I have defended a number of Fair Labor Standards Act (FLSA) class actions and individual suits and many of these result in settlement.  When these cases are settled, naturally, a document is drawn up for the plaintiff(s) to sign.  These settlements, under law, must be judicially approved and if they are not, both parties (especially the defendant)  run the risk  that the settlement may be invalid and the plaintiff(s) then legally able to continue the lawsuit.   A recent case illustrates the dangers inherent in negotiating and finalizing settlements in FLSA cases.

In Dees v. HydraDry, Inc. filed in the Middle District of Florida, a federal district judge, who received a joint stipulation for dismissal of an overtime suit, issued an opinion in which he stressed the role of the court in assessing the worthiness of settlement agreements; the opinion emphasized that confidentiality agreements in FLSA settlements will not receive judicial approval.

If the settlement includes full relief, meaning that it includes the liquidated (i.e. double) damages and attorney’s fees, then the parties need not request judicial review, but if there is some form of compromise, meaning that the employee has given up any rights in the settlement, then court approval is necessary.  The judge wrote that if “the employer in a FLSA case might offer full monetary compensation to the employee for the FLSA case might offer full monetary compensation to the employee for the FLSA claim, but might require the employee to refrain from informing fellow employees about the result the employee obtained.  Or the employer might require the employee to trim the shrubbery at the employer’s home each weekend for a year.  In either instance, the employee outwardly receives full monetary compensation for his unpaid wages, but effectively the additional term. . (the ‘side deal’) confers a partially offsetting benefit on the employer.”

In order to ensure that the spirit and substance of the FLSA is protected by a settlement, the judge stated that a court should engage in a two-fold analysis.  The first step is to determine whether the compromise is fair and reasonable to the employee.  If that threshold is reached then the court must examine whether the settlement in any other manner improperly undermines the “values” embodied by the FLSA.  In other words, a court should approve the settlement only if the settlement is fair to the employee and facilitates the purposes of the FLSA.

The judge outlined the following factors in determining whether the settlement is fair to the employee: 1) the existence of fraud or collusion behind the settlement: 2) the complexity, expense, and likely duration of the litigation; 3) the stage of the proceedings and the amount of discovery completed; 4) the probability of plaintiff’s success on the merits; 5) the range of possible recovery; and, 6) the opinions of counsel.  The court also opined that such settlements should not ever be confidential, as the court’s action in approving such a settlement was a “public act.”

In conclusion, settlements are a necessary, indeed, vital component of resolving FLSA cases.  The last thing the employer wants is to reach a settlement and then have a court throw it out or worse, not seek judicial approval and learn later that the case it thought was finished has been revitalized through the employer’s own fault (i.e. not submitting for judicial approval).