Deitz v. Budget Innovations & Roofing, Inc., 2012 U.S. Dist. LEXIS 177878 (M.D. Pa. Dec. 13, 2012)

Fair Labor Standards Act settlements must be approved by a court or by the Secretary of Labor in order to be deemed effective.

The plaintiffs filed a collective action pursuant to the Fair Labor Standards Act, alleging the employer failed to pay him and other hourly workers overtime compensation and alleging that he was not paid for hours actually worked. After the lawsuit was filed, plaintiff's counsel sought to withdraw from the case in light of the fact that the plaintiffs purportedly resolved the matter with the employer without the involvement of their attorney. Plaintiff's counsel also argued that Fair Labor Standards Act settlements must be approved by the court in the absence of direct supervision by the Secretary of Labor. In reviewing the situation, the court noted that the Third Circuit has not addressed whether FLSA lawsuits claiming unpaid wages may be settled privately without court approval…but that "[s]everal cases from the District of New Jersey and the Eastern District of Pennsylvania have cited to [an Eleventh Circuit decision] and assumed that judicial approval is necessary." As a result, the court expressly concurred "that bona fide disputes of FLSA claims may only be settled or compromised through payments made under the supervision of the Secretary of the Department of Labor or by judicial approval of a proposed settlement in a FLSA lawsuit." In so holding, the court reasoned that it was "impossible to ensure that an agreement settles a bona fide factual dispute over the number of hours worked or the regular rate of employment in the absence of judicial review of the proposed settlement agreement." Accordingly, the court required that the proposed settlement agreements be submitted to the court to determine whether the matter can be resolved.

Employers must be aware that they cannot resolve potential claims for unpaid wages pursuant to the FLSA with obtaining direct approval by the Department of Labor or a court. As these issues largely arise when employers are negotiating separation agreements with employees, it is recommended that employers contact an employment attorney to guide them through these potential issues in order to determine whether the agreement would require court approval. Failure to do so may result in the employee filing a subsequent lawsuit, alleging the employer failed to pay him (and, perhaps, other employees) wages owed to him.

Case Law Alert - 1st Quarter 2013