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There has long been some uncertainty in the law over the
validity of a private release of wage and hour claims under the
Fair Labor Standards Act (FLSA). Most Courts have required
that a settlement be approved by the Department of Labor or a
federal court to be valid. The reason for such a harsh
rule is to prevent unscrupulous employers from pressuring employees
into waiving their substantive rights to minimum wage and
overtime. In practice, however, this rule has made it
difficult to have a full release from a departing employee (as wage
claims cannot be included) and led to most settlements in
litigation being filed with the court (which destroys
confidentiality).
In Martin v. Spring Break '83 Productions
LLC, No 11-30671 (July 24, 2012), the Court found that a
settlement agreement between an employer and a union, which
resolved a dispute over unpaid wages, was enforceable. The
Fifth Circuit explained that its holding was limited to a
circumstance, such as this one, where there was a bonafide dispute
over how much time the employees actually worked. In other
words, both sides agreed that the employees should be paid overtime
at the statutory rate, but the question was how many hours the
employees worked. The Court concluded that there was no
substantive waiver of legal rights and the employees' interests
were adequately protected by their union.
From a practical standpoint, there should be no substantive
difference between a union settling an employee's claim and a
lawyer. Both would presumably afford sufficient
representation of the employee to ensure a settlement is
fair. Therefore, this opinion is likely to be construed to
allow private settlements of FLSA claims between private parties
represented by counsel. One important takeaway, however, is
that this decision will not apply to some categories of FLSA
claims. A dispute over off the clock work should be
covered by this decision (since the facts are in dispute not the
legal rights of the employee) but a dispute over an overtime
exemption would not (since the employee would be waiving a right to
overtime).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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