Last month, in Barbee v. Big River Steel, LLC, No. 18-2255 (June 20, 2019), the United States Court of Appeals for the Eighth Circuit held that an independent agreement for attorneys’ fees in connection with a Fair Labor Standards Act (FLSA) settlement does not require court approval—without intimating any position on the current circuit split as to whether FLSA settlements in general require judicial approval. As stated by the court, under the express language of the FLSA, 29 U.S.C. § 216(b), attorneys’ fees are allowed “in addition to any judgment awarded,” such that the merits of an FLSA claim and the attorneys’ fees are distinct. As a result, the court observed, “any court judgment on the settled merits would necessarily be separate from any court review of the settled attorney fees.” The Court of Appeals vacated the district court’s underlying ruling that had modified the attorneys’ fees portion of the parties’ settlement agreement, finding that “no law gave the district court authority to interfere with [their] unconditional right” to settle the attorneys’ fees issue on their own terms.
In reaching its decision, the court addressed the origin of the existing circuit court split as to whether all FLSA settlements require judicial approval. Two cases decided by the Supreme Court of the United States in the 1940s, D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946) and Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697 (1945), held that courts must approve releases of some FLSA claims, but left open the question of whether the FLSA required judicial approval to settle bona fide disputes over hours worked or wages owed. The Second, Fourth, and Eleventh Circuits have declined to extend Gangi and O’Neil to permit settlement of bona fide FLSA disputes over hours worked or wages due without judicial or Department of Labor (DOL) approval. In Walton v. United Consumers Club, Inc., 786 F.2d 303, 306 (7th Cir. 1986), the Seventh Circuit suggested likewise in dicta. The Fifth Circuit, however, has permitted the enforcement of such settlements without judicial or DOL approval.
Although other circuits have not expressly ruled on the issue, district courts within those circuits have taken their own positions. In a 2016 case, for example, the U.S. District Court for the Western District of Tennessee required enforcement of an FLSA settlement of a bona fide dispute, observing that while the Sixth Circuit “has yet to rule definitively on the question … based on the unique purpose of the FLSA and the unequal bargaining power between employees and employers … FLSA settlements require approval by either the Department of Labor or a court.”
In Barbee, the court observed that the Eighth Circuit had never resolved whether 29 U.S.C. § 216 required judicial approval of all FLSA settlements, but found it unnecessary to address that question in order to determine the issue before it—namely, whether attorneys’ fees independently agreed to by the parties were subject to judicial approval. Significantly, however, the court noted that if FLSA settlements were subject to judicial review, “the court would retain the authority to ensure the attorney fees were in fact negotiated separately and without regard to the plaintiff’s FLSA claim, and there was no conflict of interest between the attorney and his or her client.” While the decision as a whole may imply that parties enjoy greater flexibility as to attorneys’ fees agreements, attorneys’ fees based on a percentage of the agreed-upon settlement amount—by far the most common arrangement in FLSA settlements—may still require approval in those jurisdictions that require judicial or DOL approval of FSLA settlements generally.