Can you have private settlement of an overtime or minimum wage claim?


The answer is generally not if there is not a lawsuit.

If there is a lawsuit it’s allowable depending the state you are in.

Question: What’s a private settlement?

Answer: It’s when an employer works out a private deal with an employee to give up their legal rights to sue the company for unpaid overtime or minimum wage.

Private settlements between employers and employees are invalid and un-enforcible. Since the 1940’s private parties cannot settle FLSA claims without approval from the district court or the Department of Labor (DOL). 

The reason for this restriction is to prevent employer from cheating their employees on overtime or minimum wage by force them to sign a release. In the past, employers have illegally forced employees to sign waivers to their overtime rights in order to get or keep their jobs. Now when it comes to private settlements negotiated by attorneys on both sides, that’s a different story. There is a circuit split on whether to extend older Supreme Court cases so as to require judicial approval of all FLSA settlements. A pair of cases from the 1940’s require judicial approval for some releases of FLSA claims, but those cases left open the question of whether the FLSA requires judicial approval to settle bona fide disputes over hours worked or wages owed. These 2 cases are D.A. Schulte, Inc., v. Gangi, 328 U.S. 108, 114 (1946) and Brooklyn Sav. Bank v. O’Neil, 324U.S. 697, 703–04, 714 (1945). The Fifth Circuit would not extend Gangi and O’Neil to require judicial approval of all FLSA settlements, but the 2nd and 11th Circuits disagree. If you want to see the disparity compare the 5th circuit’s ruling in Martin v. SpringBreak ’83Prods., LLC, 688 F.3d247, 255(5th Cir. 2012) (enforcing a settlement of bona fide FLSA disputes over hours worked or wages owed without judicial or Department of Labor approval), with Cheeksv. Freeport Pancake House, Inc., 796F.3d199, 206(2dCir. 2015) (holding parties cannot settle FLSA claims without approval from the district court or the Department of Labor), and Lynn’sFoodStores, Inc. v. UnitedStates, 679F.2d1350, 1352–53(11thCir. 1982) (same). If you are in Texas, read Martinez v. Bohls Bearing Equip. Co., 361F. Supp. 2d608, 618–31 (W.D. Tex.2005) for an extensively review of the the history behind this statutory interpretation dispute).

What’s the rule on court approval of wage and hour settlement in the Fifth Circuit Court of Appeals?

Since the Fifth Circuit Court of Appeal is over Texas, Louisiana, and Mississippi, what they say is the law of the land if you are in those 3 states. The Fifth Circuit recognized in Martin v. Spring  Break ’83 Productions, L.L.C. that not  every FLSA settlement requires court approval because “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.”  This means court approval is not required in the 5th Circuit. However, upon the request of parties, many courts in this circuit will review FLSA settlement agreements and approve them if they meet a standard that’s described as “fair and reasonable resolution of a bona fide dispute”. This standard comes from an old case called Lynn’s Food Stores.  Under  Lynn’s Food Stores, “When employees bring a private action for back wages under the  FLSA, and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.” Lynn’s Food Stores, Inc. v.  United States , 679 F.2d 1350, 1353 (11th Cir. 1982).

What standards do Texas courts use if asked to approve a FLSA settlement?

Under Lynn’s Food Stores,  the Court must  determine that a settlement is a “fair and reasonable resolution of a bona fide dispute over FLSA  provisions.”

What’s a bona fide dispute?

This means that a Court must ensure that employee’s settlement release was  given in settlement of a bona fide dispute between the parties with respect to coverage or amount  due under the [FLSA] or whether it constituted a mere waiver of his right ….”  Basically, did the employee get what he or she is entitled under the FLSA. The court may approve settlements where compromises were made for liquidated damages and sometimes even the actual unpaid overtime or minimum wage owed. It depends on the type of wage and hour violations, the solvency of the employer, the difficulty of the case and other factors related to the lawsuit.  The point is that even in the Fifth circuit, private settlements have been approved only when lawyers represented both parties during the negotiation and the employee’s rights were protected. Backroom deals between the employer and the employees are still not enforceable.