In FLSA Settlements, Permissible Scope of Releases and Confidentiality Provisions May Be Broader Than You Think
Courts and the U.S. Department of Labor (“DOL”) often refuse to approve Fair Labor Standards Act (“FLSA”) settlements: (1) in which the employee’s release of claims is not narrowly limited to wage claims; or (2) that seek to restrict public disclosure of the settlement terms. Because FLSA settlements are arguably only enforceable if approved by a court or the DOL, these conditions sometimes impede the ability of parties to resolve FLSA disputes. A recent court decision may offer a solution. In Lola v. Skadden, Arps, Meagher, Slate & Flom LLP, 2016 BL 29709 (S.D.N.Y. Feb. 3, 2016), the Honorable Richard J. Sullivan, U.S.D.J., allowed the parties more leeway in resolving FLSA claims, adopting an approach likely to facilitate settlements.
Plaintiff David Lola, an attorney, worked for a staffing agency that placed him at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where he performed document review work for 15 months. He later filed a lawsuit in the United States District Court for the Southern District of New York against the staffing agency and the law firm (as joint employers), alleging that they had misclassified him as exempt under the FLSA and failed to pay him overtime when he worked more than 40 hours a week. He filed the lawsuit on behalf of himself and as a putative collective action on behalf of other, “similarly-situated,” contract attorneys.
The parties ultimately negotiated a settlement agreement and submitted it to the Court for approval. The agreement provided that Lola and two other individuals who opted into the lawsuit (and plaintiffs’ attorneys) would receive a total of $75,000 in exchange for, among other things, dismissing the lawsuit, releasing claims against the defendants and limiting disclosure of the terms of the settlement.
Judge Sullivan approved the settlement, issuing a written decision to address the release of claims and confidentiality provisions of the parties’ agreement.
Release of Claims
Under the settlement, the plaintiffs agreed to waive both FLSA and non-FLSA claims against the defendants. Judge Sullivan observed that some courts “have refused to approve [FLSA] settlements with broad releases of claims, concluding that they conflict with the FLSA’s remedial purposes.” However, Judge Sullivan explained, “there is nothing inherently unfair about a release of claims in an FLSA settlement.” The Court concluded that the release of claims in this case “was the fair result of a balanced negotiation, in which Plaintiffs were represented by able counsel.” In reaching this conclusion, the Court highlighted these facts: (1) the release was mutual; (2) plaintiffs were not aware of any “actual, existing, or meritorious claims” that they were waiving; and (3) plaintiffs were not waiving any future claims. Under these circumstances, the Court determined that plaintiffs “could reasonably conclude that the provisions releasing claims were an acceptable compromise.”
Non-Disclosure of Settlement Terms
Judge Sullivan also observed that several courts have “rejected FLSA settlements containing confidentiality provisions that restrict plaintiffs’ ability to talk about the settlement.” The Court acknowledged that, “in certain cases, confidentiality provisions may excessively restrict plaintiffs’ ability to discuss settlements” and, therefore, undermine the purposes of the FLSA and the public interest in assuring that employees receive fair wages. According to the Court, however, the FLSA “imposes no per se bar on confidentiality provisions in settlements.” Instead, “the fairness of restrictions on the parties’ ability to disclose details of a settlement depends on the particular circumstances of any given case.” Under the circumstances in this case, the Court ruled that the restrictions were fair. Here, the agreement stated that plaintiffs and their counsel: “will not contact the media or utilize any social media regarding this Settlement or its terms” and, if contacted, they will respond, “no comment” or “[t]he matter has been resolved.”
Judge Sullivan reasoned that, in the absence of the non-disclosure provision, “Plaintiffs would be free to decline commenting on the case in response to any future inquiries by the press or otherwise” and, therefore, “it is difficult to see why they should be barred from adopting such a posture in advance of settling the matter.” The Court explained that, “since no one can force Plaintiffs to opine on the case in the future anyway, it is by no means irrational or improper for Plaintiffs to compromise words for dollars as part of a global, arms-length settlement” (emphasis in original). Given that a plaintiff is “allowed to accept less than the maximum potential recovery on the basis of litigation risk,” the Court explained that a plaintiff should also be permitted “to make nonmonetary concessions, such as minor restrictions on his right to comment on the case.” Again, the Court stressed, “this provision is the result of fair bargaining between well-represented parties and embodies a reasonable compromise that does not conflict with the FLSA’s purpose of protecting against employer abuses.” Notably, the settlement agreement was publicly-filed, so anyone interested in discovering its terms was free to do so. The parties simply limited the ability of plaintiffs to disclose them.
Employers sometimes litigate FLSA cases that they would rather settle, because they are concerned that a settlement will not ensure finality. Employers worry that a narrow release will not bar the plaintiff from filing another lawsuit after collecting the settlement payment or that the plaintiff may publicize the settlement, thereby encouraging copycat lawsuits. Judge Sullivan’s decision in Lola offers a potential solution for employers. Under the right circumstances, a settlement agreement can include a broad release of claims and the parties can agree to limit disclosure of the settlement terms.