A question that has bedeviled employers for decades: Can employers obtain a release of claims under the Fair Labor Standards Act (FLSA) in the absence of U.S. Department of Labor (DOL) or court approval? A recent decision in the U.S. District Court for the Southern District of New York, Gaughan v. Rubenstein, adds more fuel to the fire, dismissing a plaintiff’s FLSA claims against Lee Rubenstein and holding that the plaintiff’s “pre-litigation settlement agreement” released her FLSA claims, even without the imprimatur of the DOL or a court.
How the Courts Previously Have Ruled
Until recently, wage-and-hour practitioners generally have looked to the U.S. Court of Appeals for the Eleventh Circuit’s 1982 decision in Lynn’s Foods Stores v. United States as the governing standard. In Lynn’s Foods, the Eleventh Circuit held that there were only two ways an employee could release a private FLSA claim, a payment supervised by the DOL or “a stipulated judgment entered by a court which has determined that a settlement proposed by an employer and employees, in a suit brought by employees under the FLSA, is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.” In reaching its conclusion, the Eleventh Circuit relied upon several Supreme Court decisions analyzing the inability of employees to contract away their rights to minimum wage and overtime under the FLSA and relying upon the “great inequalities in bargaining power between employers and employees.”
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