New York Ruling Gives Support to Private FLSA Settlements

Posted on March 13, 2013 by Wage and Hour Practice Group

By Stephanie Gail Lee

On February 22, 2013, the U.S. District Court for the Eastern District of New York held that parties may privately settle a Fair Labor Standards Act (FLSA) case without judicial approval or Department of Labor (DOL) supervision. While it is uncertain that such settlement agreements will be upheld upon challenge, defense attorneys should feel more confident in counseling their clients regarding the option to settle their FLSA case out of court. Doing so may ameliorate employers’ fear of publicly filing settlement agreements, which can instigate copycat lawsuits and media attention, and rid the need for added litigation expenses in connection with fairness proceedings.

In Picerni v. Bilingual Seit & Preschool, Inc., the district court ruled that a teacher could dismiss her FLSA lawsuit pursuant to a private settlement agreement with her former employer. Just a few months prior, before the parties had participated in a status conference and before the defendant answered the plaintiff’s complaint or otherwise appeared, the court found just the opposite. When the plaintiff notified the court that she accepted a settlement offer from the defendant, the court rejected the parties’ agreement, citing case law that holds that stipulated settlements in a FLSA case must be approved by the court for fairness when an out-of-court settlement was not directly supervised by the DOL.

The court reversed itself in light of two United States Supreme Court cases: Brooklyn Savings Bank v. O’Neil, and D.A. Schulte, Inc. v. Gangi. These cases hold that an employer who settles an FLSA claim without either court approval or DOL supervision is at risk of a subsequent suit by the same employee, despite receiving a release as part of the settlement agreement. The Picerni court distanced itself from the vast majority of courts that have refused to permit parties to voluntary dismiss their suits after privately settling. The court observed that neither Brooklyn Savings, Gangi, nor their progeny expressly prohibited voluntary dismissal. The court observed it was one thing to say that releases obtained via private settlements will not be enforced in later litigation under certain circumstances, and another to say that courts will not permit parties to privately settle and risk the settlement being ineffective.

In so distinguishing, the court took care to examine the plain language of the FLSA to glean the legislature’s intent. While some federal statutes expressly require court approval for voluntary dismissal of cases, the FLSA does not. The court determined, therefore, that subjecting the parties’ private settlement agreement to a fairness hearing “to achieve some Platonic form of the ideal of judicial vindication [does] not seem necessary to accomplish any purpose under the FLSA.” This ruling marks a significant step for employers and defense attorneys who wish to engage in private settlement agreements to resolve FLSA cases.

Photo credit: MBPhoto, Inc.
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By Denying Cert. Petition, U.S. Supreme Court Allows 5th Circuit Decision Permitting Private Settlement of FLSA Claims to Stand

Posted on December 12, 2012 by Wage and Hour Practice Group

On Monday, December 10, 2012, the U.S. Supreme Court declined to review a Fifth Circuit Court of Appeals decision, Martin v. Spring Break ’83 Productions, L.L.C., which held that parties may privately settle and release wage claims that result from a bona fide dispute as to liability rather than a compromise of guaranteed FLSA rights. Martin, as we previously discussed, stands in sharp contrast to the Eleventh Circuit Court of Appeals decision in Lynn’s Food Stores, Inc. v. United States, which held that FLSA disputes could only be settled if either the U.S. Department of Labor supervised payment or a court approved a settlement after an employee filed a private lawsuit.

This is positive news for employers that operate within the Fifth Circuit, which includes Texas, Louisiana, and Mississippi. Whether district or other appellate courts will follow the Fifth Circuit’s lead, in light of the Supreme Court allowing the Martin decision to stand, remains uncertain. However, employers who operate within the Eleventh Circuit, which includes Florida, Georgia, and Alabama, are still bound by the Lynn’s Food decision.

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Fifth Circuit Upholds Private Settlement of FLSA Claims Where Bona Fide Dispute of Liability Exists

Posted on August 17, 2012 by Wage and Hour Practice Group

By David Jordan and Sarah Morton

For nearly 30 years, courts and the U.S. Department of Labor (DOL) have instructed parties to seek judicial or DOL approval to effectuate a settlement of claims under the Fair Labor Standards Act (FLSA). See Lynn’s Food Stores, Inc. v. United States, (concluding that “[t]here are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees:” payment supervised by the DOL or judicial approval of a stipulated settlement after an employee has brought a private cause of action). Last month the Fifth Circuit surprisingly reversed course in Martin v. Spring Break ’83 Productions, L.L.C., holding that parties may privately settle and release wage claims that include a bona fide dispute as to liability.

Martin involved a group of lighting and rigging technicians in the filmmaking and video productions industry who filed grievances against their employer, Spring Break Louisiana, alleging that the company failed to pay them wages for all hours worked while filming the movie Spring Break ’83. The technicians’ union representative investigated the grievances but could not determine whether the technicians had actually worked the hours alleged. The union subsequently entered a settlement agreement with Spring Break Louisiana over the disputed hours, agreeing on behalf of the technicians to accept settlement payments in exchange for the union’s agreement that the union and technicians would not file suit. Prior to receiving (and cashing) their settlement payments, the technicians filed suit regardless, arguing that, without judicial or DOL supervision, the union’s agreement was unenforceable.

Finding that the settlement payment waived the technicians’ right to file suit, the Fifth Circuit affirmed summary judgment for Spring Break Louisiana. In doing so, the court relied heavily on the holding and analysis set forth in Martinez v. Bohls Equipment Company, a Western District of Texas decision that thoroughly examines the history of the FLSA, its amendment by the Portal-to-Portal Act of 1947, the Fair Labor Standards Amendments of 1949, and subsequent interpretative case law, ultimately holding 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.” (quoting Martinez). Applying that same rationale, the Fifth Circuit determined that the payment offered to and accepted by the technicians pursuant to the union’s settlement agreement operated as “an enforceable resolution . . . predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA rights themselves.”

Finally, although the Fifth Circuit recognized that its holding directly contravened the Eleventh Circuit’s 30-year-old decision in Lynn’s Food Stores, the court distinguished that case by noting that the plaintiffs in Lynn’s Food Stores were unaware at the time of the settlement of their FLSA rights, had not consulted with an attorney, and, in some cases, could not speak English. The lighting and rigging technicians, on the other hand, had already retained an attorney and filed suit by the time they received and cashed their settlement checks. Thus “[t]he money [the technicians] received and accepted, pursuant to the settlement agreement, for settlement of their bona fide dispute did not occur outside the context of a lawsuit, [and] hence the concerns the Eleventh Circuit expressed in Lynn’s Food Stores are not implicated.”

Photo credit: MBPhoto, Inc.
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Federal Court in New Jersey Refuses to Approve Confidentiality for Wage and Hour Settlement

Posted on February 3, 2012 by Wage and Hour Practice Group

By Gregory B. Reilly

Employers faced with wage and hour litigation often seek to condition settlement on the agreement of plaintiffs to keep the settlement and its terms confidential. Confidentiality is often an important condition of settlement because employers may hope to avoid “copycat” claims by other employees and face the possibility that disclosure of a wage and hour settlement may be viewed by the public as an “admission” of liability.

Recently, in an unpublished decision, Brumley v. Camin Cargo Control Inc., the U.S. District Court in New Jersey refused an employer’s unopposed request to seal the terms of a Fair Labor Standards Act (FLSA) lawsuit settlement. The court stated that there is a “presumption” in favor of public access to the settlement terms so that the public knows such cases are fairly resolved.

While it is still possible, depending upon the circumstances, that employers can confidentially resolve FLSA wage and hour lawsuits, it is becoming increasingly clear that courts, as in the Brumley case, are hesitant to do so. Moreover, when an FLSA lawsuit involves a sizable number of plaintiffs, the public’s interest in disclosure of the settlement terms seems more likely to be implicated. In this respect, we note that the settlement in Brumley involved 112 plaintiffs.

Photo credit: YanC

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Kaiser Settles Misclassification Class Action for $2.91 Million

Posted on November 17, 2010 by Wage and Hour Practice Group

A California federal court gave final approval to a $2.91 million settlement between Kaiser Foundation Hospitals and approximately 500 information technology employees who alleged they were misclassified as exempt under both the Fair Labor Standards Act and California law, and denied overtime for working through meal periods and working in excess of 40 hours per week, 8 hours per day or on the 7th consecutive day of a workweek. To learn more about the case, please continue reading at Littler's Healthcare Employment Counsel blog.

Photo credit: Bartek Szewczyk

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Update to Significant PAGA Decision: Deleon Plaintiff Seeks Review by California Supreme Court

Posted on February 26, 2009 by Wage and Hour Practice Group

We recently reported a significant California Court of Appeals decision, marking what appears to be turning point in the development of California's Labor Code Private Attorney General Act ("PAGA"). In Deleon v. Verizon Wireless, the Second District Court of appeal addressed several unsettled PAGA issues. The Court's analysis has far-reaching consequences with respect to several issues, including (i) the settlement of individual and class-wide PAGA claims, (ii) the status of an "aggrieved employee" as a plaintiff, and (iii) the nature of PAGA representative actions.

On February 23, 2009, the plaintiff's in Deleon filed for review by the California Supreme Court. Employers are advised to monitor the Supreme Court's actions in this case, particularly those currently litigating purported PAGA claims. Unless and until the Supreme Court grants review, however, Deleon may still be cited as good law. For a more thorough analysis of the impact of the Deleon decision, see the Littler ASAP "Bounty Hunters" Lose Their State "Badge" as Court of Appeal Clarifies Several PAGA Issues.

This blog entry was authored by Vincent J. Mersich.
 

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Trial Court's Dismissal of PAGA Claims Upheld

Posted on January 29, 2009 by Wage and Hour Practice Group

Deleon v. Verizon Wireless concerns a case where the employer had been previously sued under various sections of the California Labor Code for charging back commissions to its salespeople. No claims under the California Labor Code Private Attorneys General Act (PAGA) were alleged in the original complaint. That case settled in 2006, and the court certified a class for purposes of settlement. Nothing in the settlement agreement made reference to the PAGA. Rather, the agreement defined "released claims" to include all liabilities and penalties arising out of "any conduct, events, or transactions occurring during the class period." After the settlement, the plaintiff in Deleon sued the same employer, purportedly on behalf of the same employees, based on the same violations of the Labor Code, but this time seeking only penalties pursuant to the PAGA. The employer demurred to the second complaint, and the court of appeal upheld the trial court's dismissal of the second complaint based on res judicata. The recent Deleon decision is significant for employers in at least the following three ways:

Settlement Agreements. Even if an employer is settling a class action that has no PAGA claims, provided the employees release all "liabilities and penalties" arising out of "any conduct, events, or transactions” occurring in the class period, Deleon provides that the employer should be protected against any subsequent tag-along PAGA actions. More importantly, the employer need not designate any part of the settlement amount as settling PAGA claims, and no part of the settlement amount need be paid to the State of California in order to release non-asserted PAGA claims. On the other hand, if PAGA claims are a part of the complaint, the parties will most likely be required to designate some portion of the settlement amount as settling PAGA claims, and 75 percent of that amount should be paid to the state.

Dismissing PAGA "Aggrieved Employees." Plaintiffs often bring claims for PAGA penalties against an employer on behalf of unnamed, unidentified "aggrieved employees." The Deleon court, however, identified the employee--and not the state--as the rights-holder of any PAGA claims. Based on Deleon, an employer can arguably move to dismiss from the action any purportedly "aggrieved employees" who have not expressly consented to have plaintiff represent them, as well as any unnamed or unidentified "aggrieved employees." At the very least, the employer can argue that employees should have the opportunity to "opt out" of plaintiff's representation, which at least one court had previously held could not be done because the PAGA plaintiff, as a "private attorney general," represents the state—not employees— in enforcing the Labor Code.

Motions for Summary Judgment. Finally, if an employer can force a PAGA plaintiff to identify who he or she is representing, and each of those allegedly "aggrieved employees" represents a separate source of liability against the employer, then the employer can arguably take discovery on those specific employees and move for summary judgment against their PAGA claims. Again, at least one superior court has held that an employer was not entitled to move for summary judgment as to specific employees because they were simply "witnesses" in an enforcement action.

This blog post was authored by Richard Rahm.
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