FLSA Cases Moving Towards Allowing Private Settlement

The Fair Labor Standards Act (“FLSA”), originally enacted in 1938, established minimum wage, overtime pay, recordkeeping, and child labor standards that effect both full-time and part-time employees in public and private sector employment. For several decades, the FLSA has been found by courts to prohibit the private settlement of FLSA claims or waiver of FLSA rights.  In 1982, the United States Court of Appeals for the Eleventh Circuit held in Lynn’s Food Stores, Inc. v. United States that disputes under the FLSA could not be settled without the approval of a court or the U.S. Department of Labor.  In large part, the reasoning behind the prohibition has been that, because employers have such great bargaining power as compared to that of employees (especially as unionization continues to decline), allowing for private settlement of FLSA claims could result in employees being taken advantage of or could limit their ability to fully exercise their rights.

In recent years, there have been some legal developments that have created uncertainty as to whether the prohibition on private settlement of FLSA claims will survive.  In the Fifth Circuit’s 2012 decision of Martin v. Spring Break ’83 Productions, LLC, the Court upheld the enforcement of a private settlement agreement resolving FLSA claims.  Afterwards, the United States Supreme Court declined to review the Fifth Circuit’s ruling, meaning there would not yet be a ruling to settle the circuit split between the Eleventh and Fifth Circuits.

Then, in the 2013 case of Picerni v. Bilingual SEIT & Preschool, Inc., out of the U.S. District Court for the Eastern District of New York, the Court ruled that the parties could voluntarily dismiss the FLSA lawsuit without obtaining the Court’s approval of the settlement agreement.  The Court’s analysis in the Picerni case focused on Federal Rule of Civil Procedure 41, which provides that a federal lawsuit, subject to certain limited exceptions, may be voluntarily dismissed by the plaintiff before the defendant files an answer, and may thereafter be dismissed through a stipulation signed by all parties.  The Court in Picerni held that FLSA claims were subject to Federal Rule of Civil Procedure 41, thereby allowing the parties to dismiss their own lawsuit by agreed upon stipulation.  Significantly, the Court in Picerni offered no opinion regarding the enforceability of the underlying settlement agreement, meaning that while the parties can agree to a private settlement agreement to dismiss their FLSA lawsuit, the parties assume the risk that the settlement agreement may not be enforceable in later litigation.

There have been prominent cases since those mentioned above that continue to side with the findings of both the Eleventh and Fifth Circuits.  As further rulings on FLSA will continue to shape settlements of these claims, it is important to consult an attorney experienced in employment law when FLSA issues arise in your business.