Many of you may have heard the oft-quoted statistic that 97% of all lawsuits are settled or dismissed without a trial. (You may also have heard that 38% of all statistics including this one are useless, but I digress.) You may also been told, or learned from experience, that it is far less expensive — and easier– to resolve disputes amicably, without resorting to litigation. Suppose, however your former employee, Barbara Breadwinner (we’ll just call her “Barbara”) claimed that you owed her 100 hours of overtime. She has records to prove it. You have some records, but hers are more complete. You want to do the right thing. So you pay Barbara an amount equal to one and a half times her hourly rate for 100 hours. You ask Barbara to sign a release of all claims for back wages, and any FLSA claims arising out of those or any other hours she claims to have worked and for which she claims to have not received pay. Barbara signs the release. While your company’s pocketbook is significantly lighter, you breathe a sigh of relief–but not for long. Barbara sues you for back wages. You contact your trusted employment counsel and you’re in shock when s/he tells you that your release may not be enforceable. What’s up with that? Join The EmpLAWyerologist after the jump and find out more…
How can your employee sue you after you settled her claim in good faith and she signed a release? Let’s take a peak at the FLSA’s penalties provisions. Barbara, under FLSA section 216(b), was entitled to 100 hours of overtime pay, plus an equal amount in liquidated damages, plus attorneys’ fees, if any were/are incurred. Under the FLSA, a court has to award attorney fees as soon as it determines that you owe even one penny of unpaid wages. These rights are considered unwaivable by an employee. An employee can either file suit in his or her own right or can file a claim with the DOL and the Secretary of the DOL can file a claim on behalf of the employee. Congress’ intent in passing the FLSA, was to prevent overreaching by employers.
FLSA Section 216(c) says that payment of the monies owed can be supervised by the Secretary of Labor and that an employee’s acceptance of such payments constitutes a full waiver of all such claims. Here lies the rub: most courts interpret FLSA Section 216(c) to mean that a private settlement must therefore be approved either by the Secretary of Labor or a court. Really? Why? First, the wording of the statute at least partially supports that interpretation. Secondly, to carry out the FLSA’s intent of preventing situations of unequal bargaining power and unfair settlements by overreaching employers.
To date, the US Supreme Court has not decided this issue. The first, and until recently only, appellate court to do so, was the 11th circuit Court of Appeals in Lynn’s Food Stores, Inc v United States in 1982. In this case, the employer sought an approval of its private settlement and release of claims for back wages. The employer. while under investigation by the DOL, tried unsuccessfully to negotiate a settlement. It then directly settled with its employees, who were unaware of the investigation, or their rights under the FLSA, had not spoken with counsel, and many of them did not even speak English. The 11 Circuit cited FLSA section 216(c) for its holding that there are only two ways that an FLSA claim can be settled and approved: either under the supervision of the DOL or by private lawsuit under FLSA sec 216(b) where a resulting settlement is approved by the court. The court also held that in determining whether an FLSA claim settlement is valid it must look to whether there is a “fair and reasonable” resolution of a bona fide dispute over FLSA provisions. The court found the proposed settlement unenforceable, given the unequal bargaining power between Lynn’s Food Stores and its employees and other similarly unfavorable factors.
While Lynn’s Food Stores remains the majority view, two Fifth Circuit cases have indicated a slight shift. In Martinez v. Bohls Bearing Equipment Co., the plaintiff/employee accepted a payment for overtime owed and signed a release — and then sued. The employer moved to dismiss, citing the release. This court granted the motion. The court reasoned that the settlement was enforceable because the parties were compromising an actual dispute (as opposed to the employer attempting to persuade the employee to accept an amount that was clearly less than the employee was owed). Since the amount of overtime worked was not easily proven the likelihood of overreaching was presumably reduced. Similarly, in Martin v Spring Break Productions ’83, LLC, the court upheld a settlement between a union and an employer of a dispute as to overtime worked by the employees. The Fifth Circuit found the settlement to be “an enforceable resolution of those FLSA claims predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights themselves”. While these cases may be encouraging to employers, keep in mind they are the exception.
So, if you and your employee have a wage and hour dispute, do you either have to call the Department of Labor or wait to be sued? That hardly seems palatable. Do you have any other options? Let’s look into that next week. See you then!
Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.
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