Steele v. Staffmark Invs., LLC

• Decision Date: 23 March 2016
• Docket Number: No. 16–cv–2069–SHL–cgc,16–cv–2069–SHL–cgc
• Citation: 172 F.Supp.3d 1024
• Parties: Alexander Steele, Plaintiff, v. Staffmark Investments, LLC, a Delaware Limited Liability Company, and Newegg Inc., a Delaware Corporation, Defendants.
• Court: U.S. District Court — Western District of Tennessee

172 F.Supp.3d 1024

Alexander Steele, Plaintiff,

v.Staffmark Investments, LLC, a Delaware Limited Liability Company, and Newegg Inc., a Delaware Corporation, Defendants.

No. 16–cv–2069–SHL–cgc

United States District Court, W.D. Tennessee, Western Division.

Signed March 23, 2016

Laura Ann Elizabeth Bailey, The Crone Law Firm, PLC, Memphis, TN, for Plaintiff.

Marcia Dawn McShane, Constangy, Brooks & Smith, LLP, Nashville, TN, for Defendants.

ORDER DENYING PARTIES' MOTION FOR SETTLEMENT

SHERYL H. LIPMAN

, UNITED STATES DISTRICT JUDGE

In this case, Plaintiff alleged violations of the Fair Labor Standards Act (“FLSA”), claiming that Defendant failed to pay Plaintiff the appropriate compensation for regular and overtime hours worked, and then terminated Plaintiff when he complained about his improper compensation. (ECF No. 1–1.) The parties agreed to a settlement of the dispute and filed a Stipulation of Dismissal. (ECF No. 9.) The Court denied dismissal, however, because the parties had failed to submit the terms of the settlement or any argument on the fairness and reasonableness of the settlement, as is required for FLSA settlements. (ECF No. 13.) The Court therefore required the parties to file the settlement and appropriate arguments. (ECF No. 13.) Instead, the parties filed a Motion for Settlement, within which they argued that the Court does not need to approve the FLSA settlement, or, in the alternative, if the Court does need to approve the FLSA settlement, it should do so in camera and confidentially. (ECF No. 14.) For the reasons set forth below, the Court DENIES the Motion for Settlement, and again ORDERS the parties to submit the settlement and appropriate arguments in support thereof, or to rescind their Stipulation of Dismissal and litigate this case.

I. Court Approval of FLSA Settlement Agreements

The circuits are split on whether settlements or stipulations of dismissal for FLSA claims require court approval. Compare Lynn's Food Stores, Inc. v. U.S., 679 F.2d 1350, 1352 (11th Cir.1982)

(requiring court approval), and

Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 206 (2d Cir.2015) (requiring court approval), and

Taylor v. Progress Energy, Inc., 493 F.3d 454, 460 (4th Cir.2007) (requiring court approval), with

Martin v. Spring Break '83 Prods., L.L.C., 688 F.3d 247, 256 (5th Cir.2012) (not requiring court approval). The Sixth Circuit has yet to rule definitively on the question; however, based on the unique purpose of the FLSA and the unequal bargaining power between employees and employers, this Court finds that FLSA settlements require approval by either the Department of Labor or a court.

The FLSA is not a trivial statute to be “interpreted or applied in a narrow, grudging manner.” Tennessee Coal, Iron & R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 597, 64 S.Ct. 698, 88 L.Ed. 949 (1944)

. When FLSA claims are brought before a court, that court must “discard [ ] formalities and adopt[ ] a realistic attitude, recognizing that we are dealing with human beings and with a statute that is intended to secure to them the fruits of their toil and exertion.” Id. at 592, 64 S.Ct. 698 ; see also

id. at 597, 64 S.Ct. 698 (the FLSA does not “deal with mere chattels or articles of trade but with the rights of those who toil, of those who sacrifice a full measure of their freedom and talents to the use and profit of others.”).

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.

Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 706–07, 65 S.Ct. 895, 89 L.Ed. 1296 (1945)

(footnote omitted). “Recognizing that there are often great inequalities in bargaining power between employers and employees, Congress made the FLSA's provisions mandatory; thus, the provisions are not subject to negotiation or bargaining between employers and employees.” Lynn's Food Stores, Inc. v. U.S., 679 F.2d 1350, 1352 (11th Cir.1982) (citing O'Neil, 65 S.Ct. at 902 ); see also

Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 740, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) (noting that the Supreme Court has “frequently emphasized the nonwaivable nature of an individual employee's right to a minimum wage and to overtime pay under the Act.”).

In D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 66 S.Ct. 925, 90 L.Ed. 1114 (1946)

, an employer failed to pay his employees overtime compensation for more than three years. After raising this issue with the employer, the employees agreed to release all claims against the employer in exchange for full payment of overtime pay. The employees, however, later filed a lawsuit seeking liquidated damages under the FLSA for the overtime pay they had previously been denied. At that time, there was uncertainty as to whether these particular employees were covered by the FLSA, and, accordingly, the district court held that an accord and satisfaction had released all claims for liquidated damages “because there was a bona fide settlement of a bona fide dispute [of coverage].” Id. at 112, 66 S.Ct. 925

. The circuit court reversed, and the Supreme Court affirmed the circuit court's decision, holding that “the remedy of liquidated damages cannot be bargained away by bona fide settlements of disputes over coverage.” Id. at 114, 66 S.Ct. 925. Accordingly, when there are bona fide disputes over legal issues (such as the extent of FLSA coverage), a settlement agreement reducing or waiving damages is invalid. Id. at 116, 66 S.Ct. 925.

It is realized that this conclusion puts the employer and his employees to an ‘all or nothing gamble,’ ... [but] [w]e think the purpose of the Act ... was to secure for the lowest paid segment of the nation's workers a subsistence wage, [which] 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 Wage–Hour Act, by reducing the sum selected by Congress as proper compensation for withholding wages.

Id.

(internal quotation omitted); see also

Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 707, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) (“The same policy which forbids waiver of the statutory minimum as necessary to the free flow of commerce requires that reparations to restore damage done by such failure to pay on time must be made to accomplish Congressional purposes.”).

“Although the Court in Gangi

held that settlements of bona fide disputes as to coverage of the Act are invalid, it specifically did not ‘consider ... the possibility of compromises in other situations which may arise, such as a dispute over the number of hours worked or the regular rate of employment.’ ” Runyan v. Nat'l Cash Register Corp., 787 F.2d 1039, 1042–43 (6th Cir.1986) (emphasis in original) (quoting Gangi, 328 U.S. at 113, 66 S.Ct. 925 ). While the Sixth Circuit has not explicitly held that compromises over factual disputes are enforceable under the FLSA, in Runyan it held that such compromises are appropriate under the ADEA, analyzing the issue using the case law and history of the FLSA because the ADEA adopted the enforcement provisions of the FLSA. Id. at 1043–1044 (“In applying the law to the facts of this case, we are mindful that we must assume that Congress, by referring to the FLSA enforcement provisions in enacting the ADEA, was aware of judicial interpretation of the FLSA.”). Accordingly, the Runyan holding may be transposed to the FLSA, such that settlements of factual disputes are appropriate under the FLSA, even when the settlements reduce the damages that would be due the employee under the FLSA. This reasoning, however, only answers half of the question currently before the Court—that is, whether a settlement over a factual dispute is appropriate, but not whether a court must approve such a settlement.

After finding that a compromise was appropriate when factual disputes arose under the ADEA, the Sixth Circuit then discussed “the importance of good faith in entering settlements and in approving a waiver of rights in this type of situation.”

Id. at 1045

(emphasis added). “[C]ourts should not allow employers to compromise the underlying policies of the ADEA by taking advantage of a superior bargaining position or by overreaching.” Id. at 1044–45. “In determining whether an ADEA settlement and release is valid, a court should apply the principles expressed by Justice Frankfurter that encourage ‘amicable settlement of honest differences ... where overreaching or exploitation is not inherent in the situation.’ ” Runyan, 787 F.2d at 1045 (alteration in original) (quoting Gangi, 328 U.S. at 122, 66 S.Ct. 925 (Frankfurter, J., dissenting)). The Runyan holding indicates that the Sixth Circuit, if presented with the same issue under the FLSA, would require court approval of settlements or stipulations of dismissal.

The Eleventh Circuit, based on similar concerns over unequal bargaining power, held that any settlement of FLSA claims must be approved by either the Department of Labor (“DOL”) or by the court. Lynn's Food Stores, Inc. v. U.S., 679 F.2d 1350 (11th Cir.1982)

. Several other courts have followed. See,

e.g.,

Cheeks, 796 F.3d at 206 (finding that FLSA falls under the “applicable federal statute” exception to Fed.R.Civ.P. 41(a)(1)(A), thus requiring court approval for stipulated dismissals); Taylor v. Progress Energy, Inc., 493 F.3d 454, 460 (4th Cir.2007) (superseded by...