2012 WL 2992490 (D. Md. July 19, 2012); Curasi v. HUB Enterprises, Inc., 2012 WL 728491 (E.D.N.Y. Mar. 5, 2012). These courts reason that the public has a right to access documents underlying judicial actions, including orders approving agreements as fair. Consequently, so long as court approval is required, it is becoming harder to get an FLSA settlement that is both enforceable and confidential. This increasingly puts employers between a rock and a hard place because many employers view confidentiality as a necessary prerequisite to avoid inviting a wave of copycat suits.

Hopefully, Martin means that FLSA settlements are on the way to being treated just like agreements settling most other types of employment claims and that this problem will soon become a thing of the past.

Christopher C. Murray is a shareholder in the Indianapolis office of Ogletree Deakins.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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