April 3, 2020

April 02, 2020

Subscribe to Latest Legal News and Analysis

April 01, 2020

Subscribe to Latest Legal News and Analysis

March 31, 2020

Subscribe to Latest Legal News and Analysis

Second Circuit Rejects Proportionality Standard in FLSA Settlement Agreements When Determining Attorneys’ Fees

In a 29-page decision, the U.S. Court of Appeals for the Second Circuit held in Fisher v. SD Protection Inc.No. 18-2504, that a district court had abused its discretion by rewriting a Fair Labor Standards Act (FLSA) settlement agreement to modify the allotment of the settlement funds to dramatically reduce the fees and costs provided to plaintiff’s counsel. In its holding, issued on February 4, 2020, the court determined that the district court had committed three errors requiring that its decision be vacated and remanded for further consideration.

The Three Errors

First, the court confirmed that a district court cannot rewrite the terms of a proposed FLSA settlement agreement submitted by and on behalf of the parties for judicial approval, as was done here. The court noted that a district court has one of three options when reviewing a proposed FLSA settlement agreement for reasonableness and fairness: (1) accept and approve the proposed settlement agreement; (2) reject the proposed settlement agreement while offering the parties the opportunity to explore alternatives and to revise the agreement with terms deemed acceptable to the court; or (3) have the parties proceed to litigation. The court held that FLSA settlement agreements are contracts that cannot and must not be judicially rewritten when the terms and contents therein are clear and unambiguous.

Second, the court held that a district court cannot and should not apply a proportionality standard or test when determining the reasonableness of attorneys’ fees contained in a proposed FLSA settlement agreement. Here, the district court incorrectly surmised that there is a “maximum fee percentage” of 33 percent of the total settlement amount when determining the appropriateness of attorneys’ fees in FLSA cases. The court noted that such an outcome-determinative ceiling could have a chilling effect on the plaintiffs’ bar, which might not otherwise consider, take, or prosecute so-called “‘run of the mill’ FLSA cases” where the alleged damages are modest or de minimis at best. Such a result, the court found, would run contrary to the text, legislative purpose, and remedial goals of the FLSA. Although the parties had agreed to a $25,000 settlement with $23,000 of the monies earmarked for attorneys’ fees and costs and the remaining $2,000 for the plaintiff, the court held that such an agreed-upon distribution of fees and costs may not be unreasonable, based on the scope and nature of the legal representation and the corroborative proof provided.

Third, the court maintained that a district court cannot apply the same standard to determine the reasonableness of attorneys’ fees and costs contained in a proposed FLSA settlement agreement as compared to a fee application submitted by a plaintiff’s counsel after a plaintiff has prevailed through litigation or settlement. The court determined that the district court had “erred here by evaluating the settlement agreement under the lens of a fee application, and then proceeding to rewrite the agreement.”

Key Takeaway

Defense counsel may want to remain vigilant and aware that the plaintiffs’ bar can make the proverbial mountain (of legal fees and costs) out of a molehill (a case where perceived and/or actual alleged damages are modest or de minimis at best) if such legal fees and costs are proper and properly documented based on the Second Circuit’s reading of the text, legislative purpose, and remedial goals of the FLSA.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

TRENDING LEGAL ANALYSIS


About this Author

Associate

Jessica Schild is an associate in the New York City office where she represents management in all aspects of litigation, including class and collective wage and hour actions, discrimination and harassment litigation, as well as handling charges before federal, state, and local agencies.

Ms. Schild is a graduate of the Hofstra University School of Law where she served as Editor-in- Chief of the Hofstra Labor and Employment Law Journal. During law school, she was also a member of Hofstra Law’s Dispute Resolution Society and successfully competed in several external...

212-492-3571
David Feldman Environmental Attorney Ogletree Deakins
Shareholder

David B. Feldman is a Shareholder in the New York City office of Ogletree Deakins. Dave represents management before federal and state courts and administrative agencies at the federal, state and local levels. In particular, Dave defends employers in various industries, including hospitality (restaurants, spas, hotels), finance, manufacturing, construction, retail and not-for-profits against wage and hour lawsuits as well as agency investigations and audits.

Prior to joining Ogletree Deakins, Dave served as Chair of the Wage & Hour Practice Group at Moses & Singer LLP.  Integral to Dave’s practice are internal corporate audits and customized wage and hour training programs to help employers avoid or lessen their exposure to statutory and regulatory violations.

Also experienced in traditional labor-management relations, Dave counsels employers on union avoidance, negotiates and enforces collective bargaining agreements, represents employers at labor arbitrations, and defends employers before the National Labor Relations Board.

Having also served as Managing Attorney for the New York City Commission on Human Rights where he was responsible for the daily legal activities and operations of its Law Enforcement Bureau, Dave remains active in counseling clients on preventive policies and procedures to maintain compliance with city, state and federal human rights laws.

Earlier in his career, Dave served as General Counsel for the Muscular Dystrophy Association (“MDA”), a national not-for-profit corporation dedicated to combating neuromuscular diseases and to providing care, treatment, education and legal services to disabled individuals. His tenure at MDA gives him additional insight into the importance of developing and maintaining workplace policies and procedures that conform to corporate and legal developments.

212-492-2507