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