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eLABORate: Fifth Circuit Reaffirms the Use of, but Limits, Private Unsupervised FLSA Settlements

June 08, 2015

In 2012, the Fifth Circuit decided Martin v Spring Break ’83, LLC, 688 F.3d 247 (5th Cir. 2012), holding that private settlements of FLSA claims involving bona fide disputes over hours worked or compensation owed are enforceable absent court supervision.

The Martin case arose in the context of union employees complaining about an alleged FLSA violation, and who were represented by their collective bargaining unit in resolving those claims through a private settlement that was not supervised by a court or the DOL. Because there was a bona fide dispute over the amount of hours worked (and, of course, the compensation owed), the Fifth Circuit held that the unsupervised nature of the settlement did not render it unenforceable.

A Texas district court later extended Martin to a general release that was entered by 2 former employees who had been sued by their employer in state court for breaching a non-compete agreement. Bodle v. TXL Mortg. Corp., Civil Action No. H–12–1515, 2012 WL 5828593 (S.D. Tex. Nov. 15, 2012). The district court agreed that Martin applied because the plaintiffs had raised unpaid salary and commissions in the non-compete case, and, by the way, had signed (but apparently not filed) consent-to-join forms in the underlying suit against their employer.

The Fifth Circuit reversed the district court, holding that the court extended Martin too far. Bodle v. TXL Mortg. Corp., No. 14–20224, 2015 WL 3478146, --- F.3d ---- (5th Cir. June 1, 2015). In short, there must be an actual dispute over an FLSA claim, and some discussion between the parties about it, to bring Martin in to play. The fact that the plaintiffs, at the time they negotiated their settlement, had signed consent to join forms for the existing FLSA suit was not enough in the Fifth Circuit's view to make their settlement a bona fide dispute. The FLSA claims were not discussed as part of the negotiations between the parties. Plaintiffs also claimed there has to be a suit filed, but the Fifth Circuit did not say that it was adopting that specific requirement. Nevertheless, it did put a limit on the use of Martin for severance agreements and in general releases (note that the Fifth Circuit also rejected the argument that res judicata barred plaintiffs’ claims).