The federal courts have long struggled with the issue of whether private settlements of claims under the FLSA are valid, and, if so, under what circumstances. The Supreme Court has held that a party may not waive or release a claim for liquidated damages under the FLSA where there is no bona fide dispute as to coverage or wages owed under the FLSA. Brooklyn Sav. Bank v. O’Neal, 324 U.S. 697 (1945). In D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946), the Supreme Court went further and held that a release of a liquidated damages claim under the FLSA is not valid even where there is a bona fide dispute as to coverage under the FLSA. In D.A. Schulte, the Supreme Court allowed the plaintiffs to go forward in a suit to recover liquidated damages under the FLSA, despite the fact that the parties had signed releases in connection with their employer’s payment of the overtime wages they claimed were due. In Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 745, (1981), the Supreme Court held that a party could file an FSLA claim in federal court even though the same claim had been submitted to arbitration pursuant to a collective bargaining agreement.
The Eleventh Circuit, in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1352-53 (11th Cir.1982), ruled that “[t]here are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees.” First, under § 216(c) of the FLSA, the Secretary of Labor can supervise the payment of unpaid wages owed to employees. See Lynn’s Food Stores, 679 F.2d at 1353. Second, “[w]hen employees bring a private action for back wages under the FLSA, and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.” Id. While other courts have discussed this issue, the circuit courts are not in agreement as to the validity of privately negotiated settlements.
THE FIFTH CIRCUIT’S RULING IN MARTIN
In Martin v. Unidentified Parties, No. 11-30671 (July 24, 2012), the Fifth Circuit held that a private settlement of FLSA wage claims by a union on behalf of represented employees against an employer was enforceable even though it was not approved by a court or by the US Department of Labor, refusing to follow Lynn. .
In Martin, individual union employees challenged a settlement agreement that their union entered into with their employer to resolve claims for unpaid compensation on the grounds that (i) the union had no authority to bind them individually as to their FLSA claims, and (ii) even if the union had such authority, the settlement agreement was invalid because it had not been approved by a court or by the US Department of Labor.
The court first considered whether the employees were bound by the union’s agreement to settle their claims. The court found that the union was the employees’ exclusive bargaining representative, had brought a grievance against the employer relating to the disputed wages, and had negotiated a resolution of the disputed claims with the employer, representing that it was the sole and exclusive representative for such employees. Also, upon completion of the settlement, the employees had accepted and cashed their individual settlement checks. The court found that as the employees exclusive bargaining representative, the union had discretion to negotiate a resolution of the employees’ claims, and that the employees had in fact accepted the benefits of the settlement. Accordingly, the employees were bound by the agreement.
The court next considered whether the agreement was enforceable, or whether it was invalid because it was not approved by a court or by the Department of Labor, as other courts have found. The court found that because a bona fide dispute existed as to the employees’ claims, the private settlement was enforceable without such approval, relying in part upon Martinez v. Bohls Bearing Equip. Co., 361 F. Supp. 2d 608 (W.D. Tex. 2005). In Martinez, the court found that “a private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.” Thus, the Martinez court concluded, where there is a dispute as to the hours worked or the compensation due an employee, an unsupervised, private settlement may be accomplished.
The Martin court found under the facts before it that there was a bona fide dispute over these issues. In fact, the court found, the union representative assigned to investigate the employees’ claims had concluded that it was impossible to confirm whether the employees actually worked the days for which they claimed overtime compensation in their grievance. Because the settlement did not serve as a compromise of “guaranteed FLSA substantive rights themselves,” but was rather a resolution of a bona fide dispute over the number of hours actually worked, the court had no trouble finding that the employees’ claims could be validly released.
Finally, the court distinguished the Supreme Court opinion in Barrentine, which held that resolution of bargaining unit employees’ claims for overtime under a collective bargaining agreement’s dispute resolution process did not preclude a subsequent suit by the employees. The Martin court found that the facts of Barrentine differed, in that in Barrentine the plaintiffs’ substantive rights were affected because the claims were rejected entirely and not settled during the grievance process, while in the case before the court the plaintiffs received and accepted the settlement proceeds to resolve disputed claims.
Martin may provide some comfort to employers who wish to negotiate voluntary settlements with employees concerning FLSA claims for unpaid wages without seeking approval from a court or the Department of Labor. However, not all courts agree, and so employers should still be extremely careful when addressing these types of claims. And, even if a court might adopt the Fifth Circuit’s reasoning, the specific facts will determine whether such a settlement would be valid.