By: Greta Ravitsky and Jordan Schwartz
On July 24, 2012, the Fifth Circuit became the first federal appellate court in over thirty years to enforce a private settlement of a wage and hour dispute arising under the Fair Labor Standards Act (“FLSA”) in Martin v. Spring Break ’83 Productions LLC.
For decades, federal courts have consistently held that FLSA wage and hour disputes may not be settled privately without approval from either the Department of Labor (“DOL”) or a federal district court. This apparently “settled” area of law was based exclusively on the Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United States. As a result, courts and employment attorneys alike have cautioned employers to undertake a private resolution of an FLSA dispute at their own peril. Until now, the Eleventh Circuit wasthe only court of appeals that had ruled on this issue. In this recent groundbreaking decision, the Fifth Circuit declined to apply Lynn’s Food Stores’ requirement of supervision and approval of private settlements, finding that a private settlement unapproved by either the DOL or federal district court can be enforceable under certain circumstances.
In Martin, the plaintiffs,several unionized lighting and rigging technicians, filed a grievance claiming they had not been paid for all hours worked during the filming of the upcoming movie “Spring Break ’83.” Upon concluding that it would be impossible to determine that the plaintiffs worked the days they alleged to have worked, the union and the employer entered into a settlement agreement with regard to the disputed hours worked, waiving the claimants’ right to file any claims with regard to those disputed hours. Before the settlement agreement was signed by union representatives, the plaintiffs filed this lawsuit against Spring Break’ 83 Productions, L.L.C. Thereafter, once the settlement agreement was executed, the plaintiffs accepted and cashed the disbursed payments. The district court granted defendants’ motion for summary judgment, enforcing the private settlement agreement.
On appeal, the Fifth Circuit upheld the district court’s decision, holding that the payment offered to and accepted by the plaintiffs pursuant to the settlement agreement constituted an enforceable resolution of their FLSA claims, which were predicated on a bona fide dispute about the time worked. The court further noted that the settlement agreement was not a compromise of guaranteed substantive rights under the FLSA, but simply a compromise of plaintiffs’ claims; therefore, it did not contravene the Supreme Court’s restriction on union representatives’ waiver of substantive FLSA rights of their members. The Fifth Circuit found Lynn’s Food Stores to be distinguishable in that, unlike the Lynn’s Food Stores employees, the Martin plaintiffs were represented by counsel who had filed a lawsuit specifically seeking overtime pay for the plaintiffs before the settlement agreement was executed, and thus, the settlement constituted a valid release. “The money [plaintiffs] received and accepted . . . for settlement of their bona fide dispute did not occur outside the context of a lawsuit, hence the concerns that the Eleventh Circuit expressed in Lynn’s Food Stores [were] not implicated.”
Martin’s common sense reasoning is certainly welcome news for employers who have been hesitant to enter into a private settlement agreement, given the myriad of issues inherent in obtaining approval of the settlement from the DOL or federal district court. Certainly, the ability to settle FLSA disputes privately and confidentially should help employers avoid the potential of facing “copycat” lawsuits as a result of a settlement that has been put in the public record. While this decision provides support for entering into an unsupervised private settlement agreement of wage and hour claims in the Fifth Circuit (Texas, Louisiana and Mississippi), particularly where the FLSA claimant is represented by counsel and an adversary process is underway, it is still advisable for employers in other jurisdictions to seek DOL or court approval for FLSA settlements in order to ensure the validity of the release of claims.
We will be sure to keep you apprised of any trends or developments arising out of this landmark decision that could pave the way for private FLSA settlements to be treated and enforced in the same manner as settlement agreements in all other employment-related disputes.