For decades, it has been settled law that Fair Labor Standards Act (FLSA) claims could only be settled and validly released in one of two ways: either through a payment and settlement supervised by the Department of Labor (DOL) or by a stipulated judgment entered by a court after the court has determined that the proposed settlement is fair and reasonable. However, in recent years, some courts have permitted and upheld private settlements of FLSA claims in certain exceptional circumstances. Despite these developing exceptions to the general rule, in recent decisions, both the Eleventh and Sixth Circuit Courts of Appeals re-emphasized that private waivers or settlements of Fair Labor Standards Act (FLSA) claims are unenforceable.
Nall v. Mal-Motels, Inc.
On July 29, 2013, the Eleventh Circuit held in Nall v. Mal-Motels, Inc., No. 12-13528, 2013 WL 3871011 (11th Cir. July 29, 2013) that FLSA claims may only be settled and released under the supervision of the DOL or through a stipulated judgment that is entered after being scrutinized by a court for fairness, even in cases where there is a written settlement agreement between an employer and a former employee. In Nall, the plaintiff filed suit against her former employer alleging that she was not paid overtime to which she was entitled. After filing suit, the plaintiff was contacted by the owner of the company, who asked her to meet him without an attorney to discuss settlement. The two parties agreed to a settlement and subsequently a voluntary dismissal was filed with the district court. Initially, the district court rejected the dismissal because although Nall was represented by an attorney, the voluntary dismissal was filed pro se. Mal-Motels then retained an attorney who moved to enforce the settlement, and the district court approved the settlement over objections filed by the plaintiff’s attorney and dismissed the case.
The plaintiff appealed the case to the Eleventh Circuit, arguing that the settlement approved by the district court did not meet the requirements of Lynn’s Food Stores, Inc. v. U.S., 679 F.2d 1350 (11th Cir. 1982), which requires either a stipulated judgment approved by the court or a DOL-supervised payment and settlement. The Lynn’s Food Stores decision was based on the public policy justifications underlying the FLSA—that is, that courts do not want an employer to use its potential unfair bargaining power to force an employee to agree to an unfair settlement. In Nall, the Eleventh Circuit explained that the same factors that would lead to uneven bargaining power between an employer and a current employee were also applicable to the relationship between an employer and its former employee. Thus, the Eleventh Circuit could only uphold the district court’s approval of the settlement if the court entered a stipulated judgment approving the settlement. The court noted that a stipulated judgment requires the approval of both parties, and because the plaintiff objected to the judgment, it could not be considered stipulated. Accordingly, because the settlement between Nall and Mal-Motels was neither supervised by the DOL nor was memorialized by a stipulated judgment from the court, the Eleventh Circuit held that the district court erred by enforcing the settlement.
Although the facts of Nall are unique and unlikely to occur again with any frequency, the overall import of the decision is that the Eleventh Circuit strongly reaffirmed its commitment to Lynn’s Food Stores and made clear that the requirements set forth in that case apply regardless of whether the plaintiff is a current or former employee.
Boaz v. FedEx
On August 6, 2013, in Boaz v. Federal Express Information Services, Inc., No. 12-5319, 2013 WL 3985015 (Aug. 6, 2013), the Sixth Circuit reaffirmed its commitment to permitting FLSA waivers only under DOL or court supervision. In that case, Federal Express (FedEx) required its employees to sign employment agreements requiring them to bring claims against FedEx within six months of the date of the event forming the basis for the lawsuit. The normal statute of limitations for FLSA claims is either two or three years (depending on whether the violation is willful), and when Boaz attempted to bring a claim more than six months after she was allegedly paid improperly, FedEx attempted to enforce the contractual limitation in the employment agreement. The court held that the employment agreement provision in question operated as a waiver of FLSA claims and was therefore unenforceable because it was not entered into under DOL or court supervision. In reaching this conclusion, the court noted that an employee cannot validly release FLSA claims either prospectively or retrospectively.
Recent Decisions from Other Courts Taking a Different Approach
The Nall and Boaz holdings are notable for their rejection of potential exceptions to the general prohibition of waivers or private settlements of FLSA claims. In contrast, the Fifth Circuit Court of Appeals and a New York district court have recently permitted private FLSA settlements in certain very specific factual situations. In August 2012, in Martin v. Spring Break ’83 Productions, 688 F.3d 247 (5th Cir. 2012), the Fifth Circuit enforced a private FLSA settlement agreement negotiated by the employees’ union and precluded the individual employees from later asserting FLSA claims in litigation. The court reasoned that because the settlement was negotiated by the union, the normal public policy concerns of unequal bargaining power were not applicable and the waiver was enforceable.
Similarly, in Picerni v. Bilingual SEIT & Preschool, Inc., No. 12 CIV 4938, 2013 WL 646649 (E.D.N.Y. Feb. 22, 2013), the court found that Fed. R. Civ. P. 41 applied to FLSA cases, and that a plaintiff may voluntarily dismiss his FLSA claims after accepting an offer of judgment and before the defendant files an answer. The court did note, however, that the settlement could still be scrutinized for fairness—that is, if the plaintiff later decides to challenge the settlement, before agreeing to enforce it, the court in the subsequent action would be required to scrutinize it for fairness.
Ultimately, it remains clear that the Eleventh Circuit will continue to strictly apply the Lynn’s Foods prohibition against private settlement of FLSA claims outside of DOL or court supervision, and it appears that the same strict rule applies in the Sixth Circuit. Although courts in other circuits have started to carve out some exceptions to the FLSA’s general prohibition on private settlement of claims under the statute, employers should tread with extreme caution when settling FLSA claims and should seek guidance from counsel regarding the appropriate steps to take when settling such claims.