Fifth Circuit Finds Private Settlement of FLSA Claims Enforceable

December 6, 2012

It is commonly accepted by employment law practitioners that Fair Labor Standards Act settlements must be approved by the United States Department of Labor or court-supervised to be enforceable.  However, the U.S. Court of Appeals for the Fifth Circuit recently rejected this prevailing belief and upheld a private settlement on the grounds that it resolved a “bona fide dispute as to the number of hours worked,” rather than constituting a waiver of plaintiffs’ substantive FLSA rights.

In Martin v. Spring Break ’83 Productions, LLC, the plaintiffs, who were represented by a union, claimed they were not properly paid overtime while working on the set of a movie.  The union filed a grievance on the plaintiffs’ behalf claiming they had not been paid for all hours worked and conducted an investigation that concluded it would be impossible to determine whether plaintiffs actually worked on all the days claimed.  Plaintiffs subsequently filed a lawsuit in June 2009.  In November 2009, the defendants and plaintiffs’ union representatives entered into a settlement agreement resolving plaintiffs’ FLSA claims.  Because the settlement was not approved by the USDOL or a court, the plaintiffs argued that the FLSA releases were not enforceable.

The district court granted the employer’s motion for summary judgment finding the FLSA releases to be valid and the Fifth Circuit affirmed.  In so holding, the Circuit Court 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 collective bargaining agreement stated that the union was the plaintiffs’ authorized representative.  The Court further noted that the plaintiffs accepted and cashed their settlement checks, and the fact that the plaintiffs were represented by a union and the settlement was reached during the course of pending litigation minimized any suggestion of unequal bargaining power between the parties.

Employers are often confronted with the issue of how best to resolve an FLSA claim out of court, and specifically whether it should obtain a release knowing that such a release would most likely be unenforceable.  The Fifth Circuit decision is encouraging as it may pave the way for other courts to enforce private FLSA settlement agreements using the specific factual findings there as a road map for employers to follow, particularly in the unionized setting.

The case also serves as a good opportunity to remind New York employers that private settlement agreements releasing minimum wage and overtime claims under the New York Labor Law are generally enforceable.  Furthermore, even if an FLSA release may be deemed unenforceable, there may be certain provisions an employer may want to include in a private settlement agreement that might be helpful in defending any subsequent litigation.  For example, it may be helpful to include certain affirmative acknowledgments with respect to the employee's duties and/or the employee's hours worked depending on the type of claim being asserted.