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Fifth Circuit Upholds Private Settlement of FLSA Claims Where Bona Fide Dispute of Liability Exists

For nearly 30 years, courts and the U.S. Department of Labor (DOL) have instructed parties to seek judicial or DOL approval to effectuate a settlement of claims under the Fair Labor Standards Act (FLSA). See Lynn’s Food Stores, Inc. v. United States, (concluding that “[t]here are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees:” payment supervised by the DOL or judicial approval of a stipulated settlement after an employee has brought a private cause of action). Last month the Fifth Circuit surprisingly reversed course in Martin v. Spring Break ’83 Productions, L.L.C., holding that parties may privately settle and release wage claims that include a bona fide dispute as to liability.

Martin involved a group of lighting and rigging technicians in the filmmaking and video productions industry who filed grievances against their employer, Spring Break Louisiana, alleging that the company failed to pay them wages for all hours worked while filming the movie Spring Break ’83. The technicians’ union representative investigated the grievances but could not determine whether the technicians had actually worked the hours alleged. The union subsequently entered a settlement agreement with Spring Break Louisiana over the disputed hours, agreeing on behalf of the technicians to accept settlement payments in exchange for the union’s agreement that the union and technicians would not file suit. Prior to receiving (and cashing) their settlement payments, the technicians filed suit regardless, arguing that, without judicial or DOL supervision, the union’s agreement was unenforceable.

Finding that the settlement payment waived the technicians’ right to file suit, the Fifth Circuit affirmed summary judgment for Spring Break Louisiana. In doing so, the court relied heavily on the holding and analysis set forth in Martinez v. Bohls Equipment Company, a Western District of Texas decision that thoroughly examines the history of the FLSA, its amendment by the Portal-to-Portal Act of 1947, the Fair Labor Standards Amendments of 1949, and subsequent interpretative case law, ultimately holding that “parties may reach private compromises as to FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due.” (quoting Martinez). Applying that same rationale, the Fifth Circuit determined that the payment offered to and accepted by the technicians pursuant to the union’s settlement agreement operated as “an enforceable resolution . . . predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA rights themselves.”

Finally, although the Fifth Circuit recognized that its holding directly contravened the Eleventh Circuit’s 30-year-old decision in Lynn’s Food Stores, the court distinguished that case by noting that the plaintiffs in Lynn’s Food Stores were unaware at the time of the settlement of their FLSA rights, had not consulted with an attorney, and, in some cases, could not speak English. The lighting and rigging technicians, on the other hand, had already retained an attorney and filed suit by the time they received and cashed their settlement checks. Thus “[t]he money [the technicians] received and accepted, pursuant to the settlement agreement, for settlement of their bona fide dispute did not occur outside the context of a lawsuit, [and] hence the concerns the Eleventh Circuit expressed in Lynn’s Food Stores are not implicated.”

Photo credit: MBPhoto, Inc.

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