For many years, the traditional practice has been that settlements of claims brought, and waivers of claims arising, under the FLSA required approval either from the Department of Labor (DOL) or a court. This rationale has followed from a decision from a federal appellate court dating back to 1982 determining that lawsuits for unpaid compensation under the FLSA cannot be settled without approval from the court. Because of this history, many wage-and-hour practitioners advise that releases of FLSA claims in private pre-litigation settlement or separation agreements might not be enforceable because they lack court or DOL approval. However, two federal decisions within the last year might indicate that change — allowing more flexible and confidential evaluation and resolution of FLSA claims — may be afoot.
In July 2012, a panel of the United States Court of Appeals for the Fifth Circuit upheld a union-negotiated settlement of claims that included a waiver of claims under the FLSA. In reaching that decision, the court ruled that if a settlement is fair when it is reached, it should not later become automatically unenforceable simply because a judge or the DOL did not pass judgment on the settlement agreement at the time of execution.
A recent decision by a federal judge in New York suggests that momentum for change away from longstanding practices regarding FLSA settlements and waivers could be starting to build. In the case, the employee sought a voluntary dismissal of her FLSA lawsuit, which the judge initially refused based on the premise that resolution of FLSA litigation requires court supervision. However, on February 22, 2013, the judge reversed course and granted the dismissal of the lawsuit without review or approval of any private settlement, concluding that nothing in the FLSA bars litigants from dismissing cases without court approval.
While the decision from the Fifth Circuit and the recent district court case in New York may signal the beginnings of a shift that could ultimately allow for easier — and confidential — enforceable FLSA settlements, it remains premature to assume that FLSA settlements can now be done privately, will be enforceable, and will not encounter future resistance from courts. Some federal judges or appellate panels may remain inclined to continue following the traditional approach regarding FLSA settlements. In certain jurisdictions, court or DOL supervision is still required due to binding precedent. However, when FLSA claims arise in the future, employers and their counsel now have a little more reason to discuss private settlement and consider the risks and benefits of such an approach. If judges continue demonstrating an inclination in the future to allow for private settlement of such claims, the enforceability of releases in such settlements and the confidential aspects private settlement affords may support re-evaluation of the benefits of informal resolution of FLSA claims.