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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.
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.