If I settle my employment lawsuit and release “all claims,” does that include wage-hour claims if the subject never came up? Last week, in Bodle, et al. v. TXL Mortgage Corporation, the Fifth Circuit said no.
As wage-hour practitioners know, the law in most circuits makes settlement of wage-hour claims a hassle, requiring either court approval or supervision by the Department of Labor for an enforceable release. In either case, the settlement terms are not confidential and may be easily be discovered.
But not so in the Fifth Circuit. In Martin v. Spring Break ’83 Productions, L.L.C., the Fifth Circuit held in 2012 that a private settlement reached over a bona fide dispute under the FLSA is enforceable. So in the Fifth Circuit, parties can settle wage-hour claims privately in most circumstances with enforceable releases, without having to seek court or government approval. But what if the case being settled was not a wage-hour case, and wage-hour issues never came up before the signing of a general release of “all claims?” In those circumstances, the Fifth Circuit ruled wage-hour claims were not waived.
TXL Mortgage Corporation (“TXL”) sued former employees Ambre Bodle and Leslie Meech in Texas state court for violation of their noncompetition covenants. The parties settled the litigation with a private settlement agreement and agreed final judgment. The settlement agreement said that Bodle and Meech “fully and completely release and discharge TXL . . . from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature . . . whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute or regulation.”
But on the exact same day they settled the state court litigation, Bodle and Meech turned around and sued TXL and its president, William Dale Couch, in federal court under the FLSA, claiming they were owed overtime pay. The trial court dismissed the case on the basis of the release, relying on Martin.
In Martin, the Fifth Circuit found the private settlement agreement of FLSA claims enforceable, because it resolved a “bona fide dispute” between the parties over the number of hours worked. But unlike Martin, the state court action in Bodle was not about a wage-hour dispute at all. It was a dispute over restrictive covenants. The district court reasoned that because the topic of unpaid commissions arose during settlement discussions, that was close enough to FLSA-type claims to render the general release enforceable as to overtime claims. The Fifth Circuit said this was not good enough because there was no discussion of overtime claims during settlement talks, and thus no bona fide wage-hour dispute.
In the wake of Bodle, questions remain as to the enforceability of releases against FLSA claims in contexts other than settlement of FLSA suits. Would a release as part of the settlement of a race discrimination discharge lawsuit that specifically references FLSA claims be enforceable against such claims? What about a release in return for severance pay in a reduction-in-force situation if the issue of wage-hour claims were specifically addressed? Currently, Martin and Bodle do little to provide concrete answers.