Federal district and appellate courts historically have refused to enforce settlements and/or waivers of FLSA rights without Department of Labor or court approval. We recently blogged here, for example, about a recent ruling from the Southern District of New York that rejected a proposed settlement of overtime claims because the proposed agreement contained a confidentiality clause. In Martin et al. v. Spring Break ’83 Productions, L.L.C. et al.; No. 11-30671 (July 24, 2012), a case involving the filming and production of a soon-to-be-released movie, the Fifth Circuit refused to follow this trend and became the first federal appellate court to enforce a private FLSA settlement. We are not sure if Spring Break ’83 will captivate moviegoers, but the Fifth Circuit’s ruling could be this summer’s blockbuster.
First, the cast of characters. The four plaintiffs were employed by Spring Beak ’83 Louisiana, L.L.C. as lighting and rigging technicians for the movie “Spring Break ’83.” Toward the end of production of the movie, the plaintiffs, who were represented by the International Alliance of Theatrical Stage Employees Local 478 (the “Union), filed a grievance alleging that they had not been paid for all their hours worked. A Union representative concluded it would be impossible to determine whether or not the plaintiffs had worked on the days they claimed they worked. Ultimately, on November 3, 2009, the Union (as exclusive representative of the employees in the bargaining unit) and Spring Break Louisiana entered into a settlement concerning the disputed hours worked. The Union and Spring Break Louisiana agreed that the settlement payments were the “amounts due and owing” to the aggrieved employees. And in exchange for those payments, the plaintiffs waived their right to file any complaints or lawsuits.
Then the plot thickens… On June 16, 2009, before the settlement agreement was signed by Union representatives, the plaintiffs filed a lawsuit against Spring Break Louisiana and several other individual and corporate defendants to recover their unpaid wages. On a summary judgment motion, the defendants argued that the plaintiffs had waived their claims as part of the settlement. In response, the plaintiffs argued that the settlement agreement was invalid because it was not approved by the DOL or by a court of competent jurisdiction. But the district court rejected this argument. It noted there was no binding precedent that addressed whether parties may privately settle disputes regarding unpaid waged under the FLSA, and it adopted the holding and logic of Martinez v. Bhols Bearing Equip. Co., 361 F. Supp. 2d 608 (W.D. Tex. 2005), that parties may privately settle FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due and that a release or waiver under such circumstances is enforceable. The Martinez court espoused a “move away from the rigid interpretation of statutory rights of the 1940s to a regime which supports settlement as a favored means of resolving disputes.” Id. at 630.
On appeal, the plaintiffs again argued that the settlement agreement was invalid. The Fifth Circuit followed the district court, adopted the holding and reasoning in Martinez, and found that “the payment offered to and accepted by [plaintiffs], pursuant to the Settlement Agreement, is an enforceable resolution of those FLSA claims predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights themselves.” In doing so, the Fifth Circuit cited BrooklynSav. Bank v. O’Neil, 324 U.S. 697 (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946) for the proposition that the U.S. Supreme Court left open the possibility for private settlements of bona fide disputes regarding hours worked or the rate of compensation. Regarding the facts, the Fifth Circuit highlighted that the plaintiffs “were already benefiting from legal counsel before the Settlement Agreement was signed in November 2009” and the money plaintiffs received and accepted for the settlement of their bona fide dispute occurred within the context of a lawsuit (because the plaintiff had already filed suit when the settlement agreement was executed). There was thus little danger of the employees being disadvantaged by unequal bargaining power.
The Fifth Circuit also analyzed and reject the plaintiffs’ contention that Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728 (1981) invalidated the settlement. In Barrentine, the Fifth Circuit explained, “the plaintiffs’ grievances based on the FLSA were submitted by the union to a joint grievance committee that rejected them without explanation, a final and binding decision pursuant to the collective bargaining agreement.” But in Martin, the Fifth Circuit noted, the plaintiffs “accepted and cashed settlement payments—[plaintiffs’] FLSA rights were adhered to and addressed through the Settlement Agreement, not waived or bargained away.” Thus, the Supreme Court’s concern in Barrentine that FLSA substantive rights would be bargained away are not implicated in this case. As the Fifth Circuit explained in Martin, “FLSA rights were not waived, but instead, validated through settlement of a bona fide dispute, which [plaintiffs] accepted and were compensated for.”
Will this blockbuster fizzle? Although the Fifth Circuit’s ruling here certainly reverses a strong trend, questions remain regarding its future impact. Some practitioners and judges may find the Fifth Circuit’s casual rejection of Brooklyn Sav. Bank and Gangiunpersuasive—since those cases -- in the view of many courts -- prohibit employees from waiving their rights to recover liquidated damages, whether or not there is a bona fide dispute. On the other hand, the Supreme Court’s concern in Brooklyn Sav. Bank and Gangi about unequal bargaining power is absent in cases like Martinwhere the employees are also represented by counsel and the parties reach a mutual compromises of a bona fide dispute regarding hours worked. Until more courts adopt the reasoning in Martinez and Martin, however, employers should still seek DOL or court approval for FLSA settlements if they wish to ensure that the release is valid. Otherwise, employers who reach private resolution of FLSA disputes will do so at their peril because the release will remain unenforceable.