On July 24, 2012, the Fifth Circuit Court of Appeals issued what may turn out to be one of the more significant Fair Labor Standards Act rulings in recent years.  In Martin v. Spring Break ’83 Productions, LLC, the Fifth Circuit held that, under certain circumstances, a settlement agreement between an employer and its employees involving FLSA claims is enforceable notwithstanding the fact that neither the Department of Labor nor a court approved the agreement.  This ruling is the first appellate-level decision enforcing a private FLSA settlement and potentially opens the door for other circuits and district courts to follow suit.

Prior to Martin, the only appellate-level decision on the issue was the Eleventh Circuit’s thirty year-old decision in Lynn’s Food Stores, Inc. v. United States, which is a good example of a case where bad facts resulted in bad law.  The underlying dispute in Lynn’s Food Stores arose as a result a Department of Labor investigation.  The employees were unaware of the DOL investigation or that the DOL had determined that Lynn’s owed them back wages under the FLSA.  Indeed, the employees were not even aware that they had rights under the FLSA and had not personally asserted such rights in their dealings with Lynn’s Food Stores.  On these facts, the Eleventh Circuit held that “to approve an agreement between an employer and an employee outside of the adversarial context of a lawsuit brought by the employees would be in clear derogation of the letter and spirit of the FLSA.” 

Unfortunately, subsequent court decisions did not limit Lynn’s Food Stores to its unique facts and instead tended to adopt a hard-and-fast rule denying enforcement of all private FLSA settlement agreements and releases, including those arising in the context of a bona fide dispute between the employer and the employee.  A byproduct of this rigid rule has been that courts have also tended to refuse to allow parties in FLSA litigation to file settlement agreements under seal, thus making the details of the parties’ settlement agreements available to the public, including other plaintiff’s lawyers trolling for copycat lawsuits. 

The Fifth Circuit in Martin rejected this reasoning and opted for a more flexible approach, holding that a private FLSA settlement is enforceable if the settlement arose in the context of a bona fide dispute over the amount of hours worked or wages owed “and not as a compromise of guaranteed FLSA substantive rights themselves.”  This distinction is important because, even under the Fifth Circuit’s holding, not all private settlements are enforceable; for example, an agreement releasing or waiving FLSA coverage issues or other substantive FLSA rights would not be enforceable.  Regardless, the Fifth Circuit’s ruling in Martin will likely lead other circuit and district courts to consider taking a more flexible approach to evaluating the enforceability of private FLSA settlement agreements, which may ultimately mean that, some day soon, private FLSA settlement agreements are evaluated no differently than any other type of settlement agreement or release.