FLSA Settlements and Obtaining Binding Releases

Originally enacted in 1938, the Fair Labor Standards Act (FLSA) was written to “protect all covered workers from substandard wages and oppressive working hours, ‘labor conditions [that are] detrimental to the maintenance of the minimum standard of living necessary for health, efficiency and general well-being of workers.”¹

Employers facing FLSA litigation will sometimes turn quickly to settlement negotiations with former employees to minimize the costs of litigation.  However, the private settlement of FLSA disputes requires careful consideration.

The purpose of settlement is to reach an agreement that resolves a pending legal dispute once and for all. Outside the FLSA setting, after a settlement agreement is executed, parties file a Stipulation of Dismissal with the court stating that the claims are dismissed with prejudice, the settlement agreement remains fully confidential, and everyone moves on.  The defendant need not worry that the same plaintiff may raise the same claims or that the release will be held unenforceable because the court never approved it.

That may not be the case with respect to certain employer/employee disputes.  Unlike most other causes of action, FLSA claims require court or Department of Labor approval before a settlement agreement, and the releases contained therein, can be deemed fully valid and enforceable.  This means that in order for the employer to resolve such claims, the plaintiff must have filed suit or initiated an administrative investigation of the employer’s pay practices.²

In Lynn’s Food Stores, Inc., the court held that, unless supervised or brought by the secretary of Labor, the settlement of an FLSA claim can only be binding if the settlement is a product of the litigation and is approved by the court.³  Specifically, the court rejected the notion that a private employer could approach its unrepresented employees directly and enter into a private settlement agreement.⁴  In effect, an unsupervised settlement agreement leaves the door open to subsequent FLSA claims.

For this reason, employers obviously have incentive to obtain court approval of FLSA settlements.  At the same time, the non-confidential nature of such settlements concerns many employers who are worried about copycat lawsuits surfacing when one plaintiff/employee encourages current or former employees to bring their own claims, after the plaintiff has made money in an easy settlement.

When an employer is concerned about copycat lawsuits, foregoing court approval and keeping the settlement terms confidential may outweigh the risk of an unenforceable settlement.  The employer can take measures to try to prevent the employee from successfully suing again.  For example, if the employee executes a release that contains acknowledgements by the employee that he or she was correctly paid for all time worked, those acknowledgments could create a factual inconsistency if the employee later claims he or she was not paid wages. While these representations are not foolproof, they may strengthen an employer’s defense in the event the employee subject to the release brings a subsequent claim under the FLSA.

Accordingly, when seeking a waiver of potential claims under the Fair Labor Standards Act, an employer must consider the Act’s unique limitations upon settlement to obtain a binding release and waiver of claims.

• Kristy E. Armada is a partner at Olive Judd, P.A. Her practice focuses on land use, real estate, restaurant representation, and commercial litigation.

[1] Barrenting v. Arkansas-Best Freight Systems, Inc., 450 U.S. 728, 739 (1981).

[2] See Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1353 (11th Cir. 1982).

[3] Id.

[4] Id. at 1353–54.