In Nall v. Mal-Motels, Inc., the 11th Circuit held that the rule of Lynn’s Food Stores establishing that Fair Labor Standards Act (“FLSA”) settlements must be supervised by a court or the Department of Labor (“DOL”) applies to former employees.
The plaintiff in Mal-Motels claimed that she periodically worked more than forty hours per week but was not paid one and one-half times her regular hourly wage for that overtime work, in violation of the FLSA. Wal-Motels conceded that it owed Nall some unpaid overtime, but Wal-Motels disputed the number of hours that Nall worked and the amount of damages owed. Nall eventually quit her job and filed a lawsuit against Mal-Motels.
Mohammad Malik (owner of Mal-Motels) then contacted Nall to discuss a settlement of her lawsuit. The two agreed to meet at a hotel. Malik told Nall not to bring her attorney, and Nall complied. During the meeting, Malik proposed a settlement of a certain sum in exchange for Nall’s dismissal of her lawsuit. Nall accepted and signed a voluntary dismissal with prejudice and a letter to her attorney informing him that the case had been settled.
The district court rejected the dismissal because it had not been filed by Nall’s lawyer. Malik then hired a lawyer who filed a motion to enforce the settlement agreement. After a hearing on the motion, the magistrate judge issued a report recommending that the district court approve the settlement and dismiss the case because the agreement that Nall and Malik had reached was “a fair and reasonable resolution of a bona fide dispute under the FLSA.” The district court adopted the magistrate judge’s report and dismissed Nall’s complaint with prejudice.
On appeal, the 11th Circuit Court reversed. In doing so, the court revisited its holding in Lynn’s Food Stores. In that case, the court held that “[t]here are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees.” 679 F.2d at 1352. The first is under the supervision of the Secretary of Labor. Id. at 1353. The second, which is “[t]he only other route for compromise of FLSA claims[,] is provided in the context of suits brought directly by employees against their employer . . . to recover back wages for FLSA violations.” Id. at 1353.
The Mal-Motels court noted that although Lynn’s Food Stores involved a settlement agreement between employees and their current employer, the reasoning behind the Lynn’s Food Stores decision was applicable to the present case. The court explained as follows:
“An employee is subject to the supervision and personnel decisions of her employer and the possibility of retaliation may pervade the negotiations. That is not the case, however, because Nall no longer worked for Mal-Motels when she negotiated the settlement agreement with Malik, or when she filed the lawsuit for that matter. Still, we believe that the rule of Lynn’s Food applies to settlements between former employees and employers . . . Ensuring that each FLSA plaintiff receives the damages, including liquidated damages, to which she is statutorily entitled is no less important when the plaintiff is a former employee . . . The purposes of the FLSA are undermined whenever an employer is allowed to escape liability for violations of the statute, regardless of whether those who were victimized by those violations are still employees.”
Although the holding in Mal-Motels comes as no surprise to many employment attorneys, it nonetheless reinforces the importance of obtaining court or DOL supervision of any settlements under the FLSA. Additionally, Mal-Motels serves as a reminder that employers should involve an attorney in the settlement process. As the court noted in Mal-Motels, “a few dollars saved can lead to a lot more dollars spent.” Last, employers would be wise to include language in their settlement agreements to the effect that the employee has received all wages due and is owed nothing more than the consideration paid under the agreement.