Wednesday, May 31, 2017

When is a settlement not a settlement? FLSA

When you settle a lawsuit with an employee, you are bargaining for finality. You are paying that employee to resolve all disputes between you, whether asserted or unasserted. You want to be done with that individual forever.

Except that is not always the case.

An employer cannot release or otherwise waive one’s FLSA rights by contract without a court-approved stipulation or settlement, or a DOL-supervised settlement. Which is why, in Nasrallah v. Lakefront Lines, an Ohio federal court recently permitted a plaintiff to continue with her FLSA lawsuit for unpaid overtime despite her signing a general release and waiver in a prior discrimination case.

When Tamara Nasrallah settled her discrimination claim, she and Lakefront Lines signed a settlement agreement, under which Lakefront paid her $40,000, and for which she agreed to a general release “of and from any claims … and expenses (including attorneys’ fees and costs) of any nature whatsoever, whether known or unknown, against [Lakefront] which Nasrallah ever had, now has or asserts or which she … shall or may have or may assert, for any reason whatsoever from the beginning of the world to the date hereof.” The release is “unrestricted in any way by the nature of the claim including, … all matters which were asserted or could have been asserted in the Charge, including, but not limited to, matters arising out of Nasrallah’s employment with the company, and any other state or federal statutory … claims, including, … all statutory claims under federal [and] state laws regulating employment, including …the Fair Labor Standards Act [and] any and all Ohio Wage and Hour Laws.”

Separately in the agreement, Nasrallah waived “any claims for additional compensation and acknowledges that she has been appropriately compensated for all hours worked,” that Lakefront has “paid all sums owed to [her] as a result of her employment with the Company (including all wages),” and that “she is not entitled to anything separate from this Agreement.”

Her justification for her after-the-settlement FLSA lawsuit?
I signed the Settlement Agreement based on my understanding it was unlawful to compromise my overtime claims without Department of Labor or court approval in any manner and that any attempt to do so—including by any “representations” made therein—was legally null and void. Thus, when I entered the Settlement Agreement and made the “representations” therein, I believed my representations about being paid in full and being owed no wages were ONLY representation for purposes of my non-overtime claims (e.g., contract claims for claims for discriminatory pay).

The court agreed:
According to Lakefront, a private settlement agreement can preclude a future FLSA claim as long as the underlying dispute did not involve a FLSA dispute. In other words, the only time an employee can waive a FLSA claim is when there is no bona fide dispute over hours worked, and therefore, likely no discussion or negotiation over compensation due. This is precisely the opposite of what the case law holds. … [S]uch a situation clearly implicates Congress’s concerns about unequal bargaining power between an employer and employee and undermines FLSA’s goals. Rather, … even the most liberal interpretation of the ability to privately compromise FLSA claims only allows such compromises when they are reached due to a bona fide FLSA dispute over hours worked or compensation owed. … [T]he prior dispute between the parties did not involve the FLSA and there is no evidence that the parties ever discussed overtime compensation or the FLSA in their settlement negotiations. Thus, while the Settlement Agreement contains a general statement that Nasrallah was paid for all hours worked, there was no factual development of the number of unpaid overtime hours nor of compensation due for unpaid overtime.

So what is an employer to do? 

If you are engaged in litigation, the answer is simple. Ask the court to approve the FLSA portion of the settlement agreement.

If, however, there is not active litigation (e.g., severance or pre-lawsuit negotiations), the issue is much thornier.

I do not recommend that you contact the DOL for its supervision of the settlement. That is a radar that you do not want to be on. The supervised settlement may (will?) beget a full-blown wage and hour audit, which leads to an OSHA on-site, which leads to an ERISA audit…. You get the picture. There is no need to throw yourself in front of this regulatory steamroller.

You could file a lawsuit that simply asks the court to approve the settlement, but that seems likes overkill in almost all situations (even though it is the safest court of action under the strictest interpretation of the FLSA’s requirements for waivers).

A reasonable middle ground? Develop a bargaining history with the employee’s attorney that the employee may have an FLSA claim for unpaid wages, and that you are specifically bargaining for the release and waiver of that claim. If you can develop a record that overtime pay was specifically negotiated, you will be in a much better position to assure a court in later FLSA litigation that the plaintiff has been compensated for the overtime wages later claimed to be owed. In other words, you almost need to create a claim that does not exist to then bargain that claim away. While this route seems highly inefficient, it may be the only way to protect yourself from a later FLSA claim. Otherwise, you have zero certainty that the certainty for which you think you have bargained and paid actually exists.