supreme court.jpgAuthored by Steve Shardonofsky

As we blogged here earlier this year, the Fifth Circuit in Martin et al. v. Spring Break ’83 Productions, L.L.C. et al.; No. 11-30671 (July 24, 2012) became the first federal appellate court to enforce a private FLSA settlement.  Now, the United States Supreme Court may get a chance to weigh in on this issue for the first time since the 1940s.  That is because on October 22, 2012, the plaintiffs in Martin filed a petition for writ of certiorari seeking review of the Fifth Circuit’s decision, arguing that the case creates a circuit split regarding private FLSA settlements and the standard for individual liability under the FLSA. 

If the Supreme Court takes the case, the result may have important and far-reaching consequences for all employers and practitioners in this area.  For decades, based on Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697 (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946), employers have acted on the assumption that private settlements of FLSA claims are unenforceable without DOL supervision or court approval.  As a result, employers cannot obtain a valid release even when they pay their employees all compensation owed for alleged misclassification or off-the-clock work.  In addition, during pending collective action litigation, the requirement for court approval of FLSA settlements means that any settlement agreement will likely be part of the public record and may then be published in blogs and discussed in legal articles.  This information is therefore often available to the plaintiffs’ bar and can sometimes result in negative publicity and copy-cat lawsuits.  But as we blogged here earlier this year, the Fifth Circuit’s decision in Martin could signal a significant change in this area.  Although that case is currently limited to the Fifth Circuit, if the Supreme Court accepts review and affirms, employers across the country could realize significant benefits from private, confidential FLSA settlements.  On the other hand, if the Supreme Court does not accept review or reverses on this issue, employers would not necessarily be worse off than they are right now—since the prevailing best practice all along has been to obtain DOL supervision or court approval for FLSA settlements.

In Martin, four union-represented plaintiffs filed a grievance against Spring Beak ’83 Louisiana, L.L.C. alleging that they had not been paid for all their hours worked.  The International Alliance of Theatrical Stage Employees Local 478 (as exclusive representative of the employees in the bargaining unit) and Spring Beak Louisiana entered into a settlement concerning the disputed hours worked.  The Union and Spring Break Louisiana agreed that the settlement payments were the “amounts due and owing” to the aggrieved employees.  And in exchange for those payments, the plaintiffs waived their right to file any complaints or lawsuits.

Before the settlement agreement was signed by Union representatives, however, the plaintiffs filed a lawsuit against Spring Break Louisiana and several other individual and corporate defendants to recover their unpaid wages.  On appeal, the Fifth Circuit affirmed summary judgment in favor of the defendants, holding that the four plaintiffs had waived their FLSA claims as part of the settlement—even though the settlement was never approved by the DOL or a district court.  The Fifth Circuit also affirmed summary judgment in favor of the individual defendants (several officers and managers), holding that they were not “employers” under the FLSA.

In the cert petition, the plaintiffs argue that Supreme Court review is necessary because Martin created a circuit split with the Eleventh Circuit, which held in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982) that FLSA claims may be settled only by court approval or DOL supervision.  The Fifth Circuit in Martin had distinguished Lynn’s Food Stores because of the absence of procedural safeguards during the settlement in that case (among other things, the plaintiffs were unaware that the employer owed them back wages, did not consult with an attorney before signing the agreement, and some of them did not speak English) and because the settlement in that case occurred outside the context of a lawsuit.

The plaintiff also argue that Supreme Court review is appropriate because the Fifth Circuit’s ruling conflicts with the Supreme Court’s prior decision in Barrentine v. Arkansas-Best Freight Sys., 450 U.S. 728, 745 (1981), which held that a union cannot waive individual FLSA rights through collective bargaining.  In Martin, the Fifth Circuit also distinguished Barrentine: “Here, Appellants accepted and cashed settlement payments—Appellants’ FLSA rights were adhered to and addressed through the Settlement Agreement, not waived or bargained away.  The concerns the Court in Barrentine expressed, that FLSA substantive rights would be bargained away . . . are not implicated by the situation here where Appellants’ Union did not waive FLSA claims, but instead Appellants, with counsel, personally received and accepted compensation for the disputed hours.”  As the Fifth Circuit further explained in Martin, “FLSA rights were not waived, but instead, validated through settlement of a bona fide dispute, which [plaintiffs] accepted and were compensated for.”

If the Court grants certiorari, this case would resolve the apparent Circuit split between the Fifth and the Eleventh Circuit regarding the effectiveness of private FLSA settlements and would clarify whether or not Barrentine prevents unions from settling of FLSA rights .  The cert petition also asks the Supreme Court to take up the issue of individual liability under the FLSA.  Consequently, if the Court grants the cert petition, it may also provide guidance regarding the proper standard for determining individual liability under the FLSA.  The Supreme Court’s decision on plaintiffs’ cert petition in Martin is not expected until the spring of 2013.