In a case of first impression in the federal courts of the Third Circuit, a judge has ruled that settlements of actions filed under the Fair Labor Standards Act require court approval.

In Deitz v. Budget Renovations & Roofing, U.S. District Judge Christopher C. Conner of the Middle District of Pennsylvania ruled that an FLSA settlement may not be settled privately because a judge must first determine whether there is a bona fide factual dispute.

“It is simply impossible to ensure that an agreement settles a bona fide factual dispute over the number of hours worked or the regular rate of employment in the absence of judicial review of the proposed settlement agreement,” Conner said.

In Deitz, according to Conner, plaintiff Jason Deitz filed an FLSA suit April 17 against defendant Budget Renovations & Roofing Inc., alleging that the company failed to pay him and other hourly workers for overtime and other work hours.

Three other plaintiffs — Eric Gallagher, Stephen Hornberger and Matthew Marcheski — joined the suit, Conner said.

According to Conner, then-counsel for the plaintiffs, Peter D. Winebrake of Winebrake & Santillo in Dresher, Pa., filed an emergency motion for a conference to determine the propriety of a settlement that Budget allegedly entered into with the plaintiffs without Winebrake’s involvement.

Winebrake argued that FLSA settlements must be approved by a judge unless directly supervised by the U.S. secretary of labor, according to Conner.

Conner acknowledged that the U.S. Court of Appeals for the Third Circuit has never addressed the issue of whether an FLSA suit alleging unpaid wages may be privately settled, but pointed to an often-cited 1982 ruling by the Eleventh Circuit in Lynn’s Food Stores v. U.S. ex rel. U.S. Department of Labor.

In Lynn, according to Conner, the Department of Labor found that plaintiff Lynn’s Food Stores Inc. had violated the FLSA.

Upon failing to reach a settlement with the department, Lynn’s Food Stores got 14 of its employees to agree to collectively settle all claims for $1,000 and subsequently filed an action in district court seeking court approval.

The district court rejected the settlement, however, and the Eleventh Circuit affirmed, reasoning that FLSA claims for unpaid wages may only be settled through payments supervised by the secretary of the Department of Labor or by court approval of a proposed settlement, according to Conner.

The Eleventh Circuit in Lynn said court approval “‘provides some assurance of an adversarial context’” and ensures a settlement that “‘is more likely to reflect a reasonable compromise of disputed issues than a mere waiver of statutory rights brought about by an employer’s overreaching,’” according to Conner.

Several other courts, including the U.S. District Court for the District of Columbia, the Federal Circuit, the Seventh Circuit and the Eighth Circuit, have similarly refused to allow private FLSA settlements, Conner said.

However, Conner said, the U.S. District Court for the Western District of Texas, in its 2005 decision in Martinez v. Bohls Bearing Equipment, ruled that private FLSA settlements are permitted in cases where there is a bona fide liability dispute, but acknowledged that its holding was in the minority among other district courts.

Earlier this year, the Fifth Circuit approved the Martinez court’s ruling in its own decision in Martin v. Spring Break ’83 Productions.

“However, the Martin court did not explain how a district court could ensure that a FLSA settlement agreement was fair, or even determine whether there was a bona fide dispute as to liability, absent a requirement of judicial approval,” Conner said.

Conner said it’s for this reason that he sided with the majority of federal courts that have relied on the Eleventh Circuit’s ruling in Lynn.

Conner said the facts in Deitz are too underdeveloped for either the court or the parties to determine whether a real factual dispute exists.

“Budget has yet to submit an answer to the complaint, and, therefore, the pleadings do not reflect its denial of Deitz’s factual allegations,” Conner said. “The court cannot and will not know whether there is a bona fide dispute unless and until the parties submit a proposed settlement agreement for approval.”

Winebrake, who briefed the case in Deitz but has since withdrawn as counsel for the plaintiffs, said Conner’s ruling has practical implications, such as whether a plaintiff must file a suit in order to settle a claim and whether a plaintiff wishing to resolve a case has to do more than simply file a stipulation of dismissal.

Winebrake said he hopes the Third Circuit eventually provides guidance on this issue, but said that, in the meantime, he believes employment lawyers should follow Conner’s ruling.

Budget’s attorney, Matthew Chabal III of James, Smith, Dietterick & Connelly in Hershey, Pa., could not be reached for comment at press time.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.

(Copies of the 13-page opinion in Deitz v. Budget Renovations & Roofing, PICS No. 12-2333, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •