Settling Overtime Claims

As most employers know, minimum wage and overtime claims under the Fair Labor Standards Act (FLSA) are all the rage these days. The “why” is simple – the penalties are harsh (double damages under federal law, up to quadruple damages under some state laws!), and attorney fees are automatic.

So what’s a smart employer to do? Settle, of course. While it often feels like highway robbery, sometimes the most cost-effective move is to negotiate a deal and take it. You are always free to litigate on principle, but you will necessarily have to pay your lawyer, and there is a good chance you will be paying the plaintiff’s lawyer too (even if you “win” and the damages to plaintiff are negligible.)

But here is the kicker – as a general rule, you are not permitted to privately settle an FLSA dispute. You need to submit the agreement for approval by the Department of Labor (DOL) or a Federal Court. Why? The courts have determined that there is a public interest in making sure people are paid earned wages. If an employer tries to pay less than what it owes (even if it was by mistake), the courts have decided that the public must know. In a worst-case scenario, you can privately settle the claim without DOL or court approval, and the plaintiff/former employee can turn around and re-file the lawsuit against you!

Why does this matter? It means that in most situations, once the plaintiff’s lawyer files a lawsuit any settlement is likely going to be a matter of public record. It means that if you are worried about copy-cats you might want to consider settling early, during the demand letter stage and before a lawsuit is filed. This strategy comes with substantial risk, but once the lawsuit is filed your strategic options are very limited.

The bottom line—what this means is that you need to be very brave (foolhardy?) if you try to settle an FLSA claim on your own. Without a lawyer, you may find yourself funding your former employee’s next lawsuit against you through your settlement payments!

Contact info: Meredith S. Campbell Co-Chair, Employment and Labor Group, Shulman Rogers [email protected] | T 301.255.0550 | F 301.230.2891