Labor & Employment Law Daily Wrap Up, PROCEDURE—11th Cir.: Unapproved FLSA settlement agreement barred subsequent fraudulent transfer claims, (Feb 12, 2026)

By Jason Albright, J.D.

Neither a court nor the Department of Labor approved the settlement.

Although a settlement agreement bars litigation of FLSA wage-and-hour claims only if it has been approved by a court or the Department of Labor, an unapproved FLSA settlement agreement barred subsequent fraudulent transfer claims brought by a franchisee against the American Shaman CBD franchise, the Eleventh Circuit found. The enforceability of the release as to non-FLSA claims is a matter of state contract law, not the FLSA, and the release was enforceable as a matter of Florida law, the appeals court found. The district court thus did not err in granting American Shaman a judgment on the pleadings as to the non-FLSA claims. Judge Rosenbaum concurred (O’Neal v. American Shaman Franchise Systems, Inc., No. 24-10900 (11th Cir. Feb. 11, 2026)).

American Shaman and franchisee. The dispute, according to the court, centers around the American Shaman CBD franchise and a franchisee. In early 2020, the franchisee sued American Shaman, alleging breach of contract, unjust enrichment, violation of several Florida statutes, and a host of FLSA violations.

Settlement agreement. Roughly a year after he filed his complaint, the parties reached a settlement agreement via email. The parties then filed a joint notice that they “have resolved [the] [p]laintiff’s claims” and “are in the process of drafting a confidential agreement to memorialize that resolution.” Under the settlement agreement, the franchisee received $50,000.

Mutual release and confidentiality provision. The settlement agreement contains a mutual release provision stating, in relevant part, that the parties “release” each other “from any and all ‘[c]laims.’” The release defines claims broadly as “any and all past, present or future claims, demands, obligations, actions, [or] causes of action.” The agreement also contains a confidentiality provision stating that “all terms of the settlement and this document will be held in strict confidence by all parties to this action.”

Separate action in Missouri federal court. However, a few months after signing the settlement agreement, the franchisee initiated an entirely separate action in federal district court in Missouri. He served subpoenas on American Shaman and sought documents related to potential fraudulent transfer claims against the franchisor. He argued that these claims were not barred by the mutual release, and in response, American Shaman provided a heavily redacted copy of the settlement agreement.

Judgment on the pleadings. The franchisee filed an amended supplemental complaint in the original litigation underlying this appeal, and American Shaman responded, moving for a judgment on the pleadings and arguing that the claims are “barred as a matter of law by the [mutual] release included in a settlement agreement between the parties.” The franchisor also filed counterclaims against him for, among other things, breach of contract. The district court granted American Shaman’s motion for judgment on the pleadings as to his supplemental complaint.

Motion to amend and substitute motion. The following month, the franchisee filed a motion to amend his supplemental complaint to, among other things, “attach a copy of the contract memorializing the fraudulent transfer that had recently been obtained in discovery conducted in the [Western District of Missouri] and allege an additional cause of action for rescission of the Settlement Agreement.” He also filed a motion to amend his answer and affirmative defenses to counterclaims American Shaman had brought in response to the Missouri district court action alleging, among other things, breach of contract. About five months later, the franchisee withdrew both motions and filed a substitute motion to amend his supplemental complaint and his affirmative defenses.

Magistrate’s decision. The magistrate judge denied this substitute motion. He explained that the franchisee’s rescission claim suffers from a “factual quandary”: namely, that the parties noticed the settlement agreement with the court on April 21, 2021—“nine days before the issuance of the financial disclosure documents” that the franchisee claims he relied on when he entered into the settlement agreement. Further, nothing in his “motion or attached proposed amended supplemental complaint indicated” that he “actually returned or made a legible offer to return the $50,000 he received as part of the” settlement agreement. Because a party’s right to rescind is waived if he retains the benefits of a contract after discovering the grounds for rescission, the franchisee “did not adequately plead his claim of rescission.”

Five days after the magistrate judge denied his substitute motion, the franchisee filed a motion for reconsideration. The magistrate judge denied his motion.

Summary judgment for American Shaman and appeal. Later, the parties filed cross-motions for summary judgment on American Shaman’s counterclaims, and the district court granted summary judgment to American Shaman as to its breach of contract claim. In so doing, the district court adopted the magistrate judge’s finding that the franchisee “breached the [s]ettlement [a]greement’s... broad release with his filings.” The district court likewise rejected the franchisee’s argument that American Shaman breached the confidentiality provision.

The franchisee timely appealed.

Lynn’s Foods. The appeals court first held that, although Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1352–53 (11th Cir. 1982) held that a settlement agreement bars litigation of wage-and-hour claims under the Fair Labor Standards Act only if the settlement was approved by a court or the Department of Labor (DOL), “none of this federal law—neither the text of the FLSA nor our caselaw interpreting it—controls whether the release in the settlement agreement forecloses [the franchisee] from litigating his state-law fraudulent transfer claim.” The FLSA, the appeals court noted, does not protect, and was not intended to protect, every claim that an employee may bring against his or her employer. Instead, Congress set aside a particular category of statutory rights, those concerning “substandard wages and oppressive working hours,” for protection against being bargained away.

Standard contract law applicable. “For all other claims settled between an employee and his employer,” the Eleventh Circuit said, “standard contract law governs the interpretation of a settlement agreement.” Hayes v. Nat’l Serv. Indus., 196 F.3d 1252, 1254 (11th Cir. 1999).

Enforceable. And as the district court explained, nothing in Florida contract law precludes enforcement of the settlement agreement here. The settlement agreement’s mutual release does not distinguish be-tween FLSA and non-FLSA claims, the appeals court observed, so settling the FLSA claims is not the “essence” of the agreement. As the district court correctly noted, there also exists something of value, “valid legal obligations,” apart from the FLSA claims on both sides: American Shaman received the release of all non-FLSA claims and the franchisee received $50,000. Thus, even though the mutual release was unenforceable to prohibit litigation of the franchisee’s settled FLSA claims, it remained enforceable as to other claims, including the fraudulent transfer claim in the supplemental complaint.

Waiver of objection to magistrate’s order. Finally, the Eleventh Circuit affirmed that the franchisee waived his right to appeal the magistrate judge’s denial of his motion to amend by failing to object to the district judge. Here, the franchisee had argued that the district court should have granted leave to amend his supplemental complaint to add a claim asking for rescission of the settlement agreement, and that, if he had been allowed to amend, he could have established in an amended supplemental complaint that he was fraudulently induced into settling his claims.

Rejecting the franchisee’s argument, the appeals court observed that the franchisee did not file an “objection” or otherwise seek a ruling from the district judge on the magistrate judge’s order. He argued that his timely motion for reconsideration was an “objection” to the order, but the appeals court noted that it has previously held that a motion for reconsideration is not the equivalent of an objection under Rule 72. Nothing about his motion called the magistrate judge’s order to the attention of the district judge, and because the franchisee did not preserve his right to appeal by objecting to the district judge, he waived any objection to the denial of his motion to amend.

Because the district court correctly enforced the settlement to bar his state-law claims and because he waived his objection to the magistrate judge’s order denying his motion to amend the complaint, the appeals court thus affirmed the district court’s grant of judgment on the pleadings.

Concurrence. Concurring, Judge Rosenbaum wrote to observe that in the earlier litigation, the district court erred when it recognized a stipulated dismissal with prejudice based on the settlement agreement. Noting that the appeals court cannot reverse that mistake in this appeal, she nonetheless wrote “to avoid any mistaken impression that the Majority Opinion’s silence on this error might somehow suggest condonation.” Judge Rosenbaum observed that “Recognizing a stipulated dismissal without court review and acceptance of the underlying settlement in an action that includes FLSA claims violates the FLSA, our precedent, and Rule 41, Fed. R. Civ. P. It also creates confusion and unnecessary additional litigation.”

The case is No. 24-10900.

Judge: Brasher, A.

Attorneys: Kevin H. Graham (Law Offices of Kevin H. Graham) for Thomas O'Neal. Stephen J. Moore (Krigel Nugent Moore) for American Shaman Franchise Systems, Inc.

Companies: American Shaman Franchise Systems, Inc.

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