C2 Essentials, Inc. ("C2")

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Aug 01, 2013 01:31 PM

On July 30, 2013, the United States Court of Appeals for the Eleventh Circuit threw out a district court’s enforcement of a settlement agreement between an employer and an employee over a Fair Labor Standards Act (FLSA) claim after that employer was able to get the employee to agree to settle without the presence of her attorney. In Nall v. Mal-Motels, Inc, No. 12-13528 (July 29, 2013), the two parties attempted to settle litigation without the advice and assistance of attorneys, which only led to the involvement of attorneys and more litigation. Noting that the case law surrounding the enforcement of FLSA settlement agreements operated with careful protections for plaintiff-employees, the Eleventh Circuit held that the district court improperly dismissed the case because the employee’s attorney had not stipulated to the terms of the agreement. The court’s disposition in Nall is a reminder to employers – big and small – that attempting to settle employment claims without an attorney can lead to headache and more expenses.

Candace Nall worked for Mal–Motels, which was owned by Mohammad Malik, as a front desk clerk and night auditor. Nall claimed that she periodically worked more than forty hours per week but was not paid one and one-half times her regular hourly wage for that overtime work, which was in violation of the FLSA, 29 U.S.C. § 207(a)(1). She contended that Mal–Motels owed her at least $3,780 in unpaid overtime, plus another $3,780 in liquidated damages, for a total of $7,560. See 29 U.S.C. § 216(b) (liquidated damages provision). After Nall quit her job at Mal-Motels, she hired an attorney who filed a lawsuit on her behalf against Malik and Mal–Motels. Malik, without the assistance of an attorney, filed an answer for himself and for Mal–Motels. That answer was stricken and a default was entered as to Mal–Motels because Malik, as a non-lawyer, could not represent it in the lawsuit.

Later, still acting without an attorney, Malik called Nall about settling her lawsuit. The two of them agreed to meet at the motel, without Nall’s attorney. When the two of them met and talked, Malik told Nall that she was “ruining his business” and that it would be better for him if she would settle the case. He presented her with two documents to sign and offered her a check for one thousand dollars and another one or two thousand dollars in cash if she agreed to sign them and dismiss her lawsuit. Nall testified that even though she felt that Malik was pressuring her, she agreed to sign the two documents that he gave her because she trusted him and she “was homeless at the time and needed money.” The documents that Nall signed were a voluntary dismissal with prejudice of her complaint and a letter to her attorney informing him that the case had been settled.  However, the district court entered an order stating that because Nall's complaint had been filed by an attorney and she had not received permission to appear without that attorney, her pro se voluntary dismissal with prejudice “has no effect and [the complaint] remains pending.”

Shortly thereafter, Malik hired an attorney to represent him and Mal–Motels in the case. The attorney filed a motion to set aside the default as to Mal–Motels, which the district court granted, and he also filed a “motion to enforce the settlement agreement.” A magistrate judge held an evidentiary hearing on that motion, during which Malik and Nall gave conflicting testimony about the number of hours of overtime that Nall had worked.  The magistrate judge then issued a report recommending that the district court approve the settlement and dismiss the case with prejudice because the agreement that Nall and Malik had reached was “a fair and reasonable resolution of a bona fide dispute under the FLSA.” The district court adopted the magistrate judge's report and recommendation, overruled Nall's objections to it, and dismissed her complaint with prejudice.

On appeal, the Eleventh Circuit noted it was bound by its holding in  Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), which established a two pronged test for upholding of FLSA settlement agreements. If agreements are reached under the supervision of the Secretary of Labor, they are enforceable. In the alternative path, the parties may “present to the district court a proposed settlement” and “the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.” Lynn's Food, 679 F.2d at 1353. The Lynn's Food decision relied on a Supreme Court decision, Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945). In that decision, the Supreme Court held that a plaintiff cannot waive her right to liquidated damages in a FLSA settlement when there is no genuine dispute about whether she is entitled to them. The Court in that case reasoned that by enacting the FLSA, Congress intended “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.” Id. Liquidated damages, the Court said, are an important way of enforcing that protection, because “[k]nowledge on the part of the employer that he cannot escape liability for liquidated damages by taking advantage of the needs of his employees tends to insure compliance in the first place.” Id. at 709–10.

Further quoting from Lynn’s food, the Eleventh Circuit noted that given the “often great inequalities in bargaining power between employers and employees,” mandatory protections “not subject to negotiation or bargaining between employers and employees” are needed to ensure that an employer—who has a strong bargaining position—does not take advantage of an employee. Lynn's Food, 679 F.2d at 1352.

The court went on to analyze Nall’s case, skipping to the second path of Lynn’s Foods, whether the district court entered a “stipulated judgment” approving the settlement agreement. The court noted that the district court had overruled objections made by Nall’s attorney to the enforcement of the settlement agreement which had been signed in the absence of his presence. The court ruled that when a plaintiff's attorney asks the district court to reject a settlement agreement that was reached without the attorney's knowledge or participation, whatever else the judgment approving the agreement may be, it is not a “stipulated judgment” within the meaning of Lynn's Food. Thus, the court vacated the district court’s order enforcing the agreement and remanded the case for further proceedings.

Nall provides a valuable lesson for employers. When an employee files a complaint against you, it is wise to go get your own lawyer, if not mandatory when that employee has their own lawyer. Each state has their own individual unauthorized practice statute, but generally across the board, as non-attorneys, employer-owners are not entitled to represent their business in litigation. Had in this case, Malik simply obtained an attorney to draft a settlement agreement and confer with Nall’s attorney, later headache and expenses could have been avoided. We end this blog post with which we frequently conclude, but this time with special insistence: In employment matters, whether they be FLSA, FMLA, Title VII or any federal or state employment law, employers are always advised to seek counsel, especially when litigation has already commenced.

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