Tuesday, April 23, 2013

Do FLSA Settlements Require Court Approval?

Does the Fair Labor Standards Act require judicial (or Department of Labor) approval of private settlements? When you think about it, private settlements could work to effectively contract around the FLSA provisions, rendering them almost worthless.

For example, take minimum wage. An employer could just pay an employee $2.00/hour and then settle their claims each week for an extra dollar an hour. This is just contracting to blatantly violate the FLSA by paying an employee less than half the minimum wage, right?

But enough of my hypothesizing, what do the courts have to say? Judge Conner of the Middle District of Pennsylvania (my home district) issued a memorandum opinion covering this issue in Deitz v. Budget Innovations and Roofing, Inc. (available here). Judge Conner noted some precedent from other courts, and provided a rundown of Third Circuit law, before reaching his own conclusion:
The Third Circuit has not addressed whether FLSA lawsuits claiming unpaid wages may be settled privately without court approval. Several cases from the District of New Jersey and the Eastern District of Pennsylvania have . . . assumed that judicial approval is necessary . . . . The Third Circuit has, in dicta, indicated that bona fide disputes over the facts leading to liability may be settled without court approval. See Coventry v. U.S. Steel Corp., 856 F.2d 514, 521 n.8 (3d Cir. 1988)(observing that a employee cannot generally waive his rights under FLSA, but that he may be able to release a factually disputed claim); Watkins v. Hudson Coal Co., 151 F.2d 311, 314 (3d Cir. 1945) (noting that a private agreement over the amount of wages owed by an employer “may, under proper circumstances, be upheld.”)) . . . . The undersigned concurs with the majority of courts . . . for the premise that bona fide disputes of FLSA claims may only be settled or compromised through payments made under the supervision of the Secretary of the Department of Labor or by judicial approval of a proposed settlement in a FLSA lawsuit.
Read the opinion for more citations and discussion of additional case law on this topic.

This remains a gray area, but if you're settling an FLSA claim you should check for precedent in your jurisdiction requiring approval.

HT: Janine Gismondi. I found the opinion linked from Pennsylvania Requires Court Approval for Enforcement of Wage/Hour Settlements Under FLSA.

Image: Middle District of Pennsylvania courthouse in Harrisburg, PA. Image from the Court's website, public domain as work of federal government.

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