Former employees of TXL Mortgage Corporation are free to pursue a claim for unpaid overtime under the Fair Labor Standards Act (FLSA) despite a previous settlement agreement under which the former employees released TXL from “all actual or potential claims.” See Bodle v. TXL Mortgage Corporation, No. 14-20224 (5th Cir. June 1, 2015).
While many courts disallow private settlements of FLSA claims without supervision of the Department of Labor or a court, the Fifth Circuit carved out an exception to this general rule in Martin v. Spring Break ’83 Productions, LLC, 683 F.3d 247 (5th Cir. 2012), where it enforced an unsupervised settlement of an FLSA claim for unpaid wages because the settlement resolved a “bona fide dispute” regarding hours worked.
TXL former employees Ambre Bodle and Leslie Meech argued that the Martin exception did not apply to their prior settlement with TXL because the settlement resolved an unrelated prior state court action concerning alleged violations of a non-compete agreement. Specifically, TXL filed suit in state court alleging that Bodle and Meech violated covenants of a non-compete agreement when they resigned from TXL and subsequently began to work for a direct competitor. The parties reached a private settlement agreement that resolved the state-court action and included a release that provided: “[t]his is meant to be, and shall be construed as, a broad release” of any claims against TXL.
The Fifth Circuit agreed with Bodle and Meech’s arguments distinguishing the Martin case, and held that the settlement agreement reached in the prior state-court action did not bar their claims for unpaid overtime under the FLSA because the settlement did not resolve a “bona fide dispute as to hours worked or compensation due.” The court found that, unlike the employees in Martin, Bodle and Meech did not receive compensation for unpaid overtime and the issue of unpaid overtime was never raised in negotiations of the settlement. The prior state-court action did not involve a FLSA claim, and there was no factual development of the number of unpaid overtime hours or compensation owed. Thus, the court found that: “[t]o deem the plaintiff[s] as having fairly bargained away unmentioned overtime pay…would subvert the purposes of the FLSA: namely, in this case, the protection of the right to overtime pay.”
— Kindall James, Liskow & Lewis, Houston, TX