Hunton Employment & Labor Perspectives

As we previously reported, federal courts around the country have slowly begun to take a more flexible approach to evaluating the enforceability of private FLSA settlement agreements, calling into question the widely-held, decades-old view that settlements of FLSA claims are unenforceable unless they are approved by the DOL or a court.  Last month, the U.S. District Court for the Western District of Arkansas joined this slowly growing movement, holding that in individual FLSA lawsuits, court approval of the FLSA settlement agreement is not necessary if all parties are represented by counsel.

Until very recently, the only court of appeals to consider the issue of private FLSA settlements was the Eleventh Circuit in its thirty-year-old decision in Lynn’s Food Stores, Inc. v. United States.  The underlying dispute in Lynn’s Food Stores arose as a result of a DOL investigation.  The employees were unaware of the DOL investigation or that the DOL had determined Lynn’s had violated the FLSA and owed the employees back wages.  Lynn’s tried to settle the matter with the DOL, but when those negotiations proved unsuccessful, Lynn’s went directly to the employees and obtained the settlements from them.  On these facts, the Eleventh Circuit held that the private settlement agreements were not enforceable.  Instead, the agreements needed either court or DOL approval.

Lynn’s Foods Stores was the classic case of “bad facts resulting in bad law” because, for nearly three decades after the decision, rather than limiting Lynn’s Foods Stores to the uniquely egregious facts underlying the decision, district courts around the country instead relied on Lynn’s Foods Stores to formulate a hard-and-fast rule that all private FLSA settlement agreements and releases are unenforceable.  This included those agreements arising in the context of a bona fide dispute where both parties were represented by counsel.  A consequence of this rigid approach was that most courts refused parties’ requests to have FLSA settlement agreements filed under seal, holding that, if the court was obligated to review the agreements for reasonableness, the terms reviewed by the court must be part of the publicly-available court record.

The Fifth Circuit’s 2012 decision in Martin v. Spring Break ’83 Productions, LLC was the first major decision to call into question this hard-and-fast rule.  As we reported in our posting related to that case, the Fifth Circuit offered a more flexible approach and held that a private FLSA settlement can be enforceable if the settlement arose in the context of a bona fide dispute over the amount of hours worked or wages owed “and not as a compromise of guaranteed FLSA substantive rights themselves.” 

Since the Fifth Circuit’s Martin decision, a number of district courts from around the country have begun questioning the long-held view that FLSA settlement agreements require court or DOL approval.  See, e.g., Lliguichuzhca v. Cinema 60, LLC, 948 F. Supp. 2d 362 (S.D.N.Y. 2013) (“We begin by noting that it is not clear that judicial approval of an FLSA settlement is legally required.”); Fernandez v. A-1 Duran Roofing, Inc., 2013 WL 684736, at *1 (S.D. Fla. Feb. 25, 2013) (approval unnecessary where “both Parties were represented by counsel and therefore negotiated a settlement ... in an adversarial proceeding”); Smith v. Tri-City Transmission Serv., 2012 U.S. Dist. LEXIS 119428, at *3 (D. Ariz. Aug. 23, 2012) (“It is no longer clear that a settlement of FLSA claims must be approved by the court to be binding.”).

The Western District of Arkansas’ February 5, 2015 decision in Schneider v. Habitat for Humanity Int’l, Inc. is the most recent example of a district court adopting a more flexible approach to the issue.  After discussing both Lynn’s Foods Stores and Martin and then noting that the Eighth Circuit Court of Appeals had yet to weigh in on the issue, the court in Schneider fashioned a three-part test for determining whether a private FLSA settlement agreement needs court approval to be enforceable.  Specifically, the court held that FLSA settlement agreements reached in the context of a lawsuit do not need court approval if:  (1) the lawsuit is not a collective action; (2) all individual plaintiffs were represented by an attorney throughout the matter; and (3) all parties have indicated to the Court in writing through their attorneys that they want the settlement agreement to remain private and that they do not want the court to conduct a reasonableness review of the agreement.

Though, at first blush, this three-part test may seem unnecessarily narrow, the reality is that the overwhelming majority of FLSA settlements in the litigation context should easily fit this test.  The test appropriately avoids the need to obtain court approval of settlement agreements in run-of-the mill FLSA lawsuits where both parties have equal bargaining power through their counsel, while ensuring court involvement in settlements of FLSA collective actions, which is similar to the court approval required of all Rule 23 class action settlements.  The Schneider test is a step in the right direction of treating private FLSA settlement agreements no differently than any other type of settlement agreement or release and should serve as a blueprint for parties and other employers attempting to enforce FLSA settlement agreements.