FLSA: Employers, the Courts and Private Settlements

On Behalf of | Apr 1, 2015 | Fair Labor Standards Act (FLSA) |

No matter how an employer choses to handle an FLSA complaint, it is important to know that the FLSA requires the Department of Labor to supervise all potential violation settlements. This means that employees who receive severance packages or conditioned settlement agreements that purport to release all employment-related claims, may have not effectively released all of their claims under the FLSA.

The FLSA allows two ways for an employee to waive wage related rights. 1.) The Secretary of Labor is authorized to supervise payment to employees of unpaid wages owed to them. An employee who accepts the supervised settlement thereby waives his or her rights to bring suit for both unpaid wages and for liquidated damages. 2.) A court may approve a stipulated judgment obtained after the employer and employee present a proposed settlement agreement, which the court scrutinizes for fairness.

Attempts to waive employee’s claims outside of these statutory methods have legally failed. In the case of Nall v. Mal-Motels, Inc., which was decided in July 2013, the Eleventh Circuit allowed a plaintiff to proceed with her FLSA claims even though she accepted a check and cash “settlement” from her former employer. The court affirmed that back wages arising under the FLSA can only be settled or compromised in only two ways: through payment by the employer to employees – under the supervision of the Secretary of Labor – of back wages owed them as determined by the Secretary, or by means of a stipulated judgment entered by a court after first making a determination that the terms of the parties’ proposed settlement are fair. Because the settlement between the plaintiff and her former employer was not supervised by the Secretary of Labor and the judgment approving the settlement and dismissing the case entered by the district court was not a stipulated judgment, the plaintiff did not waive her rights under the FLSA.

On March 20, 2015, the Eighth Circuit held in Adams v. ActionLink that ActionLink Brand Advocates were nonexempt employees who were entitled to overtime pay. Furthermore the court ruled that the Court for the Eastern District of Arkansas erred in holding that the employees waived their right to pursue additional damages under the FLSA by cashing proposed damage settlement checks. These settlement checks contained language stating that the sum constituted full payment of wages earned, including minimum wage and overtime. The court held that the checks did not provide notice to the employees or serve as a release of their rights. This language only covered wages and no other remedies the law allows, such as liquidated damages and attorney’s fees. Not only was this language insufficient, there was no Department of Labor supervision in the settlement process. Similarly the Fifth, Seventh and Ninth circuits have also held that employees cannot agree to accept payment unless they are given the notice of the rights they are waiving.

The Third Circuit has taken these requirements a step further. In Cuttic v. Crozer-Chester Medical Center, the court reiterated that all settlements must either be overseen by the Department of Labor, or be approved and scrutinized by the courts. Once a court reviews or approves a settlement proposal, it becomes a judicial action to which a public right of access attaches. Therefore FLSA settlements and proposed settlements, presented to Third Circuit courts may be accessed by the public.

Keep in mind that different circuit courts may require different levels of Department of Labor involvement in the private settlement process. State overtime law violations may also have a different procedure for resolution and settlement. In order to protect themselves from further FLSA litigation, penalties and damages, employers must be cognizant of the legal requirements for settlement, and closely work with counsel to successfully resolve any further issues. If you have any other questions about the FLSA, please contact an attorney at Hardin Thompson.