On June 1, 2015, in Bodle v. TXL Mortgage Corporation, the U.S. Court of Appeals for the Fifth Circuit recognized established precedent1 that parties may privately settle and release wage claims that include a bona fide dispute as to liability (e.g., hours worked or compensation owed). But, the court also refused to find a prior state court settlement agreement enforceable as to overtime claims brought under the Fair Labor Standards Act (FLSA) because there was no mention or factual development of any claim of unpaid overtime or a bona fide dispute as to hours worked or compensation owed under the FLSA in the prior state court case and its settlement negotiations.
The two plaintiffs in Bodle sued their former employer, TXL, and its president, alleging that they were owed unpaid overtime under the FLSA. In a prior state court action, TXL sued the plaintiffs, alleging that they violated noncompete covenants by soliciting business and employees to leave TXL for a competitor for whom the plaintiffs worked after leaving TXL. The plaintiffs and TXL ultimately settled the state court action. The plaintiffs agreed to release, among other things, “all claims and causes of action related to or in any way arising from [the plaintiffs’] employment with TXL, whether based in . . . any federal, state or local law, statute, or regulation.” In the subsequent FLSA suit, the district court granted summary judgment for the defendants on the basis that the state court settlement was binding on the plaintiffs and therefore barred their subsequent FLSA claims.
The Fifth Circuit reversed summary judgment for the defendants, noting that the specific circumstances surrounding the generic settlement and release in the state court suit did not support enforcing the parties’ private settlement of the plaintiffs’ FLSA claims. The court noted that although private settlement agreements that constitute a compromise over FLSA claims by resolving bona fide disputes about hours worked or compensation owed are enforceable, “the absence of any mention or factual development of any claim of unpaid overtime compensation in the state court settlement negotiations precludes a finding that the release resulted from a bona fide dispute under Martin.” The court further noted that the “prior state court action did not involve the FLSA,” “the parties never discussed overtime compensation or the FLSA in their settlement negotiations,” and “there was no factual development of the number of unpaid overtime hours nor of compensation due for unpaid overtime.” Summary judgment for the defendants was therefore reversed.
Takeaways From Bodle
Despite Bodle’s fact-specific holding, private settlements of FLSA claims that are reached due to a bona fide dispute over hours worked or compensation owed are still enforceable in the Fifth Circuit. Nonetheless, employers negotiating private settlements of claims under the FLSA in the Fifth Circuit should be mindful that their agreements and discussions concern a bona fide dispute over hours worked or compensation owed and that those bona fide recitals are bargained for and contained in the release itself.