MYRON H. THOMPSON, District Judge.
Plaintiff Floyd Hogan, Jr., charges that his former employer, defendant Allstate Beverage Company, Inc., wrongfully withheld overtime pay in violation of federal law. Hogan asserts a claim for back wages and liquidated damages under the Fair Labor Standards Act of 1938 (FLSA), as amended, 29 U.S.C. § 201 et seq.
This case is before the court on Allstate Beverage's motion to enforce settlement and dismiss the case with prejudice. Allstate Beverage contends that it and Hogan agreed to settle this case in exchange for $ 7,500 paid by Allstate Beverage to Hogan. Hogan denies that the parties reached a settlement. Based on the evidence and argument, including that presented at a hearing, Allstate Beverage's motion to enforce settlement and dismiss this case will be denied.
Hogan worked for Allstate Beverage from May 2008 through December 2009, performing a range of tasks in the company's warehouse. Hogan alleges that he was regularly required to work between 45 and 55 hours in a given week and that Allstate Beverage deliberately failed to pay required overtime.
In addition to the FLSA action before this court, Hogan filed a separate administrative charge with the Equal Employment
Soon after the FLSA complaint was filed, Hogan's attorney commenced settlement negotiations with Allstate Beverage. Hogan authorized his attorney to negotiate for a settlement offer that Hogan would review and then approve. Hogan maintains he never authorized his attorney to make a final agreement or to settle any claims beyond his FLSA claim. He told him only that he would be willing to sign a provision to keep the settlement confidential.
During the months of June and July 2010, Hogan's attorney communicated with Allstate Beverage's attorney to negotiate the terms and amount of a potential settlement. Counsel exchanged emails and telephone calls regarding the terms of the settlement. In exchange for a settlement of $ 7,500, Allstate Beverage requested that Hogan agree both to a confidentiality provision and to a waiver of his pending EEOC charge for race discrimination. Hogan's attorney responded that Hogan would keep the settlement confidential but he would not release the EEOC charge. According to Allstate Beverage's counsel, the two attorneys verbally confirmed settlement of the case over the phone on or around July 13.
On July 15, Allstate Beverage sent Hogan's attorney a written settlement contract for Hogan to sign. This contract included a confidentiality agreement as well as a release provision. The release provision, on the one hand, preserved Hogan's "EEOC Charge" but, on the other hand, explicitly waived any "right or claims" under "Title VII." The provision read in pertinent part:
Settlement Contract 1, Evidentiary Hr'g, Def.'s Ex. 1.
Hogan came to his attorney's law offices and received a copy of the written settlement Allstate Beverage had prepared. Hogan refused to sign the contract because he believed the broad language of the contract's waiver provision could be interpreted as releasing his race-discrimination claim. Hogan had expressly told his attorney that he intended to proceed with this charge. When Hogan raised his concern, his attorney "admitted that he had `not read' the settlement document prepared by [Allstate Beverage]" and that the language departed from the agreement counsel had reached over the phone. Hogan Aff. at 7 (doc. no. 28). Hogan's attorney told him he would redraft the contract.
On July 28, 2010, Hogan's attorney faxed him a revised copy of the written settlement. In addition to limiting the confidentiality agreement, this version removed the language explicitly releasing any Title VII claim. However, it retained a pervasive waiver, releasing "Allstate ... from any and all demands, charges, causes of action ... or liability of any kind ... that have arisen prior to Hogan's execution of this Agreement." Hogan Aff. at 3 (doc. no. 28). Hogan again objected that
After receiving the motion to withdraw, Allstate Beverage requested a conference call before the magistrate judge to discuss the status of settlement negotiations. On August 11, 2010, the magistrate judge held an on-the-record conference call with Hogan, his attorney, and counsel for Allstate Beverage. Allstate Beverage's attorney asserted that the parties had already reached a binding settlement through counsels' oral agreement over the telephone on July 13.
Hogan's attorney verified that he and Allstate Beverage's attorney had agreed on the phone to settle the FLSA claim for $ 5,000 to Hogan with an additional $2,500 in attorney's fees. Hogan's counsel said that, while Hogan had authorized the suit to be settled for this sum, Allstate Beverage's release waiver diverged from their agreement; Hogan's attorney said he had never agreed to waive any future Title VII claim.
Hogan subsequently retained new counsel and has recalculated the overtime pay allegedly due. Hogan asserts that Allstate Beverage's own time-card records demonstrate that the $ 5,000 settlement would not have fully compensated him for the wages wrongfully withheld. Hogan contends that he is owed an uncontested sum of $ 7,972 in back wages and liquidated damages, substantially more than the $ 5,000 he would have received under the agreement negotiated by his prior counsel. In addition, Hogan now contends that he is owed wages for overtime hours unreflected on his time cards. He maintains he was regularly required to remain at the warehouse and continue working until the last person completed any outstanding tasks. He asserts that his working hours should be calculated using the latest "clock out" time of other employees on his shift. Using this last "clock out" method, Hogan calculates he is owed $ 15,211 in back wages and liquidated damages.
Allstate Beverage argues that Hogan is barred from revisiting his FLSA claim because he entered into a binding agreement through his prior counsel to settle this suit.
The court will first determine whether the parties reached a binding agreement settling Hogan's claims. A district court ordinarily has the power to enforce a settlement agreement entered into by litigants while litigation is pending before the Court. Massachusetts Cas. Ins. Co. v. Forman, 469 F.2d 259, 260 (5th Cir.1972) (per curiam).
"Principles governing general contract law apply to interpret settlement agreements." Resnick v. Uccello Immobilien GMBH, Inc., 227 F.3d 1347, 1350 (11th Cir.2000). The parties dispute whether state or federal law should govern here. Hogan relies on state law to argue that an enforceable settlement was never reached because the parties never signed a written settlement contract, as required by Alabama law. Allstate Beverage contends that federal common law of settlements should govern claims arising under the FLSA, a uniquely federal regulatory scheme, and that it and Hogan reached an oral agreement enforceable under federal common law.
On some occasions, federal courts have enforced oral settlement of federal claims under principles of federal common law. See, e.g., Fulgence v. J. Ray McDermott & Co., 662 F.2d 1207, 1209 (5th Cir.1981) ("[For cases dealing] with the operation of a Congressional statutory scheme, the federal courts are competent to determine whether a settlement exists without resort to state law.... Creation of a federal rule rather than absorption of a state rule is appropriate where ... the rights of the litigants and the operative legal policies derive from a federal source.") (citations omitted). On other occasions, federal courts have applied state contract law to interpret settlement agreements even when a plaintiff's claims derive from federal statutes. See Resnick, 227 F.3d at 1350 (applying Florida law to construe a settlement under the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. § 12101, et seq.); Hayes v. National Serv. Indus., 196 F.3d 1252, 1253 (11th Cir.1999) (applying Georgia law to construe a Title VII settlement). In this case, the court need not resolve which body of law applies, because no settlement was reached under either Alabama or federal common law.
Alabama law typically requires a signed, written document to create a validly executed settlement. 1975 Ala.Code § 34-3-21 (providing that an attorney authorized to settle a client's case "has authority to bind his client, in any action or proceeding, by any agreement in relation to such case, made in writing"); see also Ala. R.App. P. 47 ("No private agreement or consent between the parties or their attorneys, relating to the proceedings in any cause, shall be alleged or suggested by either against the other, unless the same be in writing, and signed by the party to be bound thereby....").
Allstate Beverage contends that, even if Alabama law applies as argued by Hogan, the settlement with him was "validly evidenced by writing — the emails between counsel for the parties." Def. Br. Supp. Mot. Dismiss at 3 (doc. no. 25). The court agrees with Hogan that there was no written agreement.
The emails between counsel in July 2010 did not constitute a written settlement of this lawsuit; they merely reflected negotiations regarding Hogan's claims. On July 12, Allstate Beverage's attorney wrote Hogan's attorney offering $ 7,500 if Hogan would sign a confidentiality provision and waive all other claims against Allstate Beverage. Hogan's attorney responded on July 13 that Hogan would accept $ 7,500 and agree to keep the settlement confidential but he would not relinquish his pending EEOC claim. Allstate Beverage's attorney replied on the same day, writing: "Agreed if he will sign a release with a confidentiality provision that releases any and all claims except his currently pending EEOC charge which I will specify by charge number." Def. Mot. Dismiss, Ex. 1 (doc. no. 24-1) (emphasis in original).
The July 13 email from Allstate Beverage's attorney was a counteroffer that changed the terms of the settlement by requiring Hogan to release all claims against Allstate Beverage beyond his EEOC claim. There is no written record indicating that Hogan's attorney ever accepted the counteroffer. When Hogan was presented with a written settlement contract incorporating the added term, he refused to sign it. With no agreement memorializing the terms in writing, the putative settlement fails under Alabama law. Phillips v. Knight, 559 So.2d 564, 568 (Ala.1990).
In the evidentiary hearing before the court, Allstate Beverage's attorney testified that, on or around July 14, 2010, she spoke with Hogan's attorney and verified the settlement with him over the phone. While a subsequent oral agreement would still fail under Alabama law because it was not in writing, Allstate Beverage urges the court to craft a federal common law rule permitting oral settlement of FLSA claims.
In this case, the court need not craft and apply a rule of decision from federal common law allowing oral agreements in FSLA cases, for Allstate Beverage has failed to demonstrate that the parties reached a valid oral agreement. "It is a fundamental principle of contracts that in order for a contract to be binding and enforceable, there must be a meeting of the minds on all essential terms and obligations of the contract." Browning v. Peyton, 918 F.2d 1516, 1521 (11th Cir. 1990). Here, counsel never reached a meeting of the minds regarding the material terms of the settlement.
Allstate Beverage's attorney testified that she orally confirmed the settlement with Hogan's attorney in a series of telephone conversations on and around July 14, 2010. However, she could not state definitively whether Hogan's attorney explicitly agreed to her new condition requiring Hogan to waive all claims beyond his pending EEOC claim. Moreover and to the contrary, Hogan's attorney himself credibly denied agreeing to such a waiver because a broad release might bar Hogan from suing under Title VII after exhausting EEOC administrative remedies. In the August 11, 2010, conference call with the magistrate judge, Hogan's attorney stated:
Official Tr. of Tel. Conf. at 8 (doc. no. 44).
There is circumstantial evidence that counsel for the two parties attempted to reach some sort of oral agreement over the phone because they prepared a settlement contract for Hogan to sign. Nevertheless, it remains unclear what the terms of the putative oral agreement were. In her testimony, Allstate Beverage's attorney could not conclusively say whether her oral agreement with Hogan's counsel would have required Hogan to release a subsequent Title VII claim after pursuing his complaint with the EEOC (let alone any parallel but independent claim brought under 42 U.S.C. 1981, as explained in more detailed later in this opinion). When Allstate Beverage's attorney drafted the first version of the settlement contract, the release stipulated that "Hogan is releasing any rights or claims he may have against Allstate or the other Released Parties under Title VII." See Settlement Contract 1, Evidentiary Hr'g, Def.'s Ex. 1. Hogan's attorney later stated that this provision "is not what I agreed to." Official Tr. of Tel. Conf. at 8 (doc. no. 44). This indicates that there was never mutual understanding about the scope of the release.
Given the lack of evidence of any oral agreement, the court can find no meeting of the minds on this essential term. There may have been an agreement to settle Hogan's claim for $ 7,500, but the dollar amount was only one condition; it does not demonstrate mutual agreement on "all essential terms and obligations of the contract." Browning, 918 F.2d at 1521. With no meeting of the minds, there was no oral agreement to enforce. See Johnson v. University College of University of Alabama, 706 F.2d 1205, 1209 (11th Cir.1983) ("Under elementary principles of contract law, an offeree cannot accept a different offer from that made by the offeror. There must be a meeting of the minds.").
Even if the court could imply a binding agreement from the email correspondence as Allstate Beverage urges, the court would still decline to enforce the agreement, for the agreement fails to meet FLSA's requirement that the agreement be "a fair and reasonable resolution of a bona fide dispute over FLSA provisions." Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350, 1355 (11th Cir.1982).
Settlement of an action under the FLSA differs from settlement of other claims. Congress enacted the FLSA to protect workers from the poor wages and long hours that can result from severe inequalities in bargaining power between employers and employees. For this reason, the FLSA's provisions are mandatory and generally not subject to bargaining, waiver, or modification by contract or settlement. Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 708, 65 S.Ct. 895, 89 L.Ed. 1296 (1945). Employees may not negotiate away liquidated damages or back wages in the interest of achieving a settlement. D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 114, 66 S.Ct. 925, 90 L.Ed. 1114 (1946).
Despite this general rule, an employer and an employee may settle a private FLSA suit under the supervision of the district court. Such settlements are intended principally to resolve controversy over any FLSA terms actually in dispute. Lynn's Food Stores, 679 F.2d at 1353. ("If a settlement in an employee FLSA suit ... reflect[s] a reasonable compromise over issues, such as FLSA coverage or computation of back wages, that are actually in dispute; we allow the district court to approve the settlement in order to promote the policy of encouraging settlement
Any amount due that is not in dispute must be paid unequivocally; employers may not extract valuable concessions in return for payment that is indisputably owed under the FLSA. An employee who agrees to such concessions will have effectively accepted payment below the FLSA's minimum wage in derogation of the statute and O'Neil. A federal court must therefore "scrutiniz[e] the settlement for fairness," Lynn's Food Stores, 679 F.2d at 1353, to ensure that employees have received all uncontested wages due and that they have received a fair deal regarding any additional amount that remains in controversy.
In the current case, Hogan and Allstate Beverage do contest the appropriate amount of back wages due. Counsel for both parties initially disagreed over the total overtime wages Allstate Beverage would have to pay. See Official Tr. of Tel. Conf. at 6 (doc. no. 44) (Allstate Beverages attorney stated, "I had certainly very different numbers from the numbers that Mr. Hogan ... had in terms of what he thought he was due").
However, Allstate Beverage's purported settlement contract exceeded the scope of the bona-fide dispute over the amount of back wages due Hogan. The settlement did not simply calculate a middle-ground sum of damages to award Hogan; rather the contract required Hogan to agree to a confidentiality provision and to a pervasive waiver of all other claims against Allstate Beverage. Such terms may be standard to civil litigation, but in the context of the FLSA, they represent "side deals." Dees v. Hydradry, Inc., 706 F.Supp.2d 1227, 1238 (M.D.Fla.2010) (Merryday, J.). The provisions "confer a partially offsetting benefit on the employer" that is ancillary to the bona-fide dispute over FLSA coverage and wages due. Id.
This is not to say that employees may never agree to ancillary terms when settling FLSA claims; but the court should closely scrutinize the fairness of such "side deals" because they do not directly relate to any bonafide dispute over FLSA coverage or wages due. Settlement of an FLSA claim is not an occasion for employers to extract valuable concessions unfairly from employees. Here, this court finds that the purported settlement's confidentiality provision and its pervasive waiver are unfair under the FLSA.
The current case exposes the drawbacks of enforced confidentiality regarding FLSA violations. First, there is no evidence that Hogan received any independent compensation in return for this provision. Second, though typical in civil litigation, confidentiality agreements in FSLA cases have the potential to hinder unfairly the congressional goal of universal compliance with the FLSA. As this court has previously explained,
Stalnaker v. Novar Corp., 293 F.Supp.2d 1260, 1263-1264 (M.D.Ala.2003) (Thompson, J.)
Aside from these public-policy concerns, there may also be a direct impact on the employee himself. Admittedly, keeping a settlement confidential will often be of little concern to an employee trying to resolve his personal claims. But, in some cases, such terms can not only prove costly to the overall enforcement of the statute, they can prove costly to the employee himself, for they prevent the employee from alerting other workers to potential FLSA violations on pain of personal liability. Indeed, here Hogan's new counsel now seeks to join several other plaintiffs in a class-action lawsuit against Allstate Beverage. These Allstate Beverage employees allege that they were victims of the same wage and hour violations as was Hogan. Were the court to authorize the settlement and confidentiality provision, Hogan could become liable for breach of contract for cooperating in the planned class action against the company. Moreover, if Hogan has already collaborated with other employees, Allstate Beverage could sue him to recover damages claimed by the other workers. Such an outcome would not only undermine the legislative purpose of ensuring widespread compliance with FLSA wage and hour requirements, see Hydradry, 706 F.Supp.2d at
Therefore, the confidentiality provision here is not only unequally to the benefit of Allstate Beverage alone and it would not only frustrate FLSA goals, it would expose Hogan to liability for its almost certain violation without Hogan having received anything whatsoever in return.
The purported settlement must also be rejected because of the provision requiring Hogan to release all claims against Allstate Beverage beyond his pending EEOC charge. Even if the release provision were interpreted to permit a subsequent Title VII action, the court finds the pervasive waiver overbroad and unfair.
"[A]n employer is not entitled to use an FLSA claim (a matter arising from the employer's failing to comply with the FLSA) to leverage a release from liability unconnected to the FLSA." Moreno v. Regions Bank, 729 F.Supp.2d 1346, 1351 (M.D.Fla.2010) (Merryday, J.). Workers seeking to recover backpay may be willing to waive unknown claims in order to access wrongfully withheld wages as soon as possible. If an employee were to sign a pervasive waiver and later discover a previously unknown tort claim, that claim would be released before the employee could assess its value. Thus, the employee would unknowingly make a valuable concession to the employer simply to recover wages that should never have been withheld in the first place. For this reason, "a pervasive release in an FLSA settlement [that] confers an uncompensated, unevaluated, and unfair benefit on the employer," id. at 1352, should be examined closely.
First, as with the confidentiality provision, here the waiver provision, if allowed, would have been extracted from Hogan without any independent compensation for it, as far as the record shows. Second, the pervasive waiver Allstate Beverage seeks to enforce is even less fair, than the confidentiality provision, to Hogan because it could compromise the race-discrimination claim he has maintained consistently. Plaintiffs seeking damages for racial discrimination typically file simultaneous actions under Title VII and § 1981. Even if a plaintiff alleging racial discrimination explicitly preserved a Title VII claim, he could unknowingly release a § 1981 claim in agreeing to a pervasive waiver. Plaintiffs often resort to § 1981 if their claim under Title VII becomes time-barred or so as to seek relief unavailable under Title VII. This avenue of redress could be mistakenly extinguished by a general release.
It is clear from the record that Hogan sought damages for alleged racial discrimination. To knowingly agree to Allstate Beverage's release, Hogan would have to understand and evaluate the relative merits of proceeding with a § 1981 action, a Title VII claim, or solely with his EEOC complaint. To his credit, Hogan recognized that the waiver in his written settlement contract could potentially release all the bases for his claim of racial discrimination, a detail his attorney had missed. Other employees may not be so discerning.
The FLSA was enacted in part to address "inequalities in bargaining power between employers and employees." Lynn's Food Stores, 679 F.2d at 1352 (citing O'Neil, 324 U.S. at 706, 65 S.Ct. 895). Given this legislative context, it would be
This is not to say that an employee can never waive independent claims in settling an FLSA action; this court need not reach that issue. However, assuming such a waiver is permissible, the court must be convinced that the employee has a full understanding of what he is releasing in exchange for a settlement award. In the current case, it is clear that neither Hogan nor his attorney intended to release all the bases of Hogan's claim of racial discrimination. Because the settlement's pervasive waiver could impact those bases, enforcing the settlement would have been unfair.
Accordingly, it is ORDERED that the defendant Allstate Beverage Company, Inc.'s motion to dismiss and to enforce settlement (doc. no. 24) is denied.
