Has anyone ever sued your business for violating the Fair Labor Standards Act? This federal law requires covered employers to pay minimum wage and overtime at time-and-a-half when employees work more than 40 hours in a workweek.
They can be expensive to defend — even the ones that aren’t collective (class) actions.
A lawsuit involving a single plaintiff seeking a few thousand dollars in unpaid overtime can become disproportionately expensive when you factor in that the FLSA also mandates recovery of reasonable attorney’s fees and costs for prevailing plaintiffs. Also, the company must pay its lawyer to defend the case.
Plus, if you eventually agree to settle the case, the parties can’t just agree to dismiss the lawsuit (as with basically every other kind of employment claim).
Private parties must ask the court to approve the settlement to ensure it’s fair. (They can also seek approval from the U.S. Department of Labor. But that’s usually a non-starter.)
Seeking court approval involves more time and expense, and your settlement agreement gets filed on a public docket for all to see. The prospect of going through this process can chill settlement and delay payment to the plaintiff(s).
Fortunately, a Pennsylvania federal judge recently recognized these flaws and offered another option for employers and employees in small wage and hour cases. Parties to an FLSA suit might settle an FLSA lawsuit without court approval by voluntarily agreeing to dismiss the action. They can even resolve their dispute pre-lawsuit.
Beyond the added time and expense of obtaining court approval for a settlement, the judge underscored that if Congress had intended for courts to approve all FLSA settlements, it would have said so in the FLSA. But it didn’t.
Now, here’s the thing, err, things:
- Your mileage may vary depending on the court and the judge. This recent decision is an outlier. The judge admitted it. Most judges – even those that sit in the same courthouse as the Pennsylvania federal judge who decided this case – will still require court approval for an FLSA settlement.
- Collective/class actions are different. In that situation, court approval protects opt-in plaintiffs who have not gotten involved in the case. So just dismissing the case after settling is probably not an option.
- Avoid provisions that may jeopardize the enforceability of a private settlement agreement. The judge said, “if an employer wants to settle the case and take the risk that it may not be enforceable later, Rule 41 lets it do so.” So, avoid language that could risk enforceability, like non-disclosure, perhaps. Judges often require parties to file settlement agreements in FLSA cases because the public is interested in the outcome.