In Nall v. Mal-Motels, Inc., the Eleventh Circuit recently overturned a district court order upholding the private settlement of Nall's claim for unpaid overtime. The Court reaffirmed its position that judicial or Department of Labor (DOL) approval was necessary for a lawful settlement of FLSA claims brought by then current employees. Nall extended this position to include settlements by former employees.
Even though the trial court approved the private settlement, the appellate court concluded that the underlying reasons supporting the requirement of judicial approval also apply to settlements with former employees. The Court stressed the importance of ensuring that the deterrent effect of the FLSA's liquidated damages provision is not circumvented by unscrupulous employers who take advantage of an employee (whether current or former) by settling FLSA claims privately for less than the employer would be liable for in court.
Now, at least in Florida (and other states bound by the Eleventh Circuit, employers must reassess their strategy towards settlement of FLSA claims. Nall raises several legal and practical issues for employers wishing to arrange for private settlements of FLSA claims that have been negotiated at arm's-length with represented parties. Although not all courts within the Eleventh Circuit require a detailed review of private settlements, litigants must be prepared to disclose the terms of their settlement for review by the trial court. IN addition, employers desiring to maintain confidentiality in their settlements may not be able to do so if the trial judge insists on reviewing the settlement terms.
Employers should avoid the pitfalls of settling with their employees unless they comply with the requirements ofNall unless they are prepared to face the potential consequences of having the settlement set aside.
