We recently handled an FLSA (Fair Labor Standards Act) lawsuit in the Eastern District of Virginia (VA Federal Court). After a bit of back and forth, we agreed on a settlement. I wanted to post a couple of pointers on how to handle FLSA settlement actions, as they are not the same as traditional civil action settlements. Because the requirements of the FLSA are statutory (defined at 29 USC 201 through 219), in order to settle a suit already filed with the Court, a judge must approve the settlement and ensure it satisfies the statutory requirements in order to constitute an effective “end” to the lawsuit. If the settlement agreement does not comport with the code, it will be denied.
Requirements of a Court Approved Settlement Agreement
Note: the rules governing FLSA settlements are strictly enforced by the Court. If you do it incorrectly, you run the risk of (a) having the settlement denied by the judge, and/or (b) the settlement will not preclude a subsequent lawsuit on exactly the same grounds. It can and does happen. And a prior settlement, not approved by the Court, will not stop a subsequent lawsuit on the exact same issue. There are some limited exceptions, but they are not strong, and not followed by most circuits.
Non-Court Approved Settlements
A settlement that is not submitted for approval by a Court is called a “private settlement” and is given no effect when there is a “bona fide dispute” regarding hours and wages most circuits. The Circuit Court in Florida stated it succinctly:
“[A]n employer undertakes the private resolution of an FLSA dispute at his peril. If the employer pays the employee in full, including all wages owed and liquidated damages, the employee retains no uncompensated FLSA claim and the peril dissipates. However, if the employer extracts a compromise, the release of an FLSA claim approved by neither the Department of Labor nor the district court remains unenforceable.” Dees v. Hydradry, Inc., 706 F. Supp. 2d 1277, 1237-38 (M.D. Fla. 2010).
See also, Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982) which held the 29 USC 216 controls settlements on this type of case, and allows only Court approved or Department of Labor approved cases. Note that there was an opposite holding in the 5th circuit under Martin v. Spring Break ’83 Productions, L.L.C., 688 F.3d 247 (5th Cir. 2012). According to the Fifth Circuit, private settlements are enforceable if they provide all benefits that the employee would be entitled to under FLSA litigation because there is “little danger of employees being disadvantaged by unequal bargaining power.”
Three parts of a Court Approved Settlement Agreement
- You need the actual settlement agreement. The controlling case for FLSA settlement agreements, and what must be in them, can be found at Dorian Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015). This case makes clear that the only thing that may be settled in the agreement are the specific allegations of hours and work time during the period of the complaint. A settlement agreement MAY NOT settle all potential past and future claims, as that would put the settlement agreement in direct conflict with federal law on the matter of wages and hours. The term of art is “narrowly tailored” to address the specific period addressed in the complaint. As a matter of law, the look back period is limited to 2 years from the date of the filing of an FLSA lawsuit. You can wave the three year “intentional act” look back by agreement of the parties (however, the two year is always permitted, and therefore cannot be waived).
A settlement agreement must demonstrate that the parties have reviewed all wage and hour claims during the given time frame, and that the employer has provided all time records so that the employee can confirm the time and hours worked. Absent an agreement that full disclosure has been made (or that the parties agree that it has been made), the Court cannot determine if (a) there is a bone fide dispute as to hours, (b) if the resolution is fair and fully resolves the conflict. See, Dorian Cheeks above. To demonstrate this, you must always include the punch records or time records with any proposed settlement, and both sides must sign-off indicating that they have received and reviewed the records.
To ensure that the settlement is fair, when the employees are not represented by counsel, a cooling period must be provided. A copy of the settlement, along with time records, and any other documents, must be provided, and a minimum of 72 hours given for the employees to review the agreement, or withdraw their consent, if already signed.
Note, that the parties can agree to alter the punch records to comport to what was “actually” worked, allowing both sides to negotiate and settle on a reasonable amount. The requirement is only that all time records during the period were considered, and that the parties each reviewed and agree to the record as amended. Any changes should be initialed by each side, indicating agreement specifically to a change in hours on a given day. Precision is critical so that the Court can determine the degree of understanding and consent to the settlement by each party.
Remember, also, that in FLSA litigation, the employee will receive 2x the amount of the missing pay, as a statutory payment — so if the employee should have been paid 100 hours of OT, but instead was paid 100 hours of straight time, they would be due 100 x (2 x base pay). The two times multiplies is statutory and cannot be waived in a settlement agreement. If you wish to control the amount paid, both parties must agree to a change in the hours, not the pay rate. Never change the pay rate.
- You must include a joint motion to dismiss the action with prejudice. The wording of this motion (and memorandum, if you don’t combine the motion with a memorandum) follows a present format. See the attached document. Change as needed to fit your circumstances. NOTE! It is critical that you include that if payment of attorney fees is part of the settlement, the attorney fees were reasonably earned. Included a list of attorney hours unless it is $5000 or below (in which case, the Court generally will accept representation of counsel). Additionally, be sure to include that any additional attorney fees, over the amount paid in settlement (if any), are the responsibility of the party that incurred them. This should be part of the settlement, and expressly spelled out in the motion as well as the final order (see below).
- Finally, you include a proposed order that contains the specific wording needed to dismiss the suit an give effect to the settlement. See attached. Note, you include that attorney fees not paid in the settlement are expressly the responsibility of the respective party.
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