The Supreme Court denied a request Dec. 10 to review the Fifth Circuit Court of Appeals' ruling that approves a private settlement of employees' claims for unpaid overtime based on the Fair Labor Standards Act. According to the plaintiffs, the circuit was split on this decision as noted by an opinion from the Eleventh Circuit Court of Appeals that mandates approval of any FLSA settlement from a court or the United States Department of Labor. However, Robert Sheeder, partner at international law firm Bracewell & Giuliani, is not surprised that the Supreme Court declined to hear this case.
In an earlier case, Martin vs. Spring Break '83 Productions, the Fifth Circuit found that private compromise claims under the FLSA is permissible when there exists a bona fide dispute as a liability. Considering that this ruling backed the Fifth Circuit Court of Appeals' decision, Sheeder expected the Supreme Court to move toward this direction.
"For years, the problem we've had here, in Texas particularly, is that when you have one of these wage and hour disputes, you probably couldn't settle it," Sheeder says. "You either had to ask the other side to file a law suit and then get the court to approve it, or you had to get the Department of Labor to intervene and approve it. There was a feeling that's the way the law had been, and what this means is the wage and hour disputes will be much more similar to regular disputes."
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For years the problem we've had here in Texas particularly is that when you have one of these wage and hour disputes you couldn't probably settle it, you either had to ask the other side to file a law suit and then get the court to approve it or you had to get the Department of Labor to intervene and approve it. There was a lot of feeling that's the way the law had been, and what this means is the wage and hour disputes will be much more similar to regular disputes.
While private settlements are now permissible, they must contain three elements, one of which being a genuine dispute regarding the compensation owed to the employee. This simply means the employer would have to believe the overtime or underpayments had not occurred or both parties disagreed to the amount, Sheeder says.
Conversely, if the employer knew it owed money but offered to pay half in exchange for the employee signing a release, the agreement would not be bona fide, Sheeder says. This situation suggests that the employer was using enticement of quick money. The employer instead must state that it disagrees with the amounts owed or the employee's time worked.
"One example of that would be if the employee says they were showing up early and starting the day before they were actually being paid and the employer has a reason to believe that's true," says Christopher Maberry, associate at Bracewell & Giuliani. "There's some sort of genuine dispute, and then they can settle that because they can't figure out how many minutes or hours each day the employee was working without pay."
An employee also must be aware of his or her rights as stated by FLSA. While more case law may be needed to clarify the issue, Sheeder believes just telling employees that they have the right to seek counsel with an attorney is enough to satisfy this requirement. Maberry also believes this requirement can be fulfilled by posting the required FLSA flier in the workplace or handing out a brochure from the Department of Labor that defines employees' rights.
The third element is that there must be little danger of the employee being disadvantaged by unequal bargaining power, which is somewhat related to the second point in that attorney representation on behalf of the employee takes care of this requirement, Sheeder says.
Now that this ruling has been upheld, Sheeder expects this to be positive for both employers and employees. More settlements will be facilitated, and the court system will be less burdened with filings, making for a smoother process.
"Rather than having to burden the courts with filings, it will speed things up for both sides," Sheeder says. "It's a win-win in a lot of ways. It will save on legal fees, and everything will be more efficient."
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