United States: Fifth Circuit Opens Door For Private FLSA Settlements

There has long been some uncertainty in the law over the validity of a private release of wage and hour claims under the Fair Labor Standards Act (FLSA).  Most Courts have required that a settlement be approved by the Department of Labor or a federal court to be valid.   The reason for such a harsh rule is to prevent unscrupulous employers from pressuring employees into waiving their substantive rights to minimum wage and overtime.  In practice, however, this rule has made it difficult to have a full release from a departing employee (as wage claims cannot be included) and led to most settlements in litigation being filed with the court (which destroys confidentiality). 

In Martin v. Spring Break '83 Productions LLC,  No 11-30671 (July 24, 2012), the Court found that a settlement agreement between an employer and a union, which resolved a dispute over unpaid wages, was enforceable.  The Fifth Circuit explained that its holding was limited to a circumstance, such as this one, where there was a bonafide dispute over how much time the employees actually worked.  In other words, both sides agreed that the employees should be paid overtime at the statutory rate, but the question was how many hours the employees worked.  The Court concluded that there was no substantive waiver of legal rights and the employees' interests were adequately protected by their union. 

From a practical standpoint, there should be no substantive difference between a union settling an employee's claim and a lawyer.  Both would presumably afford sufficient representation of the employee to ensure a settlement is fair.  Therefore, this opinion is likely to be construed to allow private settlements of FLSA claims between private parties represented by counsel.  One important takeaway, however, is that this decision will not apply to some categories of FLSA claims.   A dispute over off the clock work should be covered by this decision (since the facts are in dispute not the legal rights of the employee) but a dispute over an overtime exemption would not (since the employee would be waiving a right to overtime).

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