If you're an employer and think you might be able to settle a claim under the Fair Labor Standards Act on your own, think again.
A recent decision from the U.S. Court of Appeals for the Eleventh Circuit – which hears appeals from federal courts in Alabama, Florida, and Georgia – provides a timely warning to "do-it-yourselfers." As the Court said, "[The parties] attempted to settle the litigation without the advice and assistance of attorneys, which only led to the involvement of more attorneys and more litigation."
Candace Nall worked as a front desk clerk and night auditor at a motel. For the first four months Nall used a time clock to keep track of her hours worked, but later the owner of the motel told her to stop using the time clock and said that he would pay her a "salary" of $8.75 per hour. Nall then started verbally reporting her hours to the owner. There were no accurate written records of the hours that Nall actually worked.
Nall claimed that she "periodically" worked more than 40 hours per week but was not paid overtime, which violated the FLSA. Based on the guest registry, Nall figured that she was owed at least $3,780 in unpaid overtime. Any employer who is found to have violated the FLSA is liable to the employee or employees affected in the amount of their unpaid overtime compensation plus the same amount again as liquidated damages, meaning that the employer's total potential exposure was at least $7,560.
Nall quit her job and hired an attorney, who filed an FLSA lawsuit on her behalf against the owner individually and the motel. The owner, without the assistance of an attorney, filed an answer for himself and for the motel. (The court entered default against the motel because, as a non-attorney, the owner could not represent the motel although he could represent himself. The motel had to hire an attorney to get the default set aside.)
In May 2010, still acting without an attorney, the owner called Nall about settling her lawsuit. The two of them agreed to meet at the motel. The owner told Nall not to bring her attorney, and she didn't. When the two of them met and talked, the owner told Nall that she was "ruining his business" and that it would be better for him if she would settle the case. He presented her with two documents to sign and offered her a check for $1,000 plus $1,000-$2,000 in cash if she agreed to sign the two documents and dismiss her lawsuit. In other words, the offer did not include her liquidated damages and may not have included her full back pay. Nall said that she felt she was being pressured, but she agreed to sign the two documents because she trusted the owner and she "was homeless at the time and needed money."
What Nall had signed was a voluntary dismissal of her lawsuit "with prejudice" (meaning it could never be re-filed) and a letter to her attorney informing him that the case had been settled. There was no written settlement agreement.
The district court initially rejected the settlement because Nall's attorney had not been involved, but the defendants, who were now represented by an attorney, moved to enforce the "deal." The district court then approved the settlement, and Nall appealed to the 11th Circuit. The appeals court reversed, finding that the lower court had erred in approving the deal because it was not a "stipulated judgment" as required in the 11th Circuit case of Lynn's Food Stores v. United States.
In Lynn's Food Stores, the court had held that an FLSA claim could be settled in only one of two ways: (1) under the supervision of the U.S. Department of Labor, or (2) pursuant to a "stipulated judgment" entered by the court after a proposed settlement is presented by both parties. The rationale behind the rule is to prevent employers from taking undue advantage of their superior bargaining power.
In the Nall case, the fatal flaw was that Nall herself opposed the settlement. As the 11th Circuit noted, "it takes two (or more) to stipulate, and a judgment to which one side objects is not a stipulated one. . . .When a plaintiff's attorney asks the district court to reject a settlement agreement that was reached without the attorney's knowledge or participation, whatever else the judgment approving the agreement may be, it is not a 'stipulated judgment' within the meaning of Lynn's Food."
Common Sense Counsel: Trying to settle an FLSA case on your own is like doing your own plumbing: when things go wrong, your entire home or business can be ruined. Wage and Hour law is the same. Innovative pay plans, poor recordkeeping, working off the clock, and misclassification can all be costly and are completely avoidable. With the FLSA, "self-help" to resolve a claim is simply not a good option.