The issue of whether a settlement agreement must be approved by a court or the Department of Labor (DOL) is a point of confusion that has been debated in several recent cases. There is a majority rule, but some federal courts have strayed from this rule, or at least created exceptions. Failure to properly enter into an out-of-court settlement agreement with employees may result in a void agreement and costly litigation, a risk that is avoidable through due diligence in analyzing the issues related to a particular claim.
The first case to address the issue of private settlements of claims filed pursuant to the Fair Labor Standards Act (FLSA) was Lynn’s Foods, Inc. v. United States, 679 F.3d 1350 (11th Cir. 1982). In that case, an employer brought a declaratory judgment action against the DOL seeking a ruling that the employer was free from liability arising under the FLSA on the basis of a settlement agreement signed by a group of its employees. That court addressed the policies behind the enactment of the FLSA, stating, “The FLSA was enacted for the purpose of protecting workers from substandard wages and oppressive working hours.” “Recognizing that there are often great inequalities in bargaining power between employers and employees, Congress made the FLSA’s provisions mandatory; thus, the provisions are not subject to negotiation or bargaining between employers and employees.” “FLSA rights cannot be abridged by contract or otherwise waived because this would ‘nullify the purposes’ of the statute and thwart the legislative policies it was designed to effectuate.” These interests are the foundation of the Lynn’s Foods holding.