A different set of rules applies to settling wage and hours disputes under the Fair Labor Standards Act (FLSA). Regular contract law does not apply, because the FLSA’s provisions are mandatory and generally are not subject to bargaining, waiver, modification by contract, or even settlement. Stated simply, an employee cannot waive his right to minimum wage or overtime. Therefore, for more than 30 years, since the Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United State Department of Labor, 679 F.2d 1350 (11th Cir. 1982), the law has been that a private settlement of FLSA claims is not enforceable without the approval of a court or the U.S. Department of Labor (DOL).
However, a federal Judge recently found that “a private settlement of FLSA claims may be enforceable, even if the settlement was reached without United States Department of Labor or judicial supervision or approval, but only when the agreement resolves a bona fide dispute between the parties and the terms of the settlement are fair and reasonable.” Sarceno v. Choi, 2014 BL 246744, D.D.C., No. 1:13-cv-01271, 9/5/14). United States District Judge Beryl Howell cited the Fifth Circuit’s decision in Martin v. Spring Break ’83 Productions, LLC, No. 11-30671 (5th Cir. July 24, 2012) as precedent. In that case, union members were precluded from bringing claims for which their union had negotiated a settlement, even though the settlement agreement had not been judicially or administratively approved.
Sarceno involved five general laborers (the Plaintiffs) who worked at a District of Columbia supermarket. The employer, in the midst of litigating another wage case brought by other employees, sought to resolve potential claims by the Plaintiffs. The Plaintiffs were driven to a law office, asked to sign settlement agreements, and told they could cash their settlement checks at the supermarket. The parties dispute many of the details of what happened in the law office, so the Court denied the employer’s motion for summary judgment, which relied on the release signed by each Plaintiff.
Judge Howell examined three factors to determine whether the settlement agreements were fair and reasonable: (1) Did the employer overreach to secure a waiver of rights; (2) was the settlement the result of arms’ length negotiation; and (3) would the plaintiffs have difficulty obtaining and collecting a judgment? Resolving these questions raises others. Were the employees aware of their FLSA rights? Did they have an opportunity to consult an attorney? Did the employees understand the language in which the agreement was presented? How much compensation was offered in relation to the amount of wages or overtime claimed? Was the amount offered a fair compromise in light of the facts? Is there a confidentiality provision? Was the employee represented by counsel during a negotiation? What information did the employee have access to before signing the settlement document?
The Court found the settlement agreements were unenforceable because they were not the result of a bona fide dispute or fair and reasonable. There was no bona fide dispute because the Plaintiffs claimed they did not know they were entitled to overtime or know about the ongoing litigation by their former coworkers. The Settlement Agreements were not fair and reasonable because, among other things, the employer overreached. The settlement agreements “offer[ed] very little compensation when compared to the amount of overtime hours claimed, a hallmark of employer overreaching.”
All of this to say that the settlement of FLSA minimum wage and overtime claims is tricky. Although some courts have come around to the notion that purely private settlements of FLSA claims may be enforceable, the enforceability of such settlements will not be examined under ordinary principles of contract law.