“A Few Dollars Saved Can Lead to A Lot More Dollars Spent” — Words from the Bench Regarding FLSA Settlements.

The Eleventh Circuit issued a ruling in July addressing whether parties to a Fair Labor Standards Act (“FLSA”) action may enter into a settlement agreement without the approval of the Department of Labor (“DOL”) or the district court. As the court states, this decision “demonstrates how a few dollars saved can lead to a lot more dollars spent.”  In Candace Nall v. Mal-Motels, Inc., No.-12-13528 (11th Cir. July 29, 2013), the Court found that the district court erred in approving and enforcing a settlement agreement in a FLSA case where the agreement was made without the parties being represented by counsel, without the supervision of the Secretary of Labor, and without the district court approving the settlement by a stipulated judgment.

In Nall, the plaintiff was a desk clerk and night auditor for Mal-Motels. Nall claimed that her employer failed to compensate her for working overtime, which was in violation of the Fair Labor Standards Act, 29 U.S.C. §207(a)(c).  Nall alleged that she was owed $3,780 in back wages as well as an additional $3,780 in liquidated damages.  After quitting her job because of the unpaid overtime, Nall, represented by counsel, filed suit against Mal-Motels claiming violation of FLSA.

Soon after filing her lawsuit, the owner of Mal-Motels and Nall, without her counsel, agreed to a settlement agreement. Subsequently, a motion for voluntary dismissal was filed with the court with Nall’s signature. The court ruled that her motion had no effect and her case was still pending because she did not have permission to appear without an attorney.  As a result, Mal-Motels filed a motion to enforce the settlement agreement. A magistrate judge held an evidentiary hearing and issued a report recommending that the district court approve the settlement because Nall and the defendant had reached a “fair and reasonable” settlement.  The district court adopted the magistrate’s recommendation.

The Eleventh Circuit disagreed looking to Lynn Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982) and Brooklyn Savings  v. O’Neil, 324 U.S. 697 (1945), where the courts held that because of great inequalities in bargaining power between employers for employees, settlement agreements in FLSA actions must be supervised by the Secretary of Labor or approved by a “stipulated judgment” by the district court.  In this case, there was no supervision by the DOL and the judgment by the district court was not a stipulated judgment within the meaning of Lynn Foods. The Circuit Court held that the district court’s decision was not a “stipulated judgment” because the plaintiff asked the district court to reject the settlement because it was not entered into with the advice of or under the supervision of plaintiff’s counsel; therefore the agreement was not fair and reasonable. For this reason, the Court ruled that the district court erred in approving and enforcing the settlement agreement.

The Eleventh Circuit’s adherence to the ruling in Lynn Foods is consistent with the Fifth Circuit’s recent decision on the same issue in Martin v. Spring Bread ’83 Productions, LLC, 688 F.3d 247, 255-56 (5th Cir. 2012). In Martin, the Fifth Circuit held settlement of FLSA claims may be enforceable without court or DOL approval when there exists a “bona fide dispute to liability” and the plaintiff-employee is represented by legal counsel. In Martin, the Fifth Circuit distinguished Lynn Foods on its facts, observing that that case involved plaintiff with little to no knowledge of their rights or the defendant’s liability under the FLSA, who had not consulted an attorney, and many of whom did not speak or read English. In contrast, the plaintiffs in Martin were represented by counsel and had filed suit for unpaid wages prior to execution of the settlement agreement. Therefore, the Circuits have created a fact specific analysis regarding whether parties may settle FLSA claims without the supervision of the DOL or approval by the district court.

McMahon Berger’s employment law attorneys are experienced litigators who routinely advise and represent clients regarding FLSA claims. If you have questions concerning the FLSA, FLSA claims, or settlement of such claims, please contact us at 314-567-7350.

Authored by Dean Kpere-Daibo

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