Does Dees v. Hydradry Leave Employers High and Dry in FLSA Settlements? (Part II)
When settling employment-related lawsuits, employers want peace as quickly, inexpensively, and painlessly as possible. This usually means the following: (1) employers want to resolve the case as quickly as possible, incurring a minimum of defense fees; (2) they want to settle for as little as possible, and typically do not care how the settlement is divided between plaintiff and his counsel; (3) if the settlement involves a large sum of money, employers often want to pay in installments over time; (4) employers want to continue to deny liability, and avoid any feature of the settlement that could be construed as an admission of liability; and (5) employers want to ensure that the settlement is confidential, and that the plaintiff is not free to encourage other employees or formers to sue.
The settlement of FLSA lawsuits is no different in these respects. However, Judge Merryday’s Dees opinion runs counter to several items on the employer’s settlement wish list.
First, Dees addresses the issue of attorney’s fees in the following way: If the parties reach agreement on the plaintiff’s recovery before the plaintiff’s attorney’s fees are considered, then the court will typically approve the settlement without separately considering the fee to be paid to the plaintiff’s counsel. Otherwise, the settlement may reflect a conflict of interest between the plaintiff and his counsel, and the court will determine the plaintiff’s attorney’s reasonable fee using a lodestar approach.
But in practice, reaching agreement on the plaintiff’s recovery, without also considering the plaintiff’s attorney’s fee, is difficult. Employers’ representatives typically have authority to settle the entire case for a given number. From the employer’s perspective, reaching agreement on the plaintiff’s recovery, without considering the plaintiff’s fees, leaves too much uncertainty; if the fees are too high, then the settlement is unacceptable. The alternative - litigating the attorney’s fee issue separately - is time-consuming and expensive. Thus, in most FLSA cases (in my experience, at least), the parties negotiate the plaintiff’s recovery and the fees at the same time, and it is up to the plaintiff’s attorney to justify his fees under a lodestar approach if the court questions the fee portion. But Dees suggests that such an approach is likely to be tainted by a conflict of interest between the plaintiff and his attorney, and that judicial scrutiny of the plaintiff’s fee award will be appropriate. Judicial scrutiny generally means delay, the potential for additional litigation, and increased fees on both sides.
For example, in Shannon v. Saab Training USA, LLC, Case No. 6:08-cv-803-Orl-19DAB (M.D. Fla. June 22, 2009), the magistrate judge concluded that the attorney’s fee provision in an FLSA settlement was too high and recommended that the district court revise the settlement agreement and reallocate the total settlement number, so as to provide more to the plaintiffs and less to their counsel. Judge Fawsett concluded that the court did not have the power to rewrite the settlement agreement. Therefore, Judge Fawsett rejected the settlement agreement. The parties were effectively forced to restructure their settlement and submit it for approval. Judge Conway issued a similar order in Rodriguez v. Fuji Sushi, Inc., No. 6:08-cv-1869-Orl-22KRS (M.D. Fla. May 22, 2009).
The parties may attempt to avoid judicial scrutiny in cases involving no compromise, i.e. where the plaintiff is paid his entire claim and relinquishes nothing else of value. In such a case, Judge Merryday writes in Dees that “the district court should approve the settlement and dismiss the case (if the employer has paid) or enter judgment for the employee (if the employer has not paid).” But even here, the employer may be faced with a choice between two undesirable options: pay the plaintiff in full before the settlement is approved, or have judgment entered against the employer. The first option may be undesirable because the employer may prefer to pay the plaintiff and his counsel in installments over time. In addition, employers and their counsel generally are wary of paying settlement proceeds before court approval, even if court approval appears likely. The other option, a judgment, is something most employers seek to avoid because it can be viewed as an admission or judicial finding of liability in future cases.
Judge Merryday’s rejection of confidentiality provisions in FLSA settlements, as well as filings under seal, and in camera inspection of settlement agreements, is also unfortunate from the employer’s perspective, and may actually serve to discourage settlements. As Judge Merryday recognizes in Dees, “the employer worries that compromise with an employee who has vindicated a valuable FLSA right will inform and encourage other employees, who will vindicate their FLSA rights (or who will wrongly, but expensively for the employer, conclude that additional wages are due).” Of course, there is already a vehicle by which a plaintiff can inform and encourage other employees to vindicate their FLSA rights: a collective action. If a collective action is inappropriate, it is likely because the plaintiff’s claim is dubious or unique. Employers who are required to make their settlements of such FLSA claims a matter of public record may choose to litigate rather than settle. Employers generally believe, with good reason, that settling lawsuits in the public record is likely to make them a target for future lawsuits.
The Dees opinion also leaves some questions unanswered. For example, what happens if the judge finds that other factors weigh in favor of a rejection of a compromise settlement? In Dees, Judge Merryday states that such factors include:
the presence of other employees situated similarly to the claimant, a likelihood that the claimant’s circumstance will recur, a history of FLSA non-compliance by the same employer or others in the same industry or geographic region, or the requirement for a mature record and pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or a workplace.
If the court determines that one or more of these factors are present, will the court reject the proposed settlement and require the parties to litigate the case? Will the court certify the case as a collective action even if the parties have not requested certification, so as to afford potential relief to similarly situated employees? I have never heard of a court taking either of these actions. (If you have, please let me know). But if courts follow Judge Merryday’s opinion in Dees, we may see such a case in the near future. And in that event, the settlement of FLSA cases will have become substantially more difficult than they already are.
