Wage and hour lawsuits are difficult for many reasons – not the least of which is because the Fair Labor Standards Act (“FLSA”) is different than most other employment laws. For instance, the FLSA puts the burden on employers – not the employee – to prove important aspects of a violation. Specifically, the FLSA puts the burden on employers to prove that employees are correctly classified as “exempt” from the FLSA’s overtime standards. Likewise, if an employee is found to have been misclassified, then employers also have the burden to show how many overtime hours the employee really worked (if the employer disputes the employee’s calculation of overtime hours demanded).
The FLSA is also different than other employment laws in another important way – generally, any settlement of claims in a wage and hour lawsuit must be approved by a federal district court or the Department of Labor (“DOL”). This approval process can be slow and may expose employers to additional liability if the court or DOL identifies other employees who were incorrectly classified or paid under the FLSA. This approval process also discourages employers from seeking confidential settlements (which are routinely used to resolve other types of employment lawsuits and protect employers!). Normally, FLSA settlements are not just between an employer and its employee(s) – the federal court or DOL must be included before the settlement can be finalized.
However, a recent decision by the Fifth Circuit Court of Appeals (which covers appeals from all federal trial courts in Texas, Louisiana and Mississippi) held that a private settlement of FLSA claims is just fine, so long as there is a legitimate dispute regarding the employer’s liability and the amount of overtime owed. So, in these situations, claims can be settled between employer and employee without the Court’s or the DOL’s approval.
This approach makes plenty of sense. Why should the parties to a FLSA lawsuit have to jump through hoops to obtain approval of an arms-length, voluntary settlement agreement that has been negotiated by both sides who are represented by counsel? Unfortunately, other federal appellate courts, including the Eleventh Circuit (which covers appeals from all federal trial courts in Alabama, Florida, and Georgia), have taken a different approach and have rejected private settlements that were not approved by a court or the DOL.
For now, the Fifth Circuit is the only federal appellate court to officially endorse private FLSA settlements. So, this is terrific news if you do business Louisiana, Mississippi, or Texas. Employers in the rest of the country should view this decision as a positive sign, even if the Fifth Circuit’s ruling does not apply to them. Perhaps other federal appellate courts will recognize and adopt this common-sense approach to FLSA settlements in the near future.