Recently, the U.S. Court of Appeals for the Fifth Circuit upheld a private settlement of Fair Labor Standards Act (“FLSA”) claims on the grounds that the settlement resolved a “bona fide dispute as to the number of hours worked,” rather than a waiver of plaintiffs’ substantive FLSA rights. Martin v. Spring Break ’83 Productions, LLC, No. 11-30671 (5th Cir. July 24, 2012). The decision challenges the conventional wisdom that the settlement of wage and hour claims must be supervised either by the U.S. Department of Labor (“DOL”) or a court.

The Fifth Circuit’s decision is based on the following conclusions:  

  • The private resolution of FLSA claims predicated on a “bona fide dispute” about the amount of time worked is enforceable and does not constitute a compromise of guaranteed FLSA substantive rights.
  • The fact that the plaintiffs were represented by a union and that the settlement occurred during the course of litigation alleviated concerns about the unequal bargaining power affecting the terms of the settlement.
  • The Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), which is widely accepted for the proposition that all FLSA settlements must be approved by the DOL or a court in order to be valid, is distinguishable because the plaintiffs in the present case knew of their FLSA rights, were represented by counsel, and accepted compensation in the context of litigation.  

A more in-depth analysis of the court’s decision follows below.

The case involved the plaintiffs’ claims that they had not been properly paid overtime wages while working on the set of a movie, Spring Break ’83, from October to December 2007. The plaintiffs were represented by a union who entered a collective bargaining agreement (“CBA”) at the start of filming with the defendant production company. Toward the end of the movie’s production, the union filed a grievance on the plaintiffs’ behalf claiming they had not been paid for all hours worked. The union initiated an investigation, and the investigator ultimately determined that it would be impossible to determine whether the plaintiffs actually worked on all the days claimed. The plaintiffs eventually filed suit in June 2009. In November 2009, the defendants and plaintiffs’ union representatives entered a settlement agreement resolving plaintiffs’ FLSA claims. The settlement was not approved by the DOL, nor the court. The district court ultimately granted the defendants’ motion for summary judgment, ruling that the private settlement agreement contained a valid release of the plaintiffs’ FLSA claims.

On appeal, the Fifth Circuit first held that the plaintiffs were bound by the terms of the settlement agreement even though they did not sign it, because both the settlement and the CBAs stated that the union was the plaintiffs’ authorized representative and because the plaintiffs accepted and cashed their settlement checks. As to the validity of the private release of the FLSA claims, the Fifth Circuit cited with approval the district court’s reliance on Martinez v. Bohls Bearing Equip. Co., 361 F. Supp. 2d 608 (W.D. Tex. 2005), in which the court stated, “parties may reach private compromises as to FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due.” The Fifth Circuit agreed and stated a “bona fide dispute . . . over the number of hours for which [plaintiffs] are owed their set rate of pay” existed in the present case, while citing the union investigator’s determination that it could not be determined whether the plaintiffs had actually worked on the days claimed.

Accordingly, the Fifth Circuit held that the settlement agreement “is an enforceable resolution of [the plaintiffs’] FLSA claims predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights themselves.” The court also relied on its previous decision in Thomas v. Louisiana, 534 F.2d 613 (5th Cir. 1976), in which it had approved a private settlement of FLSA claims on the grounds that “although no court ever approved this settlement agreement, the same reason for enforcing a court-approved agreement i.e., little danger of employees being disadvantaged by unequal bargaining power, applies here.” Similarly, in Martin, the court cited the plaintiffs’ union representation and stated that the settlement agreement “was a way to resolve a bona fide dispute as to the number of hours worked – not the rate at which [plaintiffs] would be paid for those hours.”

In a footnote, the Fifth Circuit addressed the Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), which was previously the only circuit court case on the issue and widely accepted for the proposition that all FLSA settlements must be approved by the DOL or a court in order to be valid. The Fifth Circuit distinguished Lynn’s Food Stores on its facts, observing that that case involved plaintiffs (1) with little to no knowledge of their rights or the defendant’s liability under the FLSA, (2) who had not consulted an attorney, and (3) many of whom could not read or understand English. In contrast, the plaintiffs in Martin were represented by counsel, were aware of their FLSA rights, and had filed suit for unpaid wages prior to execution of the settlement agreement. Further, the court stated that the plaintiffs’ settlement payments did not occur outside the context of a lawsuit, further distinguishing Lynn’s Food Stores. The Fifth Circuit also rejected the plaintiffs’ contention that the settlement agreement constituted a waiver of substantive FLSA rights and is therefore barred by the Supreme Court’s holding in Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728, 745 (1981). Rather, the Supreme Court held that the plaintiffs’ FLSA rights were adhered to and addressed in the settlement agreement and, therefore, were not waived or bargained away by the union. According to the Fifth Circuit, the Supreme Court’s concerns in Barrentine are not present when plaintiffs, “with counsel, personally received and accepted compensation for the disputed hours.”