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S.D.Cal.: Although Arbitration Agreement With Class Waiver Enforceable, Confidentiality Provision Stricken as Unconscionable Because Overbroad
Grabowski v. Robinson
This case was before the court on defendant’s motion to compel arbitration on an individual (rather than class) basis. Although the court noted that plaintiffs were required to sign the arbitration agreement contained in their compensation agreements, under threat of forfeiture of commissions, the court held that did not make the agreement unenforceable as entered into under duress. The court also, in large part, dismissed other arguments regarding the substantive and procedural unconscionability of the agreement. However, as discussed here, the court held that the confidentiality provision which barred any discussion of the litigation without the other party’s consent to be far too broad.
Discussing the confidentiality provision the court stated:
“Plaintiff contends: ‘[T]he Defendant’s rules impose confidentiality which unfairly favors Defendant. While arbitration normally is not open to the public, the Defendant’s rules go much further. Defendant’s rules require that the record of the proceedings be confidential under threat of a sanction order by the arbitrator.’
The Employment Dispute Mediation/Arbitration Procedure contains a provision entitled, “Confidentiality,” which states:
All aspects of the arbitration, including without limitation, the record of the proceeding, are confidential and shall not be open to the public, except (a) to the extent both Parties agree otherwise in writing, (b) as may be appropriate in any subsequent proceedings by the Parties, or (c) as may otherwise be appropriate in response to a governmental agency or legal process, provided that the Party upon whom such process is served shall give immediate notice of such process to the other Party and afford the other Party an appropriate opportunity to object to such process.
At the request of a Party or upon his or her initiative, the Arbitrator shall issue protective orders appropriate to the circumstances and shall enforce the confidentiality of the arbitration as set forth in this article.
In Davis, the Court of Appeals for the Ninth Circuit stated that, under California law, “[c]onfidentiality by itself is not substantively unconscionable,” but the employer’s “confidentiality clause … is written too broadly” and “unconscionably favors [the employer],” when the clause at issue “would prevent an employee from contacting other employees to assist in litigating (or arbitrating) an employee’s case.” Davis, 485 F.3d at 1078–79 (“The clause precludes even mention to anyone ‘not directly involved in the mediation or arbitration’ of ‘the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration’ or even ‘the existence of a controversy and the fact that there is a mediation or an arbitration proceeding.’ ”). In this case, the confidentiality provision in the Employment Dispute Mediation/Arbitration Procedure is broader than what the court in Davis indicated would be conscionable. Cf. id. at 1079 (noting that “[t]he parties to any particular arbitration, especially in an employment dispute, can always agree to limit availability of sensitive employee information (e.g., social security numbers or other personal identifier information) or other issue-specific matters, if necessary”).
The Court finds that the confidentiality provision in the arbitration agreement is substantively unconscionable under California law.”
While courts- seemingly bound by a recent slew of employer/arbitration-friendly decisions from the Supreme Court- continue to compel arbitration and enforce class and collective action provisions contained in arbitration agreements, this decision seems somewhat in line with the remedial nature of the FLSA and related state wage and hour laws. One way employees and their counsel can try to even the playing field might be to seek court-approved notice of pending litigation, notwithstanding the inability to proceed as a class/collective action. Notifying other employees of existing litigation (and their rights to be paid in accordance with wage and hour laws) would certainly be in line with the remedial purposes of the FLSA and related state wage and hour laws. In any event, the court’s holding that an employer cannot hide its alleged violations for other employees certainly seems to be a step in the right direction.
Click Grabowski v. Robinson to read the entire Opinion.
W.D.Va.: Motion For Approval Of Settlement Agreement Denied, In Part, Because Of Impermissible Confidentiality Language
Poulin v. General Dynamics Shared Resources, Inc.
In a continuing trend, the Court, on the parties’ Joint Motion for approval of settlement, denied same, in part, due to the inclusion of confidentiality language in the proposed settlement agreement. Initially, the Court denied the Motion due to the parties failure to lay out the basis for Plaintiff’s attorney’s fees. However, the Court went on to add an alternative ground for its denial, citing to recent case law, as discussed here:
“Finally, the Settlement Agreement, as presently drafted, contains a confidentiality agreement. This, in pertinent part, provides that “Plaintiff agrees that he shall not disclose the fact of, and/or the terms and conditions of this Settlement Agreement and General Release except that Plaintiff may state that the Poulin action has been dismissed and may disclose the terms and conditions of this Settlement Agreement” under limited enumerated circumstances. Under the Settlement Agreement, “Plaintiff further agrees and acknowledges that confidentiality is a material term of this Agreement and any breach of the confidentiality provisions herein will be considered a material breach of the terms of this Agreement and he will be required to reimburse Defendant for any and all compensation and benefits paid to him or for his benefit under the terms of this Agreement.” Settlement Agreement and General Release, ¶ 13. Further, it provides that the Settlement Agreement, “as executed by the Parties, will be filed under seal.” Id. at ¶ 5.
The Court cannot approve these terms of the Settlement Agreement. The provision that “confidentiality is a material term of [the] Agreement” is in conflict with the Court’s opinions dated March 26, 2010 (docket no. 20) and April 23, 2010 (docket no. 23), which held that the parties had not identified significant interests to outweigh the public interest in access to judicial records, and required the proposed Settlement Agreement be made publicly available on the docket. Furthermore, a confidentiality provision in an FLSA settlement agreement undermines the purposes of the Act, for the same reasons that compelled the Court to deny the parties’ motion to seal their Settlement Agreement. See e.g., Valdez v. T.A.S. O. Prop., Inc., No. 8:09-cv-2250, 2010 WL 1730700, at *1 (M .D.Fla. Apr. 28, 2010); Dees v. Hydradry, Inc., — F.Supp.2d —-, 2010 WL 1539813, at *9 (M.D.Fla.2010) (“A confidentiality provision in an FLSA settlement agreement both contravenes the legislative purpose of the FLSA and undermines the Department of Labor’s regulatory effort to notify employees of their FLSA rights.”). Finally, the confidentiality provisions are likely unenforceable in light of the public filing of the Settlement Agreement. See e.g., Head v. v. & L Services III, Inc., No. 6:08-cv-917, 2009 WL 3582133, at *3 (M.D.Fla. Oct. 27, 2009) (noting that “the settlement agreements contain terms that this Court would not approve, such as the confidentiality provisions, which are partially unenforceable in light of the public filing of the agreements”). The Court cannot approve of a settlement agreement which includes these terms.”
It appears that the public policy grounds behind disallowing confidential settlement agreements in FLSA cases is beginning to pick up speed.
M.D.Fla.: Approval Of Confidential Settlement In FLSA Case Rejected; Confidentiality Frustrates Remedial Purposes Of The FLSA
Dees v. Hydradry, Inc.
This case was before the Court on the parties’ Joint Stipulation of Dismissal. Although, the Court noted that, “a private settlement and stipulation for dismissal ends the typical case without judicial intervention, the Eleventh Circuit requires the district court to review the settlement of an FLSA claim. See Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir.1982).”
As part of a lengthy discussion of the remedial purposes behind the FLSA, the history of the FLSA and the applicable case law regarding waiver and settlements, and the role of the Court in the settlement process, the Court reasoned that no such resolutions of FLSA cases should involve confidentiality provisions, because such provisions contravene the public policy behind the FLSA’s implementation.
“ii. A Confidentiality Provision Contravenes FLSA Policy
Because of worry that settling with one employee will encourage other employees to assert FLSA rights, the employer may seek to maintain the confidentiality of the settlement agreement. But a confidentiality provision furthers resolution of no bona fide dispute between the parties; rather, compelled silence unreasonably frustrates implementation of the “private-public” rights granted by the FLSA and thwarts Congress’s intent to ensure widespread compliance with the statute. To further Congress’s intent, the Department of Labor requires the employer of an employee covered by the FLSA to display conspicuously in the workplace a detailed notice of the employee’s FLSA rights. By including a confidentiality provision, the employer thwarts the informational objective of the notice requirement by silencing the employee who has vindicated a disputed FLSA right.
Furthermore, Section 15(a)(3) of the FLSA proscribes an employer’s retaliating against an employee for asserting rights under the FLSA. If an employee covered by a confidentiality agreement discusses the FLSA with fellow employees or otherwise asserts FLSA rights, the employer might sue the employee for breach of contract. The employer’s most proximate damages from the employee’s breach are the unpaid FLSA wages due other employees who learned of their FLSA rights from the employee who breached the confidentiality agreement. A confidentiality agreement, if enforced, (1) empowers an employer to retaliate against an employee for exercising FLSA rights, (2) effects a judicial confiscation of the employee’s right to be free from retaliation for asserting FLSA rights, and (3) transfers to the wronged employee a duty to pay his fellow employees for the FLSA wages unlawfully withheld by the employer. This unseemly prospect vividly displays the inherent impropriety of a confidentiality agreement in settlement of an FLSA dispute.
A confidentiality provision in an FLSA settlement agreement both contravenes the legislative purpose of the FLSA and undermines the Department of Labor’s regulatory effort to notify employees of their FLSA rights. “The statute was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered the national health and efficiency and as a result the free movement of goods in interstate commerce.” Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 706-07 (1945). The district court should reject as unreasonable a compromise that contains a confidentiality provision, which is unenforceable and operates in contravention of the FLSA.”
Later in the opinion the Court discussed the issue of confidentiality in greater detail, reasoning that beyond evaluating a settlement for “reasonableness,” the Court has other functions when reviewing FLSA settlements, specifically to ensure that such settlements and records of same are available for public review:
“B. External Factors: Does the Compromise, Although Reasonable, Otherwise Frustrate Implementation of the FLSA
In evaluating a compromise, the district court should also consider an array of “external” or contextual factors pertinent to the statutory purpose of the FLSA. Compromise of a retrospective dispute may be permissible if, for example, the FLSA issue in a case is unresolvably close on the facts or the law or some extraordinary circumstance (say, a suddenly disabled claimant or an employer in liquidation) commends a speedy or certain resolution. On the other hand, several factors may commend rejecting a proposed compromise, including the presence of other employees situated similarly to the claimant, a likelihood that the claimant’s circumstance will recur, a history of FLSA non-compliance by the same employer or others in the same industry or geographic region, or the requirement for a mature record and a pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or in a workplace. In all instances, the district court should faithfully execute the congressional mandate for “minimum wages, promptly paid … for the lowest paid segment of the nation’s workers.” D.A. Schulte v. Gangi, 328 U .S. 108, 116 (1946).
IV. The Effect of Judicial Review: “Confidential” FLSA Settlement Agreements and Public Access to Court Records
“Parties who settle a legal dispute rather than pressing it to resolution by the court often do so, in part anyway, because they do not want the terms of the resolution to be made public.” Jessup v. Luther, 277 F.3d 926, 928 (7th Cir.2002). See generally Laurie Kratzky Dore, Secrecy by Consent: The Use and Limits of Confidentiality in the Pursuit of Settlement, 74 Notre Dame L.Rev. 283 (1999). In an FLSA action, the employer worries that compromise with an employee who has vindicated a valuable FLSA right will inform and encourage other employees, who will vindicate their FLSA rights (or who will wrongly, but expensively for the employer, conclude that additional wages are due). Although perhaps both uncomfortable and expensive to an employer, vindication of FLSA rights throughout the workplace is precisely the object Congress chose to preserve and foster through the FLSA.
In the typical settled case, the district judge remains unaware of the terms of compromise, and the parties enforce the settlement agreement, if necessary, only through a separate action. The parties maintain the confidentiality of their compromise by submitting a stipulation for dismissal under Rule 41, Federal Rules of Civil Procedure. In an FLSA case, however, Lynn’s Food requires the parties to obtain judicial approval of the compromise. Forced to submit the agreement to the court after filing a motion for approval, the parties often seek to preserve the confidentiality of the compromise either by moving to submit the agreement under seal or by requesting an “in camera review” of the agreement.
In the typical FLSA case, however, neither attempt to conceal the compromise comports with the public’s right of access to a judicial proceeding, which right is “an essential component of our system of justice [and] instrumental in securing the integrity of the process.” Chicago Tribune Co. v. Bridgestone/Firestone, Inc., 263 F.3d 1304, 1311 (11th Cir.2001). The judge’s “approving” a settlement constitutes a “public act,” and the public “has an interest in knowing what terms of settlement a federal judge would approve.” Jessup, 277 F.3d at 929. As an active component of the judge’s decision, the settlement agreement is presumptively a public record. See Brown v. Advantage Eng’g, Inc., 960 F.2d 1013, 1016 (11th Cir.1992) (“Once a matter is brought before a court for resolution, it is no longer solely the parties’ case, but also the public’s case.”); Bank of Am. Nat’l Trust & Sav. Ass’n v. Hotel Rittenhouse Assocs., 800 F.2d 339, 343 (3d Cir.1986) (“[T]he common law presumption of access applies to motions filed in court proceedings and to the settlement agreement … filed and submitted to the district court for approval.”). The public enjoys the right both to attend a trial or hearing and to inspect and copy a judicial record.
The presumption that the record of a judicial proceeding remains public “is surely most strong when the ‘right at issue is of a ‘private-public character,’ as the Supreme Court has described employee rights under the FLSA.” Stalnaker, 293 F.Supp.2d at 1264 (quoting Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 708 (1945)). Sealing an FLSA settlement agreement between an employer and employee, reviewing the agreement in camera, or reviewing the agreement at a hearing without the agreement’s appearing in the record (in any event precluding other employees’ and the public’s access to, and knowledge of, the agreement) thwarts Congress’s intent both to advance employees’ awareness of their FLSA rights and to ensure pervasive implementation of the FLSA in the workplace.
Furthermore, before sealing a document, the district court must identify and articulate “an overriding interest based on findings that [a seal] is essential to preserve higher values and is narrowly tailored to serve that interest. The interest is to be articulated along with findings specific enough that a reviewing court can determine whether the [sealing] order was properly entered.” Press-Enterprise Co. v. Superior Court of California, 464 U.S. 501, 510 (1984). Preventing the employee’s co-workers or the public from discovering the existence or value of their FLSA rights is an objective unworthy of implementation by a judicial seal, which is warranted only under “extraordinary circumstances” typically absent in an FLSA case. Absent an “overriding interest” in the preservation of some “higher value,” the court should not abide the parties’ request for a seal
The parties’ stipulation to seal the agreement (and the absence of a third-party objection to sealing the compromise agreement) fails to justify a seal. In Citizens First National Bank of Princeton v. Cincinnati Insurance Co., 178 F.3d 943, 944-45 (7th Cir.1999), Judge Posner states:
The parties to a lawsuit are not the only people who have a legitimate interest in the record compiled in a legal proceeding…. [T]he public at large pays for the courts and therefore has an interest in what goes on at all stages of a judicial proceeding. That interest does not always trump the property and privacy interests of the litigants, but it can be overridden only if the latter interests predominate in the particular case, that is, only if there is good cause for sealing a part or the whole of the record in that case. The determination of good cause cannot be elided by allowing the parties to seal whatever they want, for then the interest in publicity will go unprotected unless the media are interested in the case and move to unseal. The judge is the primary representative of the public interest in the judicial process and is duty-bound therefore to review any request to seal the record (or part of it). He may not rubber stamp a stipulation to seal the record. See also Wilson v. American Motors Corp., 759 F.2d 1568, 1571 (11th Cir.1985) (“[I]t is the rights of the public, an absent third party, which are preserved by prohibiting closure of public records….”).
Reviewing an FLSA settlement agreement under seal conflicts with the public’s access to judicial records, frustrates appellate review of a judge’s decision to approve (or reject) an FLSA compromise, contravenes congressional policy encouraging widespread compliance with the FLSA, and furthers no judicially cognizable interest of the parties. A proper consideration of the intent of Congress and the public’s interest in judicial transparency permits only one method to obtain judicial review of a compromise of an FLSA claim. The parties must file the settlement agreement in the public docket. See Stalnaker, 293 F.Supp. at 1262-64; see also Hanson v. Wells Fargo Bank, No. 08-80182-CIV, 2009 WL 1490582 (S.D.Fla. May 26, 2009) (requiring the parties to submit an unsealed copy of their settlement agreement).
To ensure that “all our able-bodied working men and women [receive] a fair day’s pay for a fair day’s work,” the FLSA requires a covered employer to pay each employee a minimum wage and overtime. To combat the typically unequal bargaining power between employer and employee, Congress prohibits a private agreement altering FLSA rights. An employee entitled to FLSA wages may compromise his claim only under the supervision of either the Department of Labor or the district court.
If presented in an FLSA action with a notice of settlement, a stipulation for dismissal, an offer of judgment, or the like, the judicial approval required by Lynn’s Food and the public’s right of access to a judicial proceeding compel the parties to file their agreement in the public docket of the district court. As an initial matter, the district court must determine whether the employee purports to compromise an FLSA right. If judicial scrutiny confirms that the parties’ settlement involves no compromise, the district court should approve the settlement and dismiss the case (if the employer has paid) or enter judgment for the employee (if the employer has not paid). If the parties’ proposed resolution requires the employee to compromise an FLSA right, the district court must scrutinize the compromise for “fairness.”
An employee’s right to a minimum wage and overtime is unconditional, and the district court should countenance the creation of no condition, whether confidentiality or any other construct, that offends the purpose of the FLSA. An employer is obligated unconditionally to pay a minimum wage and overtime to the complainant and his fellow employees; the district court should not become complicit in any scheme or mechanism designed to confine or frustrate every employee’s knowledge and realization of FLSA rights. Accordingly, the district court evaluating an FLSA compromise should examine first the “internal” fairness of the compromise, including the existence of a bona fide dispute and the absence of a prospective waiver, confidentiality agreement, or other provision antithetical to the FLSA. If the proposed compromise is fair and reasonable to the employee, the court should consider whether any other external factor, such as the need to resolve definitively an issue affecting similarly situated employees, recommends rejecting the compromise. If the compromise is fair and reasonable to the employee and furthers the implementation of FLSA rights in the workplace, the court should approve the compromise.
For the reasons stated in this order, the parties’ stipulation of dismissal is rejected.”
Needless to say, it will be interesting to see if other court’s follow the Court’s reasoning.
EDITOR’S NOTE: Less than a week after this opinion, Judge Merryday, who authored the opinion, went a step further in another case, holding that settlement agreements in FLSA cases that prohibit an employee from disparaging his or her employer are equally inappropriate. See McGowan v. CSPS Hotel, Inc., 8:09-cv-02311-SDM-MAP (M.D.Fla. Apr.29, 2010).