District Court Rules That FLSA Cases Can Be Dismissed Based On Private Settlements, But Employers "Take Their Chances" On Enforcement.

By Michael D. Thompson

The prohibition against private settlements of FLSA claims was scrutinized again last week, when U.S. District Court for the Eastern District of New York held that parties could voluntarily dismiss an FLSA lawsuit without obtaining approval of the settlement agreement from the court.  Picerni v. Bilingual SEIT & Preschool Inc. 

Courts in FLSA cases have historically expressed the concern that individual waivers of FLSA rights would enable employers to use their superior bargaining power to extract individual waivers from their employees and “thwart the legislative policy [that the FLSA] was designed to effectuate.”  Brooklyn Sav. Bank v. O’Neill

Accordingly, in 1982, the Eleventh Circuit held that disputes under the FLSA could not be settled without the approval of a court or the Department of Labor.  Lynn’s Food Stores, Inc. v. United States.

However, in August 2012, we blogged about the Fifth Circuit’s decision to uphold the enforcement of a private settlement agreement resolving FLSA claims.  Martin v. Spring Break ’83 Productions LLC.  The United States Supreme Court subsequently declined to review the Fifth Circuit’s ruling and settle the split between the circuits.

Thus, when the issue arose in Picerni, the District Court considered whether a prohibition on private settlements for FLSA cases “runs afoul” of Federal Rule of Civil Procedure 41.  That rule provides that a federal lawsuit, with certain exceptions, may be voluntarily dismissed by the plaintiff before the defendant files an answer, and may thereafter be dismissed through a stipulation signed by all parties.

The District Court held that FLSA claims were subject to F.R.Civ.P. 41 and therefore the parties were allowed to dismiss their own lawsuit.

However, the District Court made it clear that it was offering no opinion regarding the enforceability of the underlying settlement agreement.

The Court cited Lynn Foods for the proposition that “[m]ost courts have at least suggested in dictum, if not held, that a private FLSA settlement will not be enforced without court approval.”  The District Court further noted that “[o]ther courts have allowed private settlements if the circumstances, when examined in subsequent litigation, are found fair” or “when the court finds that a plaintiff has received in settlement 100% of the wages that he should have been paid.”  See Martinez v. Bohls Bearing Equipment Co.; Mackenzie v. Kindred Hospitals East. L.L.C. 

Thus, the District Court stated that the parties could agree to a private settlement and dismiss their FLSA lawsuit.  In settling the matter without court or DOL approval, however, the parties assumed the risk that the settlement agreement might not be enforced to bar subsequent litigation. 

Nevertheless, “if parties want to take their chances that their settlement will not be effective,” the District Court stated that it would permit them to do so.

The ruling by the District Court for the Eastern District of New York in Picerni, in conjunction with the Fifth Circuit’s decision in Martin, signal an increasing willingness to accept the private settlement of FLSA cases.  However, employers should consider whether the need to keep such an agreement private outweighs the possibility that the agreement will not be enforced to preclude further litigation of the same claims.

California Supreme Court To Review Class Action Waiver Issue

By Michael Kun and Aaron Olsen

To the surprise of few, the California Supreme Court has decided to review the Court of Appeal’s decision enforcing a class action waiver in Iskanian v. CLS Transportation Los Angeles, LLC. 

We wrote in detail about that decision on this blog earlier this year.  

In reaching its conclusion, the Court of Appeals relied on the April 2011 United States Supreme Court’s landmark decision in AT&T Mobility, LLC v. Concepcion.  Whether the California Supreme Court will follow Concepcion or attempt to distinguish it is impossible to predict.   Unfortunately, while they await that decision, employers may not rely on Iskanian, which has been depublished pending review.

Landmark Fifth Circuit Ruling Allows Private FLSA Settlements Without DOL/Court Supervision

By: Greta Ravitsky and Jordan Schwartz

On July 24, 2012, the Fifth Circuit became the first federal appellate court in over thirty years to enforce a private settlement of a wage and hour dispute arising under the Fair Labor Standards Act (“FLSA”) in Martin v. Spring Break ’83 Productions LLC.

For decades, federal courts have consistently held that FLSA wage and hour disputes may not be settled privately without approval from either the Department of Labor (“DOL”) or a federal district court.  This apparently “settled” area of law was based exclusively on the Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United States. As a result, courts and employment attorneys alike have cautioned employers to undertake a private resolution of an FLSA dispute at their own peril.  Until now, the Eleventh Circuit wasthe only court of appeals that had ruled on this issue. In this recent groundbreaking decision, the Fifth Circuit declined to apply Lynn’s Food Stores’ requirement of supervision and approval of private settlements, finding that a private settlement unapproved by either the DOL or federal district court can be enforceable under certain circumstances.

In Martin, the plaintiffs,several unionized lighting and rigging technicians, filed a grievance claiming they had not been paid for all hours worked during the filming of the upcoming movie “Spring Break ’83.” Upon concluding that it would be impossible to determine that the plaintiffs worked the days they alleged to have worked, the union and the employer entered into a settlement agreement with regard to the disputed hours worked, waiving the claimants’ right to file any claims with regard to those disputed hours. Before the settlement agreement was signed by union representatives, the plaintiffs filed this lawsuit against Spring Break’ 83 Productions, L.L.C. Thereafter, once the settlement agreement was executed, the plaintiffs accepted and cashed the disbursed payments. The district court granted defendants’ motion for summary judgment, enforcing the private settlement agreement. 

On appeal, the Fifth Circuit upheld the district court’s decision, holding that the payment offered to and accepted by the plaintiffs pursuant to the settlement agreement constituted an enforceable resolution of their FLSA claims, which were predicated on a bona fide dispute about the time worked. The court further noted that the settlement agreement was not a compromise of guaranteed substantive rights under the FLSA, but simply a compromise of plaintiffs’ claims; therefore, it did not contravene the Supreme Court’s restriction on union representatives’ waiver of substantive FLSA rights of their members. The Fifth Circuit found Lynn’s Food Stores to be distinguishable in that, unlike the Lynn’s Food Stores employees, the Martin plaintiffs were represented by counsel who had filed a lawsuit specifically seeking overtime pay for the plaintiffs before the settlement agreement was executed, and thus, the settlement constituted a valid release.  “The money [plaintiffs] received and accepted . . . for settlement of their bona fide dispute did not occur outside the context of a lawsuit, hence the concerns that the Eleventh Circuit expressed in Lynn’s Food Stores [were] not implicated.”

Martin’s common sense reasoning is certainly welcome news for employers who have been hesitant to enter into a private settlement agreement, given the myriad of issues inherent in obtaining approval of the settlement from the DOL or federal district court.  Certainly, the ability to settle FLSA disputes privately and confidentially should help employers avoid the potential of facing “copycat” lawsuits as a result of a settlement that has been put in the public record.  While this decision provides support for entering into an unsupervised private settlement agreement of wage and hour claims in the Fifth Circuit (Texas, Louisiana and Mississippi), particularly where the FLSA claimant is represented by counsel and an adversary process is underway, it is still advisable for employers in other jurisdictions to seek DOL or court approval for FLSA settlements in order to ensure the validity of the release of claims.

We will be sure to keep you apprised of any trends or developments arising out of this landmark decision that could pave the way for private FLSA settlements to be treated and enforced in the same manner as settlement agreements in all other employment-related disputes.