Southern District of New York’s Rejection of FLSA Settlement Highlights Need to Settle on Terms That Will Pass Judicial Muster
In rejecting the terms of a collective action settlement in Yun v. Ippudo USA Holdings, No. 14-CV-8706 (S.D.N.Y. March 24, 2016) the United States District Court for the Southern District of New York has confirmed the significance of last year’s Second Circuit Court of Appeals decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2015). Cheeks held that parties cannot enter into an enforceable private settlement of Fair Labor Standards Act (“FLSA”) claims without the approval of either the district court or the Department of Labor. Yun shows what this means in practice by highlighting the issues that may arise in seeking to obtain approval.
Yun involved 53 “Collective Members” – five “Named Plaintiffs” and 48 “Opt-In Plaintiffs.” The Court closely analyzed the terms of a proposed settlement agreement, guided by various previous decisions within the Southern District. It had little trouble finding that a recovery for the Collective Members of about 52% of estimated back wages was “fair and reasonable” due to the presence of certain defenses and the litigation risks of proceeding to trial. It also found that service awards to the five Named Plaintiffs totaling 5% of the settlement funds were also “fair and reasonable.” And it also found that a fee award representing one-third of the total recovery was appropriate, rather than a lower fee based on lodestar rates, particularly as the case settled relatively early and before any depositions occurred.
However, the court rejected a limited confidentiality provision that would require all the Collective Members to keep the aggregate settlement amount confidential. In so doing it rejected the Defendants’ argument that the aggregate amount created a “false and disproportional sense of culpability and liability,” particularly as the information was already disclosed in numerous places on the public record through ECF filings. It also emphasized that generally “confidentiality provisions in FLSA settlements are contrary to public policy.”
Finally, the court rejected release language for the Named Plaintiffs that waived not only the right to bring claims relating to payment of compensation (as did the release language for the Opt-In Plaintiffs), but also any and all other claims of any type that they might have against the Defendants. Following other, pre-Cheeks Southern District precedent, it held that while releases in an FLSA settlement may include claims not presented that arise from the same factual predicate as the settled conduct, they cannot include waivers of claims that have no relationship to wage and hour issues. As a consequence, the court ordered the parties to file a revised settlement proposal.
The Yun decision is a warning to FLSA settling parties that the Cheeks decision not only means settlement agreements must be submitted for approval, but also that approval will not be a mere rubber stamp, and provisions that the court feels are overreaching will be rejected. Employers as well as plaintiffs’ attorneys need to review local precedents as to what provisions will and won’t be approved.