eLABORate: Fifth Circuit Holds that Approval Not Required by Court or Department of Labor for FLSA Settlement

August 06, 2012

In Martin v. Spring Break ’83 Productions, LLC, No. 11-30671 (5th Cir. July 24, 2012), the Fifth Circuit Court of Appeals, addressing an issue of first impression, held that a union-negotiated settlement precluded plaintiffs, union members, from pursuing their claims under the Fair Labor Standards Act (“FLSA”) for unpaid wages, even though the settlement was never approved by the court or the Department of Labor (“DOL”). The ruling contravenes a long-standing Eleventh Circuit decision, Lynn’s Food Stores, Inc. v. United States, which had held that FLSA claims may not be settled without approval of the court or the DOL. The Fifth Circuit declined to read Lynn’s Food Stores to require approval from a court or the DOL in all instances, finding that settlement and waiver of FLSA claims may be effectuated without oversight in certain circumstances, such as those presented in Martin.

In Martin, union members employed as lighting and rigging technicians in the filmmaking and video production industry (“grips”) claimed they had not been paid for all hours worked during the filming of the movie “Spring Break ’83.” The union sent out a representative to investigate the merits of the claims. After the investigation, the union representative concluded that it would be impossible to determine whether plaintiffs had worked on the days they alleged. As a result, the union and the employer entered into a settlement agreement pertaining to the disputed hours allegedly worked by plaintiffs. Plaintiffs accepted and cashed payments disbursed pursuant to the terms of the settlement agreement.

Before the settlement agreement was signed by union representatives, however, plaintiffs filed a lawsuit seeking the unpaid wages under the FLSA. Defendant moved for summary judgment, in part, because of the settlement agreement to which the parties had agreed.  The district court granted the motion for summary judgment in defendant’s favor, holding, among other things, that plaintiffs’ FLSA claims were released by the settlement agreement. Plaintiffs appealed the order on various grounds, including plaintiffs’ contention that the district court had erred in dismissing their FLSA claims because of the settlement agreement.

On appeal, the Fifth Circuit affirmed the district court’s enforcement of the union’s settlement of the FLSA claims. The court recognized that the issue of the settlement’s enforceability was one of first impression in the Fifth Circuit. In the absence of precedent, the district court had followed a decision from the Western District of Texas, Martinez v. Bohls Bearing Equipment, Co., in which the court held that a “private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.” In Martinez, the individual plaintiff alleged that his employer owed him more than $3,000 in unpaid overtime, while the employer believed the plaintiff was only owed approximately $500. The court in Martinez held enforceable in litigation following a settlement a release of FLSA claims where plaintiff accepted $1,000 for settlement of all overtime claims at issue. The Martinez court reasoned that the settlement was valid in the context of a “bona fide dispute over the amount of hours worked or amount of compensation due.”

Guided by Martinez, the Martin district court determined that a bona fide dispute existed over the number of hours plaintiffs had worked during the filming of the movie. Buttressing the court’s determination, the union’s representative had concluded that it would be impossible to determine whether plaintiffs worked on all the days they alleged they were owed wages. Approving the district court’s rationale (and, thus, the rationale of Martinez as well), the Fifth Circuit held that the payment offered to and accepted by plaintiffs, pursuant to the settlement agreement, was an enforceable resolution of the FLSA claims predicated on a bona fide dispute about the time plaintiffs worked.  Additionally, the settlement agreement was not a compromise of guaranteed substantive rights under the FLSA, only a compromise of plaintiffs’ claims, and thus did not contravene the Supreme Court’s restriction on union representatives waiving the substantive FLSA rights of their members.

In their attempt to invalidate the settlement agreement, plaintiffs cited the Eleventh Circuit’s decision in Lynn’s Food Stores, the only decision from a court of appeals to address directly the issue of private settlements of FLSA claims, for the proposition that FLSA claims may not be settled without the approval of the court or the DOL. The Fifth Circuit, however, determined that Lynn’s Food Stores was distinguishable from Martin in key aspects.  First, in Lynn’s Food Stores, the dispute arose as a result of a DOL investigation and the employees “seemed unaware” that the DOL had determined that they were owed back wages under the FLSA, or that they had any rights at all under the Act. Second, in Lynn’s Food Stores, there was no evidence that the employees consulted an attorney before signing the agreement, and some of the employees could not even speak English. In that context, the Eleventh Circuit explained that, “to approve an ‘agreement’ between an employer and employees outside of the adversarial context of a lawsuit brought by the employees would be in clear derogation of the letter and spirit of the FLSA.”

In contrast to the Lynn’s Food Stores employees, the Fifth Circuit explained that the Martin plaintiffs were represented by lawyers who had filed a lawsuit specifically seeking overtime pay for the plaintiffs before they signed the settlement agreement and, thus, the settlement was 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.”

The Fifth Circuit’s decision is an important development in the jurisprudence governing the enforceability of private FLSA settlements. Lynn’s Food Stores has been the standard followed by many district courts since its issuance in 1982, with district courts in many (but not all) cases becoming increasingly hostile to confidential settlements and more intrusive into the developments leading to the settlement. The Martin decision calls into question the necessity for judicial approval in all circumstances, and highlights the somewhat anomalous fact pattern that undergirded Lynn’s Food Stores, but which rarely prevails in the ubiquitous FLSA cases filed every day around the country, where plaintiffs and defendants are represented by experienced counsel, and settlements are reached in an adversarial process. Employers in all circuits, and especially the Fifth and Eleventh, should examine Martin with their counsel for its potential utility in FLSA settlement agreements.