Dees v. Hydradry Inc, Case No. 8:09-cv-1405-T-23TBM.

• Decision Date: 19 April 2010
• Docket Number: Case No. 8:09-cv-1405-T-23TBM.
• Citation: 706 F.Supp.2d 1227
• Parties: John DEES, Plaintiff,v.HYDRADRY, INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

706 F.Supp.2d 1227

John DEES, Plaintiff,v.HYDRADRY, INC., et al., Defendants.

Case No. 8:09-cv-1405-T-23TBM.

United States District Court,

M.D. Florida,

Tampa Division.

April 19, 2010.

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Carlos V. Leach, Morgan & Morgan, PA, Orlando, FL, for Plaintiff.

Richard W. Smith, Fisher, Rushmer, Werrenrath, Dickson, Talley, & Dunlap, PA, for Defendant.

ORDER

STEVEN D. MERRYDAY, District Judge.

John Dees sues (Doc. 1) his former employer to recover overtime compensation due under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (the “FLSA”). The parties announce a settlement and submit a “Joint Stipulation for Dismissal With Prejudice.” (Doc. 13) Although a private settlement and stipulation for dismissal ends the typical case without judicial intervention, the Eleventh Circuit requires the district court to review the settlement of an FLSA claim. See Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir.1982).¹ The congressional purpose of the FLSA and the public's interest in the transparency of the judicial process decisively inform both the procedure and the standard applicable to a district court's review of an FLSA settlement.

I. The FLSA, Private Agreement, and Supervised Compromise

The FLSA embodies a congressional intent to ensure that “all our able-bodied working men and women [receive] a fair day's pay for a fair day's work.” Letter to Congress from President Franklin D. Roosevelt (May 24, 1937) (reprinted in H.R.Rep. No. 101-260 (Sept. 26, 1989), 1989 U.S.C.C.A.N. 696-97). By enacting the FLSA, Congress sought “to protect certain groups of the population from substandard wages and excessive hours which endangered the national health and well-being and the free flow of goods in interstate commerce.” ² Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 706, 65 S.Ct. 895, 89 L.Ed. 1296 (1945). Combatting the typically unequal bargaining power between employer and employee, the FLSA imposes both a minimum wage and an overtime wage for each of several categories of employee. See 29 U.S.C. § 206 (establishing a minimum wage); 29 U.S.C. § 207 (providing that no employer shall require an employee to work “for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed”). To ensure compliance with the overtime and minimum wage provisions, the FLSA permits an employee to sue his employer to recover unpaid wages, an additional and equal amount as liquidated damages, and a reasonable attorney's fee.³

The FLSA prohibits a private agreement altering an employee's right to a minimum wage and overtime. For example, the employer and the employee may not agree for the employee to work prospectively for an overtime rate of one-and-a-quarter times the regular hourly rate; the FLSA requires one-and-a-half times the regular hourly rate. Although prohibiting a contract that restricts the FLSA rights of an employee, the FLSA leaves unanswered whether an employee may compromise a claim for unpaid wages.⁴

A. Private Agreement and Unsupervised Waiver of FLSA Rights

The Supreme Court first addressed the issue of compromise and waiver of FLSA rights in Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed. 1296 (1945), in which the bank employed O'Neil as a night watchman for approximately two years but failed to pay O'Neil $423.16 for overtime wages due under the FLSA. Two years after O'Neil ceased his employment, the bank offered O'Neil $423.16 in exchange for O'Neil's releasing his rights under the FLSA. The parties disputed neither the amount of wages owed nor the bank's status as a covered employer under the FLSA. O'Neil signed the release but later sued the bank to recover liquidated damages. Enforcing the release, the trial court dismissed O'Neil's claim.

Invalidating the release Brooklyn Savings Bank holds that an employee who accepts delayed payment of wages due under the FLSA may not waive the right to recover liquidated damages. Focusing on the absence of evidence that the release “was obtained as a result of the settlement of a bona fide dispute between the parties with respect to coverage or amount,” Brooklyn Savings Bank finds that the release “constituted a mere waiver of [O'Neil's] right to liquidated damages.” 324 U.S. at 703, 65 S.Ct. 895. O'Neil's waiver contravened the congressional policy implemented by the FLSA:

[A] statutory right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenes the statutory policy. Where a private right is granted in the public interest to effectuate a legislative policy, waiver of a right so charged or colored with the public interest will not be allowed where it would thwart the legislative policy which it was designed to effectuate.

....

The legislative history of the Fair Labor Standards Act shows an intent on the part of Congress to protect certain groups of the population from substandard wages and excessive hours which endangered the national health and well-being and the free flow of goods in interstate commerce. The statute was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency and as a result the free movement of goods in interstate commerce. To accomplish this purpose standards of minimum wages and maximum hours were provided. Neither petitioner nor respondent suggests that the right to the basic statutory minimum wage could be waived by any employee subject to the Act. No one can doubt but that to allow waiver of statutory wages by agreement would nullify the purposes of the Act. We are of the opinion that the same policy considerations which forbid waiver of basic minimum and overtime wages under the Act also prohibit waiver of the employee's right to liquidated damages.

324 U.S. at 705-08, 65 S.Ct. 895 (citations and footnotes omitted). Brooklyn Savings Bank declines to determine the validity of a private agreement that settles a bona fide dispute over an FLSA claim.

One year later D.A. Schulte v. Gangi, 328 U.S. 108, 114, 66 S.Ct. 925, 90 L.Ed. 1114 (1946), broadened the holding in Brooklyn Savings Bank and held that “the remedy of liquidated damages cannot be bargained away by bona fide settlements of disputes over coverage.” ⁵ In Gangi, several maintenance employees worked for the owner of an office building in New York City. Following Kirschbaum v. Walling, 316 U.S. 517, 62 S.Ct. 1116, 86 L.Ed. 1638 (1942), which holds that the FLSA covers maintenance employees in a building occupied by a manufacturer producing goods for interstate commerce, the employees in Gangi demanded unpaid overtime wages and liquidated damages from their employer. Because the employees in Gangi worked in a building whose tenants shipped no goods in interstate commerce, the employer disputed the employees' right to overtime pay. Under threat of suit, however, the employer fully compensated the employees for unpaid overtime due under the FLSA in exchange for a release from any further FLSA claim.

After signing a release, the employees sued to recover liquidated damages. Despite the parties' bona fide dispute whether the FLSA covered the employer, the Supreme Court refused to enforce the release:

In a bona fide adjustment on coverage, there are the same threats to the public purposes of the [FLSA] that exist when the liquidated damages are waived. The damages are at the same time compensatory and an aid to enforcement. It is quite true that the liquidated damage provision acts harshly upon employers whose violations are not deliberate but arise from uncertainties or mistakes as to coverage. Since the possibility of violations inheres in every instance of employment that is covered by the Act, Congress evidently felt it should not provide for variable compensation to fit the degree of blame in each infraction. Instead Congress adopted a mandatory requirement that the employer pay a sum in liquidated damages equal to the unpaid wages so as to compensate the injured employee for the retention of his pay.

It is realized that this conclusion puts the employer and his employees to an “all or nothing gamble,” as Judge Chase phrased the result in his dissent below ( [ Ceco Steel Products Corp. v. C.I.R. ], 150 F.2d 698 [8th Cir.1945] ). Theoretically this means each party gets his just deserts, no more, no less. The alternative is to find in the Act an intention of Congress to leave the adjustments to bargaining at the worst between employers and individual employees or at best between employers and the employees' chosen representatives, bargaining agent or some other. We think the purpose of the Act, which we repeat from the [ Brooklyn Savings Bank ] case was to secure for the lowest paid segment of the nation's workers a subsistence wage, leads to the conclusion that neither wages nor the damages for withholding them are capable of reduction by compromise of controversies over coverage. Such a compromise thwarts the public policy of minimum wages, promptly paid, embodied in the [FLSA], by reducing the sum selected by Congress as proper compensation for withholding wages.

328 U.S. at 115-16, 66 S.Ct. 925. Thus Gangi offers an employer that disputes FLSA coverage only two choices. The employer must either (1) pay employees the disputed wage or (2) litigate the coverage issue and risk paying liquidated damages in addition to the unpaid wage. The employer may not privately resolve the coverage issue by compromising with an individual employee. Although prohibiting purely private compromise, Brooklyn Savings Bank and Gangi leave unanswered whether an...