When FLSA lawsuits are settled, the matter must go before a federal judge for approval, as opposed to when a “demand letter” is sent and the parties settle prior to suit. There are many elements that a court must look at to determine if the settlement is appropriate and the recent case of Fritz v Terminite, Inc. provides a clear application of those principles. The case was filed in federal court in the District of New Jersey.

The plaintiff was an employee shared between two entities; he located oil tanks and then did work as an Environmental Technician. He alleged that he was paid for his Monday-Friday work at $23 per hour, worked additional overtime hours during the week or on the weekends but was paid straight time for some overtime hours and then a flat fee of $150 for weekend work. Thus, he claimed approximately $15,000 in unpaid overtime.

The parties reached a settlement and submitted it to the federal Judge. Although the Judge acknowledged that the Third Circuit had not adopted a standard for evaluating the settlement of a FLSA action, other federal courts in New Jersey had adopted criteria for evaluating proposed settlement agreements. The bottom line is that the settlement must be a “fair and reasonable resolution” of the FLSA claims.

There are a series of factors used in ascertaining whether the settlement was “fair and reasonable to the employee.” These factors are: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) stage of the proceedings and the amount of discovery completed; (4) risks of establishing liability; (5) risks of establishing damages; (6) risks of maintaining the class action through the trial; (7) ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. The Court concluded those factors militated strongly in favor of the settlement.

The Court then has to examine whether the settlement frustrates the implementation of the FLSA. The Court noted that signs that the agreement does frustrate the law include an unduly harsh or restrictive confidentiality clause and/or a Release that seeks to release claims under laws other than the FLSA. For example, a clause prohibiting FLSA plaintiffs from telling other workers of the result would frustrate the purpose of the FLSA. The Court found no such impediments and this concluded the settlement was valid.

The Takeaway

For me, the most important provisions of these precepts pertinent to court-approved settlements are the inability to insert a confidentiality provision as well as the forbidding of an overbroad release. When employers settle a putative class action, for example, with just the named plaintiff(s), the overriding goal of the employer is to then not endure a flood of other employees filing similar lawsuits, meaning it wants confidentiality. This lack of confidentiality would give the employer less reason to settle just for the one person and more reason to fight the thing through, to perhaps win (regardless of the extra legal fees it would have to spend).

Or, more importantly, to show that suing will not be a walk in the park or lead to a quick-hitting settlement…