January 29, 2013
FLSA: Can employer settle a claim out of court?

A group of workers filed a Fair Labor Standards Act (FLSA) claim against a roofing company. Before their case made it to court, the workers agreed to a private settlement with the employer. Would the agreement stand?

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What happened. A group of four workers filed a lawsuit in April 2012 claiming that Budget Innovations and Roofing, Inc. had failed to pay them the overtime premium wages due them. In addition, the workers claimed they were not paid at all for many of their work hours. The workers sought back wages under the FLSA and the Pennsylvania Minimum Wage Act.

Without their attorney’s knowledge, the workers entered into a settlement agreement with Budget shortly after the lawsuit was filed. The settlement was reached before the workers gained class certification and before Budget responded to the complaint. Their attorney sought review in district court, arguing that FLSA settlements must be approved by the court or made under supervision of the federal Department of Labor (DOL).

What the court said. Because the FLSA grants workers fundamental protections against underpayment of wages, employees cannot waive their rights under the Act. District Judge Christopher Connor, ruling for the U.S. District Court for the Middle District of Pennsylvania, cited the 5th Circuit’s decision in Martinez v. Bohls, which permitted private compromises on FLSA claims when there is a bona fide dispute as to liability.

Connor noted, however, that it is “simply impossible to ensure that an agreement settles a bona fide factual dispute over the number of hours worked or the regular rate of employment in the absence of judicial review” of the agreement. Citing the 11th Circuit’s ruling in Lynn’s Food v US, Connor affirmed that employees can settle FLSA claims only under DOL supervision or upon judicial review for “fairness.” 

In the present case, Connor noted that Budget had not even answered the original complaint, giving the court no grounds on which to decide whether the settlement was fair or warranted. The judge ordered the workers and Budget to submit any proposed settlement agreements to the court, along with arguments “addressing whether the compromise settles a bona fide dispute and is a fair and reasonable resolution of the claim.” Dietz v. Budget Innovations & Roofing, Inc., M.D. Pa. No. 4:12-CV-0718 (12/13/13).

Point to remember. The FLSA applies to most employers regardless of size, and the price of noncompliance is steep, including double the amount of wages owed plus costs and fees. As this case illustrates, by the time a complaint is filed, an employer’s options are limited.


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