Recently, the Fifth Circuit created a crack in a thirty-year old doctrine, based on the Eleventh Circuit’s Lynn’s Food Stores, Inc. v. United States decision and followed by nearly all federal courts, that wage and hour claims brought by individuals under the Fair Labor Standards Act (“FLSA”) can be settled only with the signoff of the Department of Labor (“DOL”) or a supervising court.
In Martin v. Spring Break ‘83 Productions, LLC, certain union-represented employees working on a movie set grieved that they had not been paid for work performed. Following his own investigation, a union representative found it impossible to determine whether the grievants had actually worked the claimed hours. The union and the employer then entered into a settlement agreement to resolve the matter.
Before the union signed the settlement agreement, some of the affected employees sued the employer to recover the claimed wages. Enforcing the union settlement agreement, the district court issued a 20-page reasoned opinion granting summary judgment for the employer. The employees then appealed to the Fifth Circuit, arguing, among other things, that Lynn’s Food Stores made the settlement agreement unenforceable because it lacked involvement and approval from a court or the DOL.
On appeal, in a lengthy footnote, the Fifth Circuit expressly rejected the Eleventh Circuit’s longstanding holding in Lynn’s Food Stores that wage and hour claim settlements must always be supervised by the DOL or a court. Instead it adopted the opinion and supporting logic of a 2005 Texas federal district court case that found that “a private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.”
While this ruling has only been adopted by a footnote in a Fifth Circuit panel decision, it may provide a path for employers to settle FLSA disputes confidentially and avoid costly litigation, where there is a bona fide dispute over whether the disputed wages are owed. Employers should, however, enter into any such settlement with the understanding that this “settlement crack” is still in gestation and therefore uncertain, especially in circuits other than the Fifth.