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Clarifying murky law regarding when FLSA settlements require judicial versus when they are self-effectuating, a divided Second Circuit panel recently held that settlement proposals in the form of accepted offers of judgment under Federal Rule of Civil Procedure 68 are not subject to judicial review and approval. Although FLSA settlements generally require judicial or U.S. Department of Labor (DOL) approval to be enforceable, the Second Circuit held that the statutory language of Rule 68 overrides that conventional wisdom and thus are an exception to the general rule.
In this case, the plaintiff sued his restaurant-employer on behalf of himself and similarly situated employees for overtime violations under the FLSA and New York Labor Law (NYLL). During the pendency of his lawsuit, the defendant-restaurant sent the plaintiff, an offer of judgment (OJ) pursuant to FRCP 68(a), which the plaintiff accepted. Per FCRP 68, the clerk of the court was required to “enter judgment” once the offer and notice of acceptance had been filed with the court.
Notwithstanding the clear dictates of FRCP 68, the district court sua sponte ordered the parties to submit the settlement offer to the court for fairness review, relying on the Second Circuit’s opinion in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), in which, the Second Circuit previously held that stipulated dismissals of FLSA claims under FRCP 41(a) require judicial approval notwithstanding the self-effectuating nature of that rule. The district court read Cheeks to stand for the proposition that parties to an FLSA claim could not “evade the requirement for judicial (or DOL) approval by way of Rule 68.”
In a 2-1 decision, the Second Circuit held that Cheeks does not extend to FRCP 68 offers of judgment, and that accepted OJs are an exception to the general rule requiring approval of private FLSA settlements. The majority distinguished FRCP 68(a)’s mandatory dismissal language from FRCP 41(a), which contains an exception to the self-executing nature of the dismissal where a federal statute governing the claim requires court approval. Because FRCP 68(a) contains no such exception to mandatory entry of judgment, the majority declined to read one into the rule.
The majority recognized the Cheeks court’s concern about “private, secret settlements and waivers of an employee’s FLSA rights that the Supreme Court [has] refused to endorse.” However, the Court reasoned that FRCP 68(a) requires public disclosure of the terms of FLSA settlements—unlike FRCP 41(a) stipulated dismissals—because the accepted offers must be publicly filed on the court’s docket. Furthermore, the majority reasoned that settlement agreements reached during the course of ongoing litigation in this manner are distinguishable from “private, back‐room compromises that could easily result in exploitation of the worker and the release of his or her rights,” the latter of which are more likely to be tainted by pressure applied by the employer.
The decision, which was the first from any Court of Appeals on this issue resolves a split among district courts in the Second Circuit. It also provides a blueprint for employees and employers who wish to avoid judicial scrutiny of their settlements reached in arm’s length negotiations during litigation.
Click Mei Xing Yu v. Hasaki Restaurant Inc. to read the entire decision.
5th Cir.: General Release Obtained By Defendant in Non-FLSA State Court Case Did Not Waive FLSA Claims
In this appeal, the Fifth Circuit was asked (by the defendant-appellee) to extend its holding in Martin v. Spring Break ′83 Productions, L.L.C., 688 F.3d 247 (5th Cir.2012). In Martin, the Fifth Circuit held that a private settlement reached over a bona fide dispute regarding Fair Labor Standards Act (“FLSA”) claims was enforceable despite the general prohibition against the waiver of FLSA claims via private settlement. Applying Martin, the district court in the instant action enforced a generic, broad release against the plaintiffs’ subsequent FLSA claims, even though the release was obtained through the private settlement of a prior state court action that did not involve the FLSA or any claim of unpaid wages. Because it reasoned that it could not be assured under the facts at bar that the release at issue resulted from a bona fide dispute regarding overtime wages, the Fifth Circuit declined to extend Martin and reversed.
Laying out the relevant facts and procedural history, the court explained:
Plaintiffs–Appellants Ambre Bodle and Leslie Meech (collectively referred to as “the plaintiffs”) filed the instant FLSA action against their former employer TXL Mortgage Corporation (“TXL”) and its president William Dale Couch (collectively referred to as “the defendants”) on May 16, 2012. The plaintiffs alleged that the defendants failed to compensate them for their overtime work as required by Section 207 of the FLSA. The defendants moved for summary judgment asserting res judicata as a basis for dismissal. The defendants also argued that the plaintiffs executed a valid and enforceable waiver in a prior state court action, which released all claims against the defendants arising from the parties’ employment relationship. The district court found the latter contention dispositive.
The defendants in the instant case filed the prior state court action against the plaintiffs on February 3, 2012. The defendants claimed that the plaintiffs, who had resigned from the company about a year prior, had begun to work for a direct competitor and had violated their noncompetition covenants with TXL by soliciting business and employees to leave TXL for the competitor. In connection with these allegations, the defendants asserted nine state law causes of action against the plaintiffs.3In response, the plaintiffs sought a declaration that the non-compete and non-solicitation of client provisions in the employment agreements were unenforceable.
On May 16, 2012, the parties filed with the state court a joint motion for entry of agreed final judgment pursuant to a settlement agreement. The state court granted the parties’ motion and entered an agreed final judgment on May 23, 2012. The private settlement agreement between the parties contained a release by the plaintiffs which stated the following:
In exchange for the consideration identified above, DEFENDANTS hereby fully and completely release and discharge TXL and its agents, representatives, attorneys, successors, and assigns from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature, whether known or unknown, including but not limited to all claims and causes of action that were or could have been asserted in the Lawsuit and all claims and causes of action related to or in any way arising from DEFENDANTS’ employment with TXL, whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute, or regulation. This is meant to be, and shall be construed as, a broad release.
The district court in the instant action granted summary judgment to the defendants on the basis that the plain language of the release from the state court settlement was binding on the plaintiffs and therefore banned their subsequent FLSA claims. The plaintiffs now appeal the dismissal. The defendants contend that the dismissal was proper under the state court settlement release, and in the alternative, that res judicata bars the plaintiffs’ FLSA claims.
After discussing the well-settled authority which holds that generally—absent approval from the DOL or a court of adequate jurisdiction—private settlements of FLSA claims are not binding on employees, the court then examined its prior holding in the Martin case:
We considered this question in Martin v. Spring Break ′83 Productions, L.L.C., 688 F.3d 247 (5th Cir.2012). In Martin, we enforced a private settlement agreement that constituted a compromise over FLSA claims because the settlement resolved a bona fide dispute about the number of hours worked.Id. at 255. In reaching this conclusion, we adopted reasoning from Martinez v. Bohls Bearing Equipment Co., 361 F.Supp.2d 608 (W.D.Tex.2005).Martinez held that “parties may reach private compromises as to FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due. A release of a party’s rights under the FLSA is enforceable under such circumstances.”Id. at 631…
In Martin, we approved, as an enforceable compromise of a bona fide dispute, a settlement between a union representative and a movie production company. 688 F.3d at 249. After an investigation, the union representative concluded it would be impossible to validate the number of hours claimed by the workers for unpaid wages. Id. The parties’ settlement of the union members’ complaints read as follows:
The Union on its own behalf and on behalf of the IATSE Employees agrees and acknowledges that the Union has not and will not file any complaints, charges, or other proceedings against Producer, its successors, licenses and/or assignees, with any agency, court, administrative body, or in any forum, on condition that payment in full is made pursuant to the terms of this Settlement Agreement.
Id. at 254. In reaching the conclusion that a bona fide dispute existed, we emphasized the union representative’s inability to “determine whether or not Appellants worked on the days they claimed they had worked[.]”Id. at 255.
However, the Fifth Circuit held that meaningful facts distinguished this case from Martin and declined to extend Martin’s holding to these facts:
In the instant action, the settlement containing the release of future claims derived from a state court action centered upon a disputed non-compete agreement. Nevertheless, the district court concluded that the release validly barred the plaintiffs’ subsequent FLSA claims because the topic of unpaid wages for commissions and salary arose in the settlement negotiations. The district court found that at the time of the settlement discussions regarding the unpaid wages, the plaintiffs were aware of their claims for unpaid overtime because they had signed consent forms to join the instant lawsuit. However, the plaintiffs chose, at that time, to remain silent about their overtime claims. The district court concluded that the overall “bona fide dispute” as to wages (which focused on wages for commissions and salary), could have included the claims for overtime wages, but for the plaintiffs’ silence. And for that reason, the district court held that the plaintiffs are now barred from claiming that the compromise resulting from their bona fide dispute over wages did not encompass their claim for unpaid overtime.
The plaintiffs contend on appeal that the district court erred in extending Martin’s limited holding to the circumstances of this case. The plaintiffs point out that in Martin the settlement was reached in response to the filing of a FLSA lawsuit, as opposed to the state court action concerning a non-compete agreement that is present in this case. The plaintiffs further emphasize that in Martin, the parties specifically disputed the amounts due and the number of overtime hours claimed under the FLSA. The plaintiffs maintain that because they did not receive any FLSA compensation for unpaid overtime in the state court settlement, the rationale set out in Martin, does not apply to this case. The defendants argue that since the state court settlement resolved a bona fide dispute about hours worked and compensation due in a general sense, the release of a claim for unpaid overtime is valid, even if brought under the FLSA. The defendants state that if the plaintiffs wished to bring a subsequent FLSA claim, they should have carved that claim out of the settlement agreement.
The plaintiffs have the stronger argument on this issue. The general rule establishes that FLSA claims (for unpaid overtime, in this case) cannot be waived. See Brooklyn Sav. Bank, 324 U.S. at 706–08. Accordingly, many courts have held that, in the absence of supervision by the Department of Labor or scrutiny from a court, a settlement of an FLSA claim is prohibited. See, e.g., Lynn’s Food Stores, Inc. v. U.S., 679 F.2d 1350, 1355 (11th Cir.1982) ( “Other than a section 216(c) payment supervised by the Department of Labor, there is only one context in which compromises of FLSA back wage or liquidated damage claims may be allowed: a stipulated judgment entered by a court which has determined that a settlement proposed by an employer and employees, in a suit brought by the employees under the FLSA, is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.”) (emphasis added); Taylor v. Progress Energy, Inc., 493 F.3d 454, 460 (4th Cir.2007), superseded by regulation on other grounds as stated in Whiting v. Johns Hopkins Hosp., 416 F. App’x 312 (4th Cir.2011) (“[U]nder the FLSA, a labor standards law, there is a judicial prohibition against the unsupervised waiver or settlement of claims.”).
Nevertheless, we have excepted, from this general rule, unsupervised settlements that are reached due to a bona fide FLSA dispute over hours worked or compensation owed. See Martin, 688 F.3d at 255. In doing so, we reasoned that such an exception would not undermine the purpose of the FLSA because the plaintiffs did not waive their claims through some sort of bargain but instead received compensation for the disputed hours. Id. at 257. The Martin exception does not apply to the instant case because not only did the prior state court action not involve the FLSA, the parties never discussed overtime compensation or the FLSA in their settlement negotiations. Therefore, there was no factual development of the number of unpaid overtime hours nor of compensation due for unpaid overtime. To deem the plaintiffs as having fairly bargained away unmentioned overtime pay based on a settlement that involves a compromise over wages due for commissions and salary would subvert the purpose of the FLSA: namely, in this case, the protection of the right to overtime pay. Under these circumstances where overtime pay was never specifically negotiated, there is no guarantee that the plaintiffs have been or will be compensated for the overtime wages they are allegedly due under the Act.
Thus, the court held as follows:
Accordingly, we hold that the absence of any mention or factual development of any claim of unpaid overtime compensation in the state court settlement negotiations precludes a finding that the release resulted from a bona fide dispute under Martin.The general prohibition against FLSA waivers applies in this case, and the state court settlement release cannot be enforced against the plaintiffs’ FLSA claims.
The court also rejected the Appellee’s alternative argument that the FLSA claims were barred by res judicata due to the plaintiff’s failure to raise them in the unrelated underlying state-law case.
Click Bodle v. TXL Mortg Corp. to read the entire Fifth Circuit Opinion.
W.D.Ark.: In Individual FLSA Cases, Where All Parties Are Represented By Counsel Throughout, Court Approval of Settlement Not Required
What seemed taboo in many parts of the country just a few years ago, dismissing an FLSA case with prejudice and foregoing court approval, has continued to gain steam in most jurisdictions. Most recently, a court in the Western District of Arkansas declined to approve the settlement of an individual-plaintiff FLSA claim, where the parties had jointly requested that the court review the settlement agreement in camera, so that they could avoid placing it in the docket. However, in denying to approve the settlement, the court advised the parties that—under the circumstances of this particular case—court-approval of the settlement agreement was not necessary. Instead, the court held that where: (1) the lawsuit is not a collective action; (2) all individual plaintiffs were represented by an attorney from the time of the filing of the complaint through the conclusion of subsequent settlement negotiations; and (3) all parties have indicated to the Court in writing through their attorneys that they wish for their settlement agreement to remain private and that they do not wish for any reasonableness review of their settlement to occur no reasonableness review or public filing of an FLSA settlement is necessary.
After reviewing 80 years of FLSA jurisprudence that court’s long cited for the premise that all FLSA settlements must be court approved, the court also discussed recent Fifth Circuit authority which cast doubt on that view, in circumstances where there was little or no risk that an employer would be likely to improperly exercise its authority over an employee in order to extract an improper settlement from the employee.
Adopting the view that many settlement agreements do not require a court’s blessing, the court explained:
Unfortunately, this Court is not aware of any Eighth Circuit precedent that addresses the issues raised in the instant Joint Motion. However, this Court believes that the risk is minimal that an unreasonable settlement will result from “unequal bargaining power as between employer and employee” in FLSA lawsuits where each of the following three criteria is met: (1) the lawsuit is not a collective action; (2) all individual plaintiffs were represented by an attorney from the time of the filing of the complaint through the conclusion of subsequent settlement negotiations; and (3) all parties have indicated to the Court in writing through their attorneys that they wish for their settlement agreement to remain private and that they do not wish for any reasonableness review of their settlement to occur. In such cases, this Court does not believe any reasonableness review or public filing of an FLSA settlement is necessary. The Court finds that each of these requirements is met in the instant case.
As such, the court denied the parties’ motion to review FLSA settlement in camera [if necessary], and directed the parties to file a joint stipulation of dismissal under FRCP 41(a) instead:
IT IS THEREFORE ORDERED that the parties’ Joint Motion to Review FLSA Settlement in Camera, if Necessary, Approve Settlement, and Dismiss with Prejudice (Doc. 23) is DENIED. The parties may instead file a joint stipulation of dismissal under Fed.R.Civ.P. 41(a)(1)(A)(ii).
Click Schneider v. Habitat for Humanity Intern., Inc. to read the entire Opinion and Order.
E.D.N.Y.: In the Context of Litigation, Where Plaintiff Represented by Counsel, Court Approval of Accepted OJ Not Required
Picerni v. Bilingual Seit & Preschool Inc.
This case was before the Court on the Plaintiff’s motion to approve settlement, following his acceptance of an offer of judgment tendered by defendant pursuant to Rule 68. Although the plaintiff brought the case as a putative collective action, the accepted offer of judgment purported to resolve the case on an individual basis. Prior to the defendant having answered or appeared in the case, the plaintiff filed a notice of acceptance of an offer of judgment that defendant had made under Fed.R.Civ.P. 68. The offer of judgment provided that the case would be settled on an individual basis (not as a collective or class action) for $5000 payable to plaintiff, plus attorney’s fees of $4590, “which represents 7.65 hours at $600 an hour.” The court initially declined to enter judgment under Rule 68, instead issuing an order requiring the parties to seek the court’s approval of the settlement. Subsequently, the plaintiff complied with the October 19th Order, and filed a motion in an effort to explain that the settlement and his attorney’s fees had a reasonable basis. Upon consideration of the motion it had initially required however, the court essentially reversed itself, and in a lengthy opinion held that under the circumstances of the case- where the employee had filed a lawsuit and was represented by counsel- the parties’ private settlement of the claims did not require judicial approval.
Initially, the court discussed longstanding United States Supreme Court jurisprudence holding that employees cannot enter binding settlements waiving their rights under the FLSA, absent a showing there was a “bona fide dispute.”
Comparing the case before it the court reasoned the situation was not that contemplated by the Supreme Court, because the plaintiff had filed a lawsuit and was represented by counsel:
Curiously, however, none of the cases expressly consider the issue presented in this case, and that is presented in many others before me—settlement of a claim after the FLSA case has been commenced, i.e., a “private” settlement occurring in the context of a public lawsuit, where neither side invites, and in some cases, one or both sides actually resist, the Court’s determination of whether the settlement is fair and reasonable.
When an employer chooses to resolve an FLSA claim without pending litigation, or merely “under threat of suit” as opposed to actual suit, it is obviously taking a reasoned gamble. If the employee later sues notwithstanding the release, the employer may find itself in front of a court that simply disregards the release because it was not previously approved by a court or the Department of Labor. There are at least several reasons why an employer might take this risk: (1) it may be confident that it had a bona fide dispute with the employee; that the release fairly compromises that dispute; and that it will therefore be upheld; or (2) the employer may conclude that as a practical matter, the risk of the settling employee bringing a subsequent suit is small enough in relation to the amount paid as to warrant the settlement; or (3) the employer may not want the settlement publicized among other employees who may well want the same remedial treatment, and therefore may take the risk of subsequent litigation with the settling employee to reduce the likelihood of suit by other employees. The case law cited above, for the most part, involves employers who made these kinds of judgment calls, and when the releases have been subsequently challenged, the courts have either approved them or not.
In the cases before this Court, an employer rarely makes a different analysis just because the case is pending. In other words, the factors that compel parties to settle before litigation is commenced, notwithstanding the possibility that a release that an employer receives will be ineffective, often seem to be equally compelling in reaching a settlement once the litigation is commenced. Except in the less frequent context of a settled class action under the state supplemental claims or a collective action with a substantial number of opt-in plaintiffs, I have never had an employer ask me to conduct a fairness hearing so that it has the protection of a court-approved release. To the contrary, the usual context is the one I am seeing here—no participation by the employer at all, not even an appearance. In the usual case, I merely receive advice from plaintiff’s counsel that the case is over, either by a notice of voluntary dismissal under Rule 41 or a letter saying the same thing (often received the day before the scheduled initial status conference). I have then, following past practice, set the case down for a fairness hearing.
The instant case is somewhat different, but I think not materially so in terms of what steps, if any, this Court needs to take next—plaintiff has simply filed an acceptance of a Rule 68 offer of judgment. I would not even know who the attorney for the employer is but for the signature on the offer of judgment, which has been filed by plaintiff, not defendant. The employer seems quite content to have judgment entered against it, which presumably the employer will satisfy. Perhaps it views a satisfaction of judgment as more protective than a noncourt-approved release, and perhaps, with at least the possibility that a judgment will have res judicata effect where a release might not, it is. But until some court determines that there was a bona fide dispute as to how much plaintiff was owed in wages, and that the offer of judgment fairly compromises it, the employer has not eliminated its risk.
Initially the court concluded that FLSA cases are not exempt from FRCP 41, which permits parties to stipulate to dismissal:
I cannot agree with the largely unstated assumption in the cases that refuse to allow voluntary dismissals that the FLSA falls within the “applicable federal statute” exception to the Rule. Nothing in Brooklyn Savings, Gangi, or any of their reasoned progeny expressly holds that the FLSA is one of those Rule 41–exempted statutes. For it is one thing to say that a release given to an employer in a private settlement will not, under certain circumstances, be enforced in subsequent litigation—that is the holding of Brooklyn Savings and Gangi—it is quite another to say that even if the parties want to take their chances that their settlement will not be effective, the Court will not permit them to do so.
The court then went on to examine Lynn’s Food and distinguished the case from the facts before it:
I believe Lynn’s Food should be confined to its rather egregious facts. Not only did the employer settle on the cheap with unsophisticated employees, but it circumvented the DOL’s investigation in doing so, and then had the audacity to seek a judicial imprimatur validating its aggressive strategy. A narrower reading of Lynn’s Food would be that if the proposed settlement would never have been approved if presented in the context of a pending litigation, then it cannot be approved in a subsequent litigation. In contrast, had the employer paid 100% of the maximum to which the employees might have been entitled plus liquidated damages in a bona fide dispute, the broad language used by the Eleventh Circuit might well have been unnecessary. Indeed, the Eleventh Circuit has recently expressed a similar view. See Dionne v. Floormasters Enterprises, Inc., 667 F.3d 1199 (11th Cir.2012) (if the employer tenders 100% of the unpaid wages claimed by the employee, plus liquidated damages, even while denying liability, the case is moot and no fairness hearing is necessary, nor is the employee a prevailing party entitled to an attorney’s fee). It is hard to conceive of any reason why, if a court is presented with an eminently reasonable, albeit after-the-fact, settlement, it is precluded from giving it legal effect. That is essentially what the Fifth Circuit held recently in upholding a private settlement, distinguishing Lynn’s Food because of its one-sided facts. See Martin v. Spring Break ’83 Productions, L.L .C., 688 F.3d 247, 253–256 & n. 10 (5th Cir.2012).
More importantly, Lynn’s Food does not expressly address the issue of whether parties can voluntarily withdraw a case under Rule 41. It does not preclude the plaintiff or the parties from proceeding unilaterally or bilaterally, depending on the timing, from withdrawing a case and taking their, principally the employer’s, chances in effectuating a settlement without court approval. It simply says, like all of the cases in this area, that the courts will not recognize an unreasonable FLSA settlement, whether the settlement is asserted by the employer as a defense in the settling employee’s subsequent suit, or, as in Lynn’s Food, as the basis for declaratory relief in an action that the employer has brought. Lynn’s Food thus does not dispose of the issue of whether parties in a pending action can voluntarily dismiss the case without any judicial assurances if that is what they want to do.
Recognizing the risks of unsupervised settlements of FLSA cases, the court said:
This is not to say that there is an absence of arguably undesirable consequences in allowing private settlements of FLSA litigation without court oversight. As noted above, in the typical cases I have, like this one, where private resolutions are reached and judicial scrutiny is neither sought nor desired, the case is brought as a collective action but resolved before a collective action notice has gone out to other employees. Although one employee, the named plaintiff, has presumably benefitted to at least some extent from the private resolution, other similarly situated employees will likely not even know about it, and to the extent they have not received their minimum wages or overtime, they will be no better off. Indeed, in at least one case, I have had the employer’s attorney candidly tell me that the reason he wished to avoid a fairness hearing was to prevent other employees from learning of the settlement and seeking the same relief.
I am not suggesting that plaintiff in the instant case or his attorney, who is an experienced and well-regarded practitioner in this Court, have committed any impropriety. But the scenario is conducive to a dynamic that allows both a plaintiff and his employer—not to mention the plaintiff’s attorney, who frequently receives a fee that greatly exceeds the plaintiff’s recovery—to leverage a comparatively cheap settlement on the backs of the plaintiff’s co-employees. This obviously runs contrary to the intent of Congress in enacting the FLSA and in particular to its creation of the collective action mechanism. Using the potential of a collective action as a Sword of Damocles to extract a small settlement and a large, but still comparatively small in relation to the exposure the employer would face in a true collective action, attorney’s fee could not have been what Congress had in mind in authorizing collective actions.
The court went on to discuss issues of confidentiality (the body of law that says there should be no confidential settlements of FLSA cases because same flies in the face of the remedial nature of the statute) and dismiss the typical argument against non-supervised settlements (the threat that they may end up being settled on the cheap), ultimately recognizing that the defendant is the one that is taking a risk often where there is no approval, rather than vice versa:
The problem of non judicially approved confidentiality provisions in private settlements is resolved by the same allocation of employer risk as is the case with private settlements of FLSA claims generally—if a settling employee subsequently breaches the confidentiality provision, then the employer is going to have to try to enforce it, or seek rescission or damages for its violation. At that point, under the authorities cited above, the courts may well hold it unenforceable.
Unlike the recent Fifth Circuit case discussed here, this case does not seem to signal any significant change in longstanding jurisprudence, prohibiting (binding and enforceable) private settlements of FLSA cases. Rather, here the court simply confirmed that the parties to an FLSA case can resolve the case and circumvent the court’s approval, leaving open the question of whether such settlements are enforceable.
Click Picerni v. Bilingual Seit & Preschool Inc. to read the entire Memorandum Decision and Order.
N.D.Cal.: Broad General Release of All Claims in the Context of FLSA Claim Rejected By Another Court
McKeen-Chaplin v. Franklin American Mortg. Co.
While not a groundbreaking decision, this case serves as a reminder of how much the FLSA settlement approval process can vary from court to court and judge to judge. While many courts have broadened the circumstances under which parties may resolve an FLSA claim (e.g. those within the Fifth Circit), others continue to carefully track the remedial purposes of the FLSA, in recognition that the statute seeks to protect the rights of employees, who typically lack any real bargaining power with regard to their employers (or former employers). As highlighted here, the court joined a growing number of courts from around the country to reject a general release contained within a settlement agreement regarding FLSA (and other wage and hour claims), when the employer provides no additional compensation for such release.
Discussing this issue, the court reasoned:
The Court also has concerns with the scope of the general release provision contained in the settlement agreements signed by Plaintiffs, which provides that each Plaintiff “fully” and “completely” releases Defendant and others from “any and all claims … whether known or unknown, arising from, relating to, or in any way connected with [Plaintiff’s] employment with or termination of employment from [Defendant]….” Schug Decl., Exh. A ¶ 3. Courts have found that overly broad release provisions, which release a Defendant from all claims to settle their wage claims, including claims that are unrelated to the claims asserted in the complaint, are improper in FLSA and class action settlements. See Moreno v. Regions Bank, 729 F.Supp.2d 1346, 1347, 1350–1352 (M.D.Fla.2010) (FLSA settlement); Hogan v. Allstate Beverage Co., Inc., 821 F.Supp.2d 1274, 1284 (M.D.Ala.2011) (same); Gambrell v. Weber Carpet, Inc., 2012 WL 5306273, at *2, 5 (D.Kan.2012) (same); see also Bond. v. Ferguson Enterprises, Inc., 2011 WL 284962, at *7 (E.D.Cal.2011) (finding release overbroad in class action where release did not track the extent and breadth of Plaintiffs’ allegations and released unrelated claims of any kind or nature up to the date of the agreement); Kakani v. Oracle Corp., 2007 WL 1793774, at *2–3 (N.D.Cal.2007) (rejecting a settlement in part because of the “draconian scope” of the proposed release, which, among other things, released and forever discharged the defendant from any and all claims that were asserted or could have been asserted in the complaint whether known or unknown).
The Court finds that the parties have failed to demonstrate that it would be fair and reasonable for the Court to enforce the broad general release provision contained in the settlement agreements. The provision does not track the breadth of the allegations in this action and releases unrelated claims, whether known or unknown, that the Plaintiffs may have against Defendant. See Collins v. Cargill Meat Solutions Corp., 274 F.R.D. 294, 303 (E.D.Cal.2011) (finding release proper and not overly broad because the “released claims appropriately track the breadth of Plaintiffs’ allegations in the action and the settlement does not release unrelated claims that class members may have against defendants”); Vasquez v. Coast Valley Roofing, Inc., 670 F.Supp.2d 1114, 1126 (E.D.Cal.2009) (finding release proper because the “released claims appropriately track the breadth of Plaintiffs’ allegations in the action and the settlement does not release unrelated claims that class members may have against defendants.”). The parties have not explained why the release of “any and all claims … whether known or unknown, arising from, relating to, or in any way connected with [Plaintiff’s] employment with or termination of employment from [Defendant]” is fair and reasonable. There has been no showing that Plaintiffs have been independently compensated for the broad release of claims unrelated to any dispute regarding FLSA coverage or wages due, including, among others, claims for discrimination under Title VII, intentional infliction of emotional distress, and “outrageous conduct.” See Moreno, 729 F.Supp.2d at 1351 (“[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.”). Nor has there been a showing that the Plaintiffs have a full understanding of what they are releasing in exchange for a settlement payment. There is no evidence that Plaintiffs have being fully informed of the consequences of the release provision.
Click McKeen-Chaplin v. Franklin American Mortg. Co. to read the entire Order.
With the Supreme Court set to weigh in on the issue next term, decisions continue to widely diverge on the issue of whether on employer may moot a collective action by paying damages to a plaintiff-employee or plaintiff-employees after they have filed suit seeking their wages pursuant to the FLSA. Recent weeks have brought more confusion to the issue. As discussed below, the Eleventh Circuit held in a non-FLSA claim that absent an actual judgment full tender of money damages alone is insufficient to render a case moot. Within days however, a different court sitting within the Ninth Circuit held that an employer properly mooted an entire collective action when it made payments to the entire class in amounts all parties agreed represented all money damages for a 2 year statute of limitations period, plus liquidated damages. In yet another decision a court within the Third Circuit held that an employer could not moot a collective action by tendering class damages calculated at a “half-time” rate, because an issue of fact existed as to whether that was the appropriate methodology for calculating such damages.
Zinni v. ER Solutions, Inc.
These three consolidated cases were before the Eleventh Circuit on the plaintiff-employee’s appeal of an order granting the defendant’s motion to dismiss for lack of subject matter jurisdiction. In each of the consolidated cases, at the court below the defendant had tendered the full monetary damages available to the plaintiff, but had not served an offer of judgment (OJ) or offered a stipulated judgment to the plaintiff. The trial court dismissed the plaintiff’s claim on mootness grounds. Summarizing the issue before the court, the Eleventh Circuit explained:
This consolidated appeal presents the issue of whether a settlement offer for the full amount of statutory damages requested under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, et seq., moots a claim brought pursuant to the FDCPA. Appellants Anthony W. Zinni, Blanche Dellapietro, and Naomi Desty appeal the district court’s dismissal of their complaints for lack of subject matter jurisdiction. In each case, an Appellee sent an e-mail offering to settle an Appellant’s FDCPA case for $1,001—an amount exceeding by $1 the maximum statutory damages available for an individual plaintiff under the FDCPA. Appellees also offered attorneys’ fees and costs in each case, but did not specify the amount of fees and costs to be paid. Appellants did not accept the settlement offers. The district court subsequently granted Appellees’ motions to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), holding that the offers left Appellants with “no remaining stake” in the litigation. The district court then dismissed Appellants’ complaints with prejudice. We conclude the settlement offers did not divest the district court of subject matter jurisdiction.
After distinguishing a settlement from an accepted offer of judgment and discussing case law pertaining to each distinct situation, the Eleventh Circuit held that absent an actual judgment a mere offer of settlement cannot moot a claim:
The district court erred in finding Appellees’ settlement offers rendered moot Appellants’ FDCPA claims because the settlement offers did not offer full relief. See id. Each of the Appellants requested that the district court enter judgment in his or her favor and against an Appellee as part of the prayer for relief in the complaint. Appellees’ settlement offers, however, did not offer to have judgment entered against them. Because the settlement offers were not for the full relief requested, a live controversy remained over the issue of a judgment, and the cases were not moot. See Friends of Everglades, 570 F.3d at 1216.
Although the case concerned claims under the Fair Debt Collection Practices Act (FDCPA) the reasoning of the court is equally applicable to cases under the FLSA. In fact to a large extent the court relied on FLSA jurisprudence in reaching its decision. At least within the Eleventh Circuit, this case seems to put to bed the short-lived argument fueled by the same court’s decision less than two years ago in the Dionne opinions.
Click Zinni v. ER Solutions, Inc. to read the entire Opinion.
Orozco v. Borenstein
Amazingly, before the ink could even dry on the Zinni opinion, 2 days later, a court in the District of Arizona was faced with a virtually identical issue. However, unlike the Eleventh Circuit (and like the Order reversed in Zinni) the court ruled that an FLSA defendant could moot an entire class’ claims simply by tendering the maximum money damages due. Thus, the Orozco court granted the defendant’s motion to dismiss on mootness grounds, for lack of subject matter jurisdiction, following a tender.
Describing the issue before it, the court explained:
Plaintiff brings this putative class action pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq., the Arizona Wage Act, A.R.S. § 23–350, et seq., and the Arizona Minimum Wage Act, A.R.S. § 23–363, et seq. Plaintiff worked as an oven operator in the bagel baking operations of defendant Bada Bing Baking, LLC, doing business as Chompie’s Wholesale Bakery (defendants collectively referred to as the “Bakery”). Plaintiff contends that the Bakery violated the FLSA, as well as Arizona’s wage statutes, by failing to pay plaintiff and other similarly situated employees the required federal and state minimum wages for covered nonexempt employees. Plaintiff contends that, although the employees are paid slightly more than the minimum wage required by federal and state law, 29 U.S.C. § 206(a), A.R.S. § 23–363(A), the Bakery has implemented a policy of deducting certain work-related expenses from the employee’s paychecks, leaving their net pay below minimum wage. Specifically, plaintiff alleges that the Bakery deducts $12.50 per paycheck for uniform laundering, $10.00 for initial and lost electronic keys, $5.00 for initial and lost time cards, and $24.00 for “food handlers” health cards from Maricopa County.
After this lawsuit was filed, the Bakery reimbursed 51 current and former “minimum wage” employees for the uniform-related fees incurred in the 2 years preceding the filing of this lawsuit, along with liquidated damages as prescribed by 29 U.S.C. § 216(b). The Bakery contends that because it has tendered full payment for all claimed violations, there is no remaining live case or controversy, rendering this case moot.
For reasons known only to the plaintiff and his attorney, the plaintiff did not raise any issue regarding the defendant’s failure to allow the entry of judgment on the claims. Instead, the plaintiff contended that he had not been fully compensated for his claims because (1) he sought damages for a third year due to the Defendant’s “willful” FLSA violations, and (2) he was not reimbursed for certain other items. However, due to insufficiencies it cited in the plaintiff’s pleadings and his declaration submitted in opposition to the defendant’s motion, the court granted the defendant’s motion and dismissed the case.
Of note, the court declined to resolve the issue of whether the plaintiff was entitled to attorneys fees as the prevailing party, instead reserving on the issue until plaintiff had filed a motion for attorneys fees pursuant to the District of Arizona’s local rules.
Click Orozco v. Borenstein to read the entire Order.
Seymour v. PPG Industries, Inc.
In the final case discussed, the defendant actually did tender an offer of judgment, pursuant to FRCP 68, however it was arguably insufficient and thus, the defendant’s motion to dismiss was denied on that basis.
Interestingly, the parties in this salary misclassification collective action case had stipulated to the number of hours each of the plaintiffs had worked during the periods relevant to the claims. However, the parties disagreed as to how the plaintiffs’ damages were due to be calculated. As in many such cases, the defendant argued that the damages were to be calculated using the FWW or half-time methodology, while the plaintiffs asserted time and a half damages were due. Because the issue of how to calculate damages- and ultimately the amount of same- remained unresolved, the court held that the defendant’s offer of judgment could not be said to definitively by “full relief.” Thus, the defendant’s motion to dismiss for lack of subject matter jurisdiction was dismissed on this grounds.
Click Seymour v. PPG Industries, Inc. to read the entire Memorandum Opinion and Order.
So what’s the takeaway here? While it remains clear that a defendant cannot moot a claim where the damages themselves are in dispute, plaintiffs faced with offers that they believe provide full monetary relief, would be wise to demand a judgment as well if the goal is to avoid a dismissal on mootness grounds so that a settlement offer alone cannot moot their claim. Another extra step is to seek a declaratory judgment in the actual complaint.
5th Cir.: Where Employees Were Represented in Grievance Process By Their Union and Its Attorneys, Private Settlement of a Bona Fide Dispute Enforceable
Martin v. Spring Break ’83 Productions, L.L.C.
Following the entry of summary judgment on behalf of the defendants, the plaintiffs appealed. As discussed here, plaintiffs challenged the trial court’s holding that the private settlement reached between their union and one of their alleged employers was binding and enforceable. Specifically, the plaintiffs argued that absent: (1) court approval, (2) DOL supervision, or (3) a showing that they had been paid their wages in full without compromise, the settlement previously reached was not binding and/or enforceable. Affirming the decision below, the Fifth Circuit held that the settlement agreement was binding and enforceable notwithstanding the lack of court or DOL supervision, because it was a resolution of a bona fide dispute. While it is not entirely clear, it appears that the Fifth Circuit reasoned that the agreement, at least arguably could be said to be “without compromise,” thus making it binding and enforceable.
The case concerned grips and other movie production employees who worked on the set of a movie. Laying out the relevant procedural/factual background, the Fifth Circuit explained:
The plaintiffs “filed a grievance against Spring Break Louisiana alleging that they had not been paid wages for work they performed. The Union sent a representative to investigate the merits of the claims. After his investigation, the representative concluded that it would be impossible to determine whether or not Appellants worked on the days they alleged they had worked. The Union and Spring Break Louisiana entered into a Settlement Agreement pertaining to the disputed hours allegedly worked by Appellants.”
Discussing the issue of whether the private settlement here was binding and enforceable the Fifth Circuit reasoned:
The district court concluded that the plain language of the Settlement Agreement “is binding upon the [Appellants] in their individual capacities and prohibits those individuals from pursuing future legal action against Spring Break Louisiana after receiving their settlement payments.” We agree. The Settlement Agreement, in relevant part, states:
The Union on its own behalf and on behalf of the IATSE Employees agrees and acknowledges that the Union has not and will not file any complaints, charges or other proceedings against Producer, its successors, licenses and/or assignees, with any agency, court, administrative body, or in any forum, on condition that payment in full is made pursuant to the terms of this Settlement Agreement.
The Settlement Agreement also states that the Union “has the full power and authority to enter into this Settlement Agreement on behalf of IATSE Employees and bind them in accordance with the terms hereof.” By this plain language, the Appellants, who were IATSE Employees, were bound by its terms. Appellants contend, however, that the Settlement Agreement is unenforceable because they never signed it or agreed to it—instead, the Settlement Agreement was signed by Union representatives. However, Appellants do not dispute that they received full payment for their claims pursuant the terms of the Settlement Agreement. Nor do Appellants dispute that they cashed the Settlement Agreement payment checks they received. The Appellants were members of the Union and, under the CBA, Spring Break Louisiana recognized “the Union as exclusive representative of the employees in the bargaining unit.” Considering that Appellants, who were members of the Union, received and accepted full payment for their FLSA claims under the Settlement Agreement, the fact that Appellants did not themselves personally sign the Settlement Agreement does not render it unenforceable. See N.L.R.B. v. Allis–Chalmers Mfg. Co., 388 U.S. 175, 180, 87 S.Ct. 2001, 18 L.Ed.2d 1123 (1967) (“The employee may disagree with many of the union decisions but is bound by them.”).
On appeal, the plaintiffs argued that the settlement agreement was not binding and enforceable, because generally individuals may not privately settle FLSA claims. In response the defendants argued that that a private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability (and as to the amount of appropriate damages). After a discussion of the relevant Fifth Circuit precedent, the court agreed with the Defendants and held the settlement agreement at issue to be enforceable.
Significantly the court reasoned:
[H]ere, there is a bona fide dispute between Appellants and Spring Break Louisiana over the number of hours for which they are owed their set rate of pay. In fact, the Union representative conducted an investigation into the dispute and received conflicting information from various sources, ultimately concluding that it would be impossible to determine whether or not Appellants worked on the days they claimed they had worked in their grievance. Approving of this rationale, we hold that the payment offered to and accepted by Appellants, pursuant to the Settlement Agreement, is an enforceable resolution of those FLSA claims predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights themselves. See Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 714, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) (“Our decision … has not necessitated a determination of what limitation, if any, Section 16(b) of the [FLSA] places on the validity of agreements between an employer and employee to settle claims arising under the Act if the settlement is made as the result of a bona fide dispute between the two parties, in consideration of a bona fide compromise and settlement.”); see also D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 114–15, 66 S.Ct. 925, 90 L.Ed. 1114 (1946) (“Nor do we need to consider here the possibility of compromises in other situation which may arise, such as a dispute over the number of hours worked or the regular rate of employment.”); 29 U.S.C. § 253(a).
Apparently the court also believed that the settlement at issue here could arguably be said to be “without compromise” such that the third permissible basis for an enforceable private settlement was met:
Notably, in Thomas v. Louisiana, 534 F.2d 613 (5th Cir.1976), we held that a private settlement of FLSA claims was binding and enforceable where the settlement gave employees “everything to which they are entitled under the FLSA at the time the agreement is reached.” Id. at 615. We explained that, “[a]lthough no court ever approved this settlement agreement, the same reason for enforcing a court-approved agreement i.e., little danger of employees being disadvantaged by unequal bargaining power[,] applies here.” Id. Here, Spring Break Louisiana and the Union agreed in the Settlement Agreement that the payments Appellants were paid pursuant to that agreement were the “amounts due and owing” for the disputed number of hours they claimed they had worked and not been paid for. The Settlement Agreement was a way to resolve a bona fide dispute as to the number of hours worked—not the rate at which Appellants would be paid for those hours—and though Appellants contend they are yet not satisfied, they received agreed-upon compensation for the disputed number of hours worked.
Lastly, the court distinguished a settlement privately negotiated by a union and its attorneys from a situation where a labor union purports to waive an employees’ rights under the FLSA through a collective bargaining agreement, a longstanding no-no under well-established FLSA jurisprudence:
Finally, Appellants contend, citing Barrentine v. Arkansas–Best Freight Sys., 450 U.S. 728, 745, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981), that because the Supreme Court has held that a union cannot waive employees’ rights under the FLSA through a collective bargaining agreement, they cannot have settled their FLSA claims in the Settlement Agreement, which was arrived at through the Union-facilitated grievance procedure laid out in the CBA. See Barrentine, 450 U.S. at 745, 101 S.Ct. 1437 (“FLSA rights … are independent of the collective-bargaining process. They devolve on petitioners as individual workers, not as members of a collective organization. They are not waivable.”). Although the terms and conditions of Appellants’ employment with Spring Break Louisiana were covered by a collective bargaining agreement, Barrentine is distinguishable. In Barrentine, the plaintiffs’ grievances based on rights under the FLSA were submitted by the union to a joint grievance committee that rejected them without explanation, a final and binding decision pursuant to the collective bargaining agreement. 450 U.S. at 731, 101 S.Ct. 1437. Here, Appellants accepted and cashed settlement payments—Appellants’ FLSA rights were adhered to and addressed through the Settlement Agreement, not waived or bargained away. The concerns the Court in Barrentine expressed, that FLSA substantive rights would be bargained away, see id. at 740, 101 S.Ct. 1437 (“This Court’s decisions interpreting the FLSA have frequently emphasized the nonwaivable nature of an individual employee’s right to a minimum wage and to overtime pay under the Act. Thus, we have held that FLSA rights cannot be abridged by contract or otherwise waived because this would ‘nullify the purposes’ of the statute and thwart the legislative policies it was designed to effectuate.”), are not implicated by the situation here where Appellants’ Union did not waive FLSA claims, but instead Appellants, with counsel, personally received and accepted compensation for the disputed hours. We reiterate that FLSA substantive rights may not be waived in the collective bargaining process, however, here, FLSA rights were not waived, but instead, validated through a settlement of a bona fide dispute, which Appellants accepted and were compensated for. Therefore, the district court did not err by finding an enforceable release resolving this wage dispute.
Given, the somewhat unique facts of this case, it remains to be seen whether the Fifth Circuit’s decision while trigger a change in longstanding FLSA jurisprudence regarding the enforceability of privately-negotiated settlements, or whether this case will remain an outlier, largely limited to its facts. For example, it is not clear whether the settlement would have been enforced absent the fact that plaintiffs were represented by both their union and attorneys in the negotiations, or if this was a “straight time” case where there was demonstrative evidence of the precise number of hours at issue. Stay tuned, for what’s likely to be an influx of cases where defendant-employers seek to expand this case’s holding while plaintiff-employees seek to limit the holding to the facts at bar (which are not likely to be oft-repeated).
Click Martin v. Spring Break ’83 Productions, L.L.C. to read the entire Decision. For an excellent historical overview of more typical decisions regarding the enforceability of private settlements of FLSA claims click here to read an outline from the folks at Outten & Golden.
Brooke v. Administrative Maintenance Services, LLC
Generally, we post cases here that feature issues that are likely to come up in other cases. Other times we post cases simply because they involve interesting fact patterns or scenarios. This case falls in the latter category. Here, the case was before the court on the parties’ joint motion to approve their settlement. However, this was no ordinary settlement. Instead, based on concerns pertaining to plaintiff’s credibility, regarding the number of improperly compensated overtime hours claimed by plaintiff, and the defendants’ assertions that they were due various offsets based on unrelated transactions between the parties, the parties entered into a unique settlement agreement, following mediation.
In order to resolve the various issues, largely involving the credibility of the parties, the parties agreed that the plaintiff would submit to a lie detector case, the results of which would dictate what, if any, amounts of damages plaintiff would recover under the settlement.
As described by the court:
“The parties… agreed that Mr. Brooke will be asked, in a format crafted by the operator of the lie detector, whether he worked five, ten, and, finally, fifteen hours per week, on average, of overtime. If the operator concludes Mr. Brooke worked no overtime, Mr. Brooke will dismiss his case and reimburse the Defendants one-half of the lie detector administrator’s fee to the Defendants. If the operator concludes Mr. Brooke did work overtime in the brackets described above, he will be paid the greatest number of average weekly overtime he credibly answers about, per week, times $12.00 (one-half his base rate of $12.00 per hour and an equal amount in liquidated damages), times the eighty one weeks he was employed by the Defendants. If the result is inconclusive, the Defendants will pay a total of $10,000.00, including fees and costs.”
While the court noted the settlement might be fair, depending on the amounts ultimately payable to plaintiff under the agreement, the court declined to approve the settlement citing the contingency nature of the settlement and the fact that it was unclear how much plaintiff would receive. The court reasoned:
“The Court does not quarrel with the parties’ contention that this approach is quicker and cheaper than a jury. The same can be said, however, as dueling and coin flips. The standard is not whether a resolution is quick and cheap, but whether it is fair and reasonable. There is no showing here that conditioning an award based on the ability to pass a lie detector test is either of those things.
To be clear, the Court is not finding that settlement in the amounts suggested would not be fair. If the parties had presented an agreement for Defendant to pay $10,000, for example, the Court could evaluate that sum in view of all of the pertinent considerations supporting a settlement, and could issue a recommendation on same. As long as there was an agreement as to an amount rationally related to the claim, and the Court found the settlement to be voluntary and objectively fair and reasonable, it would not matter if the actual numbers were reached via lie detector test, rock-paper-scissors, or drawing straws. Here, however, the parties are not asking the Court to approve a settlement—they are asking the Court to approve a method of reaching a settlement. This is beyond the scope of the fairness finding duties set forth in Lynn’s Food.
For these reasons, it is respectfully recommended that the Court deny the motion, without prejudice to renewal, if appropriate, upon clarification of the status of the corporate Defendants and upon a presentation of terms that are consistent with the principles discussed herein.”
Click Brooke v. Administrative Maintenance Services, LLC to read the entire Report and Recommendation, which was ultimately adopted in full by the presiding District Court Judge.
M.D.Fla.: Defendant Does Not Moot FLSA Case By Tender of Unpaid Wages/Liquidated Damages, Absent Payment of Reasonable Attorneys Fees and Costs
Klinger v. Phil Mook Enterprises
Following the recent 11th Circuit decision Dionne v. Floormasters, the blogosphere has been abuzz with articles positing that the decision gave employers the green light to engage in wholesale wage theft and take a wait and see approach with regard to paying employees their wages. Several management-side attorneys have even gone as far as to suggest that a thieving employer could tender payment of wages/liquidated damages alone on the courthouse steps on the eve of a jury verdict and simply avoid paying mandatory fees and costs under 216(b). Not so, holds Judge James D. Whittemore, in the first case on the issue post-Dionne.
In Klinger v. Phil Mook Enterprises, the defendants-employers attempted just this strategy. After Klinger filed a lawsuit seeking the payment of her unpaid wages and liquidated damages, her former employers tendered what it deemed “full payment” of her unpaid wages and liquidated damages. However, it denied liability and refused to pay reasonable attorneys fees and costs. Instead, it filed a Motion to Dismiss, asserting that the case was now moot. The Court rejected the defendants’ contention that the case was moot absent payment of attorneys fees and costs and denied defendants’ motion.
Significantly, the Court noted:
“Defendants’ mere tender of payment does not provide Plaintiff with all the relief she seeks and would be entitled to as a prevailing party in this action, to wit: an enforceable judgment, attorney’s fees, and costs. Allowing Defendants to avoid responsibility for Plaintiff’s attorneys fees merely by tendering full payment after litigation has commenced would run counter to the FLSA’s goal of fully compensating the wronged employee. See Silva v. Miller, 307 Fed. App’x 349, 351 (11th Cir. 2009)(“FLSA requires judicial review of the reasonableness of counsel’s legal fees to assure… that counsel is compensated adquately…”. Further, Defendants’ tender effectively circumvents the requirements of Rule 68(a), Fed.R.Civ.P.”
As such, the Court denied the defendants’ motion.
Click Klinger v. Phil Mook Enterprises to read the entire Order.
DISCLAIMER: It is not this author’s assertion that the defendants in this particular case engaged in willful wage theft. Absent further research into the facts giving rise to the underlying claim, the author makes no representations whatsoever as to the specific facts of this case. Instead, this post is a commentary on the procedural history of the case once filed.
M.D.Tenn.: Where Employees Believed They Were Required to Sign WH-58 and/or Unaware of Private Lawsuit Regarding Same Issues, Waivers Null & Void
Woods v. RHA/Tennessee Group Homes, Inc.
This case was before the court on a variety of motions related to the plaintiffs’ request for conditional certification and for clarification as to the eligible participants in any such class. The case arose from plaintiffs’ claims that defendants improperly automatically deducted 30 minutes for breaks that were not provided to them. Of interest here, during the time the lawsuit was pending, the DOL was also investigating defendants regarding the same claims. Shortly after the lawsuit was commenced, the DOL made findings and recommendations to the defendants, in which it recommended payments of backwages to certain employees that were also putative class members in the case. As discussed here, the defendants then made such payments to the putative class members, but required that all recipients of backwage payments sign a WH-58 form (DOL waiver), which typically waives an employees claims covered by the waiver. Subsequently, the plaintiffs sought to have the WH-58’s declared null & void and asserted that any waiver was not knowing and/or willful as would be required to enforce. The court agreed and struck the waivers initially. However, on reconsideration the court held that a further factual showing was necessary to determine whether the WH-58 waivers were effectual or not under the circumstances.
The court explained the following procedural/factual background relevant to the waiver issue:
“The six named plaintiffs filed this putative collective action on January 13, 2011. Coincidentally, on the same day, the Department of Labor (“DOL”) contacted the defendant and commenced an investigation regarding the Meal Break Deduction Policy. (Docket No. 80 at 25 (transcript of April 14, 2011 hearing).) The DOL was apparently following up on a complaint that it had received nearly a year earlier. (Id. at 32.) Several days later, on January 18, the defendant informed the DOL of the pending private lawsuit.
Nevertheless, the DOL proceeded with the investigation and, in early March 2011, the DOL and the defendant reached a settlement, pursuant to 29 U.S.C. § 216(c). Under the settlement, the defendant agreed to comply with the FLSA in the future and to pay a certain amount of back wages to employees who were subject to the Meal Break Deduction Policy. (See Docket No. 80 at 14.)
To distribute these payments, the defendant posted the following notice in a common area:
The following employees must come to the Administrative Building and see Michelle regarding payment for wages as agreed upon by the Stones River center and the Department of Labor on Tuesday, April 12, 2011, 8:00 am–4:00 pm.
If you have questions, see Lisa or Kamilla
(Docket No. 43, Ex. 1 at 72; Docket No. 56, Ex. 1.) The posting contained a list of over 60 employees (see Docket No. 56, Ex. 1), including several employees who had already opted into this lawsuit (see, e.g., Docket No. 43, Ex. 1 at 56), although the defendant claims that their inclusion was an oversight. In her declaration, Human Resources Director Kamilla Wright states that she was simply “instructed to post a list of employees for whom checks were available.” (Docket No. 55 ¶ 7.)
Wright was further instructed “that when an employee came to the office to pick up their check, [she] was to have them sign the receipt for payment of back wages and then give them their check.” (Id. ¶ 9.) The declaration of Lisa Izzi, the defendant’s administrator, states that Izzi received identical instructions. (Docket No. 56 ¶ 9.) Accordingly, at the meetings with employees, each employee was given a check and DOL Form WH–58, which was titled “Receipt for Payment of Back Wages, Employment Benefits, or Other Compensation.” (Docket No. 43, Ex. 1 at 13.) The form stated:
I, [employee name], have received payment of wages, employment benefits, or other compensation due to me from Stones River Center … for the period beginning with the workweek ending [date] through the workweek ending [date.] The amount of payment I received is shown below.
This payment of wages and other compensation was calculated or approved by the Wage and Hour Division and is based on the findings of a Wage and Hour investigation. This payment is required by the Act(s) indicated below in the marked box(es):
[X] Fair Labor Standards Act 1 …
(Id.) Further down, in the middle of the page, the form contained the following “footnote”:
FN1NOTICE TO EMPLOYEE UNDER THE FAIR LABOR STANDARDS ACT (FLSA)—Your acceptance of this payment of wages and other compensation due under the FLSA based on the findings of the Wage and Hour Division means that you have given up the right you have to bring suit on your own behalf for the payment of such unpaid minimum wages or unpaid overtime compensation for the period of time indicated above and an equal amount in liquidated damages, plus attorney’s fees and court costs under Section 16(b) of the FLSA. Generally, a 2–year statute of limitations applies to the recovery of back wages. Do not sign this receipt unless you have actually received this payment in the amount indicated above of the wages and other compensation due you.
(Id.) Below that was an area for the employee to sign and date the form.
It appears that Wright and Izzi did not, as a matter of course, inform the employees that accepting the money and signing the WH–58 form was optional. Nor did they inform the employees that a private lawsuit covering the same alleged violations was already pending.
On April 12 and 13, 2011, a number of employees accepted the payments and signed the WH–58 forms. On April 13, the plaintiffs’ counsel learned of this and filed a motion for a temporary restraining order or preliminary injunction, seeking to prevent the defendant from communicating with opt-in plaintiffs and potential opt-in plaintiffs. (Docket No. 43.)
The court held a hearing on the plaintiffs’ motion on April 14, 2011. At that hearing, the court expressed its displeasure with the defendant’s actions, which, the court surmised, were at least partly calculated to prevent potential class members from opting in to this litigation. The court stated that it would declare the WH–58 forms (and the attendant waiver of those employees’ right to pursue private claims) to be null and void; thus, those employees would be free to opt in to this lawsuit.”
On reconsideration, the court reconsidered its prior Order on the issue. While re-affirming that non-willful waivers would be deemed null & void, the court explained that the issue would be one for the finder of fact at trial. After a survey of the relevant case law, the court explained:
“To constitute a waiver, the employee’s choice to waive his or her right to file private claims—that is, the employee’s agreement to accept a settlement payment—must be informed and meaningful. In Dent, the Ninth Circuit explicitly equated “valid waiver” with “meaningful agreement.” Dent, 502 F.3d at 1146. Thus, the court stated that “an employee does not waive his right under section 16(c) to bring a section 16(b) action unless he or she agrees to do so after being fully informed of the consequences.” Id. (quotation marks omitted). In Walton, the Seventh Circuit likened a valid § 216(c) waiver to a typical settlement between private parties:
When private disputes are compromised, the people memorialize their compromise in an agreement. This agreement (the accord), followed by the payment (the satisfaction), bars further litigation. Payment of money is not enough to prevent litigation…. There must also be a release. Walton, 786 F.2d at 306. The relevant inquiry is whether the plaintiffs “meant to settle their [FLSA] claims.” Id.
Taken together, Sneed, Walton, and Dent suggest that an employee’s agreement to accept payment and waive his or her FLSA claims is invalid if the employer procured that agreement by fraud or duress. As with the settlement of any other private dispute, fraud or duress renders any “agreement” by the employee illusory. See 17A Am.Jur.2d Contracts § 214 (“One who has been fraudulently induced to enter into a contract may rescind the contract and recover the benefits that he or she has conferred on the other party.”); id. § 218 (“ ‘Duress’ is the condition where one is induced by a wrongful act or threat of another to make a contract under circumstances which deprive one of the exercise of his or her free will. Freedom of will is essential to the validity of an agreement.” (footnote omitted)). The court finds that employees do not waive their FLSA claims, pursuant to § 216(c), if their employer has affirmatively misstated material facts regarding the waiver, withheld material facts regarding the waiver, or unduly pressured the employees into signing the waiver.
This holding does conflict with Solis v. Hotels.com Texas, Inc ., No. 3:03–CV–0618–L, 2004 U.S. Dist. LEXIS 17199 (N.D.Tex. Aug. 26, 2004), in which the district court rejected the contention that “an allegation of fraud could lead to the invalidity of a waiver under 216(c).” Id. at *6. That finding was mere dicta, however, and, regardless, this court is not bound by decisions from the Northern District of Texas.
Here, the defendant posted a sign with a list of employees’ names stating that those employees “must come to the Administrative Building and see Michelle regarding payment for wages as agreed upon by the Stones River center and the Department of Labor.” (Docket No. 43, Ex. 1 at 72 (emphasis added).) It appears that, when the employees met with the defendant’s human resources representatives, neither the representatives nor the Form WH–58 informed the employees that they could choose to not accept the payments. On the evidence presented at the April 14 hearing and submitted thereafter, the court finds that reasonable employees could have believed that the defendant was requiring them to accept the payment. Obviously, this calls into question the willingness of the employees’ waivers.
Additionally, it appears that the defendant never informed the employees that a collective action concerning the Meal Break Deduction Policy was already pending when the waivers were signed. The court finds that it was the defendant’s duty to do so. Section 216 exists to give employees a choice of how to remedy alleged violations of the act—by either accepting a settlement approved by the DOL or by pursing a private claim. An employer should not be allowed to short circuit that choice by foisting settlement payments on employees who are unaware that a collective action has already been filed. If employees are unaware of a pending collective action, they are not “fully informed of the consequences” of their waiver, Dent, 502 F.3d at 1146, because waiving the right to file a lawsuit in the future is materially different than waiving the right to join a lawsuit that is already pending. In the former situation, an employee who wishes to pursue a claim must undertake the potentially time-consuming and expensive process of finding and hiring an attorney; in the latter, all an employee must do is sign and return a Notice of Consent form.
Thus, the court finds that any employee of Stones River Center may void his or her § 216(c) waiver by showing either: (1) that he or she believed that the defendant was requiring him or her to accept the settlement payment and to sign the waiver; or (2) that he or she was unaware that a collective action regarding the Meal Break Deduction Policy was already pending when he or she signed the waiver. The court will vacate its April 14, 2011 Order, to the extent that the order declared all such waivers to be automatically null and void. Instead, under the above-described circumstances, the waivers are voidable at the election of the employee. Because the validity of any particular employee’s waiver depends on questions of fact, the issue of validity as to each employee for whom this is an issue will be resolved at the summary judgment stage or at trial.”
Click Woods v. RHA/Tennessee Group Homes, Inc. to read the entire Memorandum Opinion on all the motions.