The Lost Approach to Flsa Settlement Agreements: a Freedom-of-contract Approach

• Publication year: 2021

The Lost Approach to FLSA Settlement Agreements: A Freedom-of-Contract Approach

Madison G. Conkel
University of Georgia School of Law

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THE LOST APPROACH TO FLSA SETTLEMENT AGREEMENTS: A FREEDOM-OF-CONTRACT APPROACH

Madison G. Conkel^*

In jurisdictions that require judicial oversight of Fair Labor Standards Act settlement agreements, a question lingers: What exactly should judges review? Some judges have begun categorically striking confidentiality provisions from settlement agreements by pointing to the purposes and goals of the FLSA. The academic community lauds these courts' efforts to prevent employers from mandating employees' silence about the terms of their settlement agreements. This Note, however, makes the counterargument: confidentiality provisions should be permitted in FLSA settlements agreements as a bargaining chip for employees who bring individual suits. If higher courts in a given jurisdiction require judicial oversight of these agreements, then the court reviewing the settlement should look at the process that led to the settlement agreement, instead of its substance, when assessing the agreement's fairness. Alongside Department of Labor enforcement actions, a process-based review would address problems that confidentiality provisions create for the national enforcement of labor rights and would allow the suffering employee to maximize their recovery.

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Table of Contents

I. Introduction....................................................................817

II. Background on the FLSA.............................................820

A. History of The Flsa...............................................820
B. Purpose of The Flsa..............................................821
C. Enforcement of The Flsa....................................822

III. Judicial Review of Settlement Agreements...........824

A. Argument for Mandatory Oversight of Settlement Agreements......................................825
B. Argument Against Mandatory Oversight of Settlement Agreements......................................827

IV. Allowing Parties to Negotiate Using Confidentiality Provisions..............................................828

A. Protecting The Employee....................................830

1. Freedom of Contract Compels Permitting Confidentiality Provisions..............................831
2. Confidentiality Gives Employees More Bargaining Leverage.......................................836

B. Protecting The National Economy.....................838

1. Confidentiality and Other Worker-Regulation Statutes ............................................................ 840
2. Why the FLSA Should Not Be Treated Differently .......................................................................... 843

C. Potential Limitations of Settlement Agreements ....................................................................................844

V. Conclusion......................................................................846

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I. Introduction

Federal courts have long protected individual rights and liberties.¹ Courts most often derive these rights and liberties from the U.S. Constitution,² but rights can also come from federal statutes.³ One federal statute that grants individual rights is the Fair Labor Standards Act of 1938 (FLSA).⁴ The FLSA guarantees certain classes of workers minimum wages and premium overtime pay.⁵ When employers violate these statutory guarantees, the FLSA affords employees legal remedies.⁶

Like much litigation, these FLSA cases often end in settlement agreements between employers and employees.⁷ In circuits that have ruled on the issue, the trend has been to require judicial or Department of Labor supervision of these settlement agreements.⁸

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Oversight of settlement agreements has spurred debate among legal scholars and circuit courts about the propriety of judicial intervention.⁹

In jurisdictions where oversight has become normalized, many lower courts have begun looking at the substance of settlement agreements when approving or disapproving them.¹⁰ Many courts now refuse to approve settlement agreements containing confidentiality provisions because these provisions are deemed to be contrary to the policies behind the Fair Labor Standards Act.¹¹

Scholarship on this issue has primarily focused on whether judicial or Department of Labor oversight of settlement agreements is necessary and whether it should continue.¹² A few arguments

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about the propriety of confidential settlements in the FLSA context do exist, but they all tell the same story: confidentiality is contrary to the FLSA's public policy.¹³ Although some scholars briefly address arguments against judicial voidance of confidentiality provisions, they often quickly dispose of these arguments without much scrutiny.¹⁴

After assuming that judicial oversight of settlement agreements will continue, this Note argues that categorically striking confidentiality provisions hampers individual employees who have accepted the costs of litigation and brought suit against their employer. In making this argument, it will contribute to the broader academic discussion¹⁵ about whether confidentiality provisions ought to be enforced in FLSA settlements. This Note moves beyond the theoretical arguments for freedom of contract by comparing the FLSA to other federal labor statutes protecting employees—Title VII and the Age Discrimination in Employment Act (ADEA)¹⁶ —to assess whether the FLSA is fundamentally different from other labor statutes by requiring heightened judicial treatment of settlement agreements.

Pointing to freedom of contract principles and to the employee's increased leverage in settlement negotiations when able to use

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confidentiality as a bargaining tool, this Note contends that automatically striking these provisions harms employees who file suit. Additionally, the societal disadvantages of confidentiality provisions may be assuaged by the Department of Labor's ability to bring suit under the FLSA against an employer on behalf of all employees affected by illegal behavior.¹⁷ Further, more nuanced treatment of confidentiality provisions, such as assessing the exact nature of what can or cannot be discussed or who the employee is directly prevented from communicating with about the suit,¹⁸ might better serve all the goals of the FLSA—full compensation to employees and protection of the overall marketplace from wage and hour violations. Courts can avoid critics' concerns and give employees greater bargaining power over negotiations by focusing on the process, rather than the substance, of a settlement agreement when assessing its fairness.

II. Background on the FLSA

This Note argues that courts should not categorically strike confidentiality provisions from FLSA settlement agreements. A discussion of the history, purpose, and enforcement of the statute would be useful before reasoning through the argument. Thus, this Section discusses the history, purposes, and enforcement the FLSA in turn.

A. History of The Flsa

Congress passed the FLSA in 1938 in the midst of the Great Depression to stimulate the national economy and help individuals who were struggling financially.¹⁹ Congress enacted the FLSA

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during a period when the judicial temperament toward national legislation was shifting.²⁰ Whereas the U.S. Supreme Court had previously been a barrier to federal economic legislation, the "switch in time" occurred in 19 3 7²¹ —only one year prior to the FLSA's enactment—and made the Court more accommodating to the will of Congress.²² In fact, after the "switch," the Court in 1941 upheld the FLSA under the Commerce Clause.²³

Passed during a dramatically low economic point for the United States, the FLSA appeared to be a glimmer of hope for workers and for those concerned with the trajectory of the national economy, thus illustrating that the FLSA had broader goals relating both to individuals and to the national workforce.²⁴

B. Purpose of The Flsa

Congress specified the purpose of the FLSA in the statute itself.²⁵ Section 202 states that "labor conditions detrimental to the maintenance of the minimum standard of living necessary for

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health, efficiency, and general well-being of workers" likewise "burden[] commerce and the free flow of goods," create unfair competition and labor disputes, and interfere with the "fair marketing of goods in commerce."²⁶

The statutory language illustrates that the purpose of the FLSA is two-fold: (1) to protect individual workers from unfair labor practices and (2) to protect the overall workforce and national economy from a race to the bottom with wages and with requirements for increased hours.²⁷ This broader purpose of protecting the national economy perhaps distinguishes the FLSA from other employment statutes, like Title VII and the ADEA,²⁸ which focus on preventing discrimination against individuals rather than on bolstering the national workforce and economy.²⁹

C. Enforcement of The Flsa

If an employer violates the FLSA, the statute provides two paths to rectify the violation.³⁰ First, the employee can bring a private lawsuit against the employer.³¹ Second, the Secretary of Labor can bring a lawsuit on behalf of the employee against the employer and supervise the payment of back wages owed by the employer to the employee.³²

This first mechanism, an employee-initiated suit against an employer, is this Note's primary focus because this context requires judicial or Department of Labor (DOL) oversight of a resulting

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settlement agreement in certain circuits or circumstances.³³ Importantly, the availability of other enforcement mechanisms supports a more deferential stance toward settlement agreements between parties. If the Department of Labor can sue on behalf of employees potentially affected by the employer's malfeasance, then depriving an individual employee of the ability to use confidentiality as...