Florida Employment Law Blog : Florida Employment Lawyer & Attorney : Epstein Becker Green Law Firm : Immigration, Discrimination, Labor, FLSA : Serving Miami, Fort Lauderdale, Florida

In Dees v. Hydradry, Case No. 8:09-cv-1405-T-23TBM (M.D. Fla., April 19, 2010), U.S. District Judge Steven Merryday issued a 29 page opinion that addresses the key issues pertaining to the settlement of FLSA cases in the Eleventh Circuit. The opinion is remarkable not only for its length and scholarly tone, but because, if followed by other district courts, it could make settlement of FLSA cases much more difficult in the Eleventh Circuit.

In this first of two posts, I summarize the Dees decision. In the second post, I will offer some thoughts on the impact Dees may have in FLSA cases in the Eleventh Circuit, and identify some questions that Dees leaves unanswered.

(Unwanted) Judicial Scrutiny

Judge Merryday issued his Dees decision four months after the parties filed a one paragraph Joint Stipulation of Dismissal with Prejudice. The parties represented in their stipulation that

The Defendant has agreed to pay Plaintiff for all overtime owed in full, without compromise. ($550 in Actual Damages, $550 in Liquidated Damages). Defendant agreed to separately pay Plaintiff attorney's fees and costs of $2,900 ($1,900 in attorney's fees; $1,000 in costs).  As such, no judicial scrutiny is needed. See Mackenzie v. Kindred Hosps. East, LLC, 276 F.Supp 2d. 1211, 1217 (MD.Fla. 2003).”

But judicial scrutiny is exactly what the parties got. Judge Merryday begins his opinion by noting that although the FLSA prohibits agreements that curtail an employee’s FLSA rights, the FLSA is silent as to whether an employee can compromise a claim for unpaid wages. Reviewing the Supreme Court’s decisions in Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945) and D.A. Schulte v. Gangi, 328 U.S. 108, 114 (1946), Judge Merryday concludes that these decisions, “[a]lthough prohibiting purely private compromise …. leave unanswered whether an employee may compromise a claim with supervision by the district court.”

That question was answered by the Eleventh Circuit in Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982). As noted by Judge Merryday:

The Eleventh Circuit held that the FLSA permits an employee only two avenues for compromising an FLSA claim. First, an employee may accept a compromise supervised by the Department of Labor. By accepting the compromise, the employee waives the right to sue for the unpaid wages. Second, if an employee sues for back wages under the FLSA, the parties may present a proposed compromise to the district court, which “may enter a stipulated judgment after scrutinizing the settlement for fairness…. [A]n employee may compromise a claim if the district court determines that the compromise “is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.”

Judge Merryday endorses the reasoning of Lynn’s Food Stores by opining that “leaving an FLSA settlement to wholly private resolution conduces inevitably to mischief”: 

An employer who pays less than the minimum wage or who pays no overtime has no incremental incentive to comply voluntarily with the FLSA, if, after an employee complains, the employer privately compromises the claim for a discount -- an amount less than the full amount owed under the FLSA (plus, with savvy negotiation, a confidentiality agreement to preclude the spread to other employees of information about the FLSA). If approval is required, the discount might become unavailable and the undiscounted principal owed the employee might increase (for example, as a result of liquidated damages or a more refined damage computation), both of which unhappy prospects conduce to voluntary compliance by the employer. The Eleventh Circuit in Lynn's Food and perforce this district court proceed on the logical and salutary premise that the FLSA, a statute famously designed to preempt in certain particulars the possibility of private agreement, remains immune to the unsupervised intrusion of a private agreement.

Absent DOL or court approval, Judge Merryday notes, the release of a compromised FLSA claim remains unenforceable. The employer remains liable for the unpaid wages, and the employee may sue to recover any wages (or liquidated damages) compromised by the parties’ private agreement.

What does a Compromise Mean?

What does it mean to say an FLSA claim has been compromised? In Mackenzie, 276 F.Supp 2d. at 1211, the employer made an offer of judgment for full relief. After determining that a collective action was inappropriate, the magistrate judge determined that the offer fully compensated the plaintiff on his FLSA claim, and therefore recommended entry of judgment in favor of the employee for the amount of the employer's offer of judgment. 

Judge Merryday was the district judge in Mackenzie, and he adopted the magistrate’s recommendation. But in Dees he notes that if the parties' agreement includes any additional term – “such as the forbearance of a valuable right of the employee, including perhaps one of the employee's FLSA rights, or the exchange of another valuable consideration of any kind” – the claim has been compromised and MacKenzie is inapplicable:

To the extent that the employee receives a full wage but relinquishes something else of value, the agreement (even if exhibited to the court as a stipulation for “full compensation” or an offer of judgment) involves a “compromise,” and Lynn's Food requires judicial approval of the compromise.

Scrutinizing a Settlement for Fairness

Judge Merryday then analyzes how a court should scrutinize a settlement for fairness. First, “the court should consider whether the compromise is fair and reasonable to the employee (factors ‘internal’ to the compromise).” Next, “the court should inquire whether the compromise otherwise impermissibly frustrates implementation of the FLSA (factors ‘external’ to the compromise).” Only if both factors are met should the court approve the settlement.

With respect to “internal” factors, Judge Merryday focuses on four issues. First, the district court must examine the nature of the dispute, and determine whether the employer is “extract[ing] a disproportionate discount on FLSA wages in exchange for an attenuated defense to payment.” 

Second, the court must ensure that the parties’ settlement agreement does not contain a confidentiality provision because, according to Judge Merryday, such provisions frustrate the purposes of the FLSA, by:  (1) empowering an employer to retaliate against an employee for exercising FLSA rights; (2) effecting a judicial confiscation of the employee's right to be free from retaliation for asserting FLSA rights; and, (3) transferring to the wronged employee a duty to pay his fellow employees for the FLSA wages unlawfully withheld by the employer.

Third, the court must ensure that the employee is not waiving FLSA rights prospectively.  For example, the employee may not stipulate that he is an exempt employee.

Fourth, the court must “review . . . the reasonableness of counsel's legal fees to assure both that counsel is compensated adequately and that no conflict of interest taints the amount the wronged employee recovers under a settlement agreement.” Judge Merryday quotes with approval Judge Presnell’s opinion in Bonetti v. Embarq Management Co., __ F. Supp. 2d __, 2009 WL 2371407 (M.D. Fla. Aug. 4, 2009):

[T]he best way to insure that no conflict has tainted the settlement is for the parties to reach agreement as to the plaintiff's recovery before the fees of the plaintiff's counsel are considered. If these matters are addressed independently and seriatim, there is no reason to assume that the lawyer's fee has influenced the reasonableness of the plaintiff's settlement.

In sum, if the parties submit a proposed FLSA settlement that (1) constitutes a compromise of the plaintiff's claims; (2) makes full and adequate disclosure of the terms of settlement, including the factors and reasons considered in reaching same and justifying the compromise of the plaintiff's claims; and (3) represents that the plaintiff's attorneys' fee was agreed upon separately and without regard to the amount paid to the plaintiff, then, unless the settlement does not appear reasonable on its face or there is reason to believe that the plaintiff's recovery was adversely affected by the amount of fees paid to his attorney, the Court will approve the settlement without separately considering the reasonableness of the fee to be paid to plaintiff's counsel. However, if the parties can only agree as to the amount to be paid to the plaintiff, the Court will continue the practice of determining a reasonable fee using the lodestar approach.

With respect to external factors, Judge Merryday lists several factors that may militate in favor of rejecting a proposed compromise, including:

[T]he 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 a pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or in a workplace.

Filing Under Seal, In Camera Inspections, and Fairness Hearings

Judge Merryday then addresses the practices of filing settlements under seal, or having the court review them in camera, or having fairness hearings that do not include the admission of the agreement into the record. Judge Merryday concludes that all these practices are inimical to the public’s right of access to a judicial proceeding, and also “thwart[] Congress's intent both to advance employees' awareness of their FLSA rights and to ensure pervasive implementation of the FLSA in the workplace.” Thus, concludes Judge Merryday, “the parties must file the settlement agreement in the public docket.”

Rejection of Stipulation of Dismissal

Turning finally to the stipulation of dismissal filed by the parties in Dees, Judge Merryday rejects the stipulation and orders the parties to request approval of their settlement by : (1) filing their settlement; (2) describing "the bona fide dispute or disputes resolved by the compromise and confirm[ing] that the filed agreement includes every term and condition of the parties' resolution (in other words, confirm the absence of any ‘side deal’)”; and (3) demonstrating the reasonableness of the proposed attorney's fee using the lodestar approach, or representing that the parties agreed to the plaintiff's attorney's fee separately and without regard to the amount paid to settle the plaintiff's FLSA claim.

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The following is a reprint of a client alert recently authored by my partners Steven Swirsky and Jay Krupin.  It should be of interest to all Florida employers in the private sector. 

The past several days have brought potentially significant developments with respect to Senate Democrats' efforts to enact labor law reform and bring the Employee Free Choice Act to a vote on the Senate floor. Reports have circulated that a consensus has begun to emerge among Senate Democrats for a bill that would remove EFCA's controversial provisions eliminating secret ballot elections where a union has obtained signatures from more than 50 percent of the employees in the proposed bargaining unit, and instead would provide for significantly faster NLRB-conducted elections, within five to ten days of the filing of a representation petition. The bill would also provide for greater access to employees and to employer property during the campaign period. Presently, NLRB-conducted elections are typically held an average of 45 days after the union files a petition. Along with faster elections, the reported compromise would include increased access by unions to employer premises to campaign among employees, as well as increased restrictions on employer campaign rights. EFCA's other most controversial component, compulsory binding arbitration of the economic and other terms of initial collective bargaining agreements where the parties do not quickly reach agreement, is reported to remain a part of the compromise bill.

While the Democrats reached 60 votes in the Senate when Arlen Specter of Pennsylvania switched his party affiliation from Republican to Democrat and Al Franken was finally declared the victor over Norm Coleman in Minnesota, the fact is that there remain a substantial block of Democratic senators who have expressed doubt about EFCA's card check language and who have indicated that they are not prepared to support a bill that would eliminate secret ballot elections. The compromise language is intended to draw their support, while fulfilling the Democrats' commitment to change the law to make it easier for unions to organize.

This past Friday, The New York Times reported that a number of key Democratic Senators, including supporters of the card check bill, had indicated their willingness to compromise on an alternate form of EFCA that preserved secret ballot elections. A number of union leaders have indicated that such a compromise bill would still, from their perspective, represent an "important victory" because it would lead to faster elections and make it easier for workers to unionize. That compromise would eliminate EFCA's provisions calling for recognition on the basis of a card check and preserve NLRB-conducted secret ballot elections but would significantly change the procedures surrounding elections in a number of ways that would make it easier for unions to win and much more difficult for employers to ensure that employees were fully informed and able to weigh all of the facts before casting their votes.

• First, it is reported that the proposed amendments to EFCA would require that representation elections take place within five and ten calendar days of the union's filing a petition for an election.
• The compromise legislation would include "access," meaning that employers would be required to permit a union trying to organize to come onto its property to seek signatures on cards (which unions would still use as evidence of a showing of interest to secure an election), to hold meetings at which it would be able to campaign with the employees during the days preceding the election and to counter any messages the employer might seek to convey.
• Under the current law, employers have the right to require their employees to attend meetings (so long as they are not held during the last 24 hours before the voting begins) where the employer may present its views to the employees about why they would be better off voting against union representation. Organized labor has dubbed these meetings and the remarks presented at them as "captive audience speeches" because the employer is able to require employees to attend—the unions claim the employees are held captive. One proposed amendment to EFCA would make it unlawful for employers to require employees to attend meetings where the employer presents its point of view.
• The compromise also reportedly calls for increased use of voting by mail in representation elections. While the NLRB has long used mail ballots where it deems them necessary, they have generally been viewed as less reliable and have been disfavored and only used in a small percentage of elections today.

Significantly, the compromise bill would continue to include the other most controversial provision of EFCA, that is, the requirement of government-conducted binding interest arbitration to set the terms of a first collective bargaining agreement where the parties do not reach quick agreement. Under EFCA, an arbitrator would set the terms of an initial two-year contract. EFCA does not provide any real detail as to what limitations or direction would apply to the arbitrator in doing so.

From an employer's perspective, the reported compromise continues to represent a serious concern and in many respects is not significantly better than the original version of the EFCA bill. While it would preserve the concept of a secret ballot election, the call for a very short, five to ten day time span between the filing of a petition and the NLRB conducting the vote means, realistically, that employers will not have any meaningful opportunity to put together a campaign and present the important counter arguments to the promises that the union will have made while it has been collecting signatures on cards. Such fast elections would follow the lines of the model followed in Canada under the various provincial labor relations laws. This means that the resolution of such critical issues, such as the determination of what is the appropriate unit for bargaining, which employees are supervisors and/or managers and thus who is actually eligible to vote and take part in the election and organizing campaign would not be addressed and resolved until after the election is held.

As noted, the proposed compromise bill would also not only take away such communications tools as mandatory all employee meetings, the revised legislation appears likely to also provide unions and organizers with access to employers' facilities, such as meeting rooms, email systems, and the like to conduct their campaigns.

It is worth noting that, under existing law, the NLRB already has held that in some cases employers must allow unions such access as "special remedies" where the Board finds that employer unfair labor practices have seriously interfered with its election processes and employees' rights under the Act. The courts have affirmed the Board has the authority to grant such relief and thus it should be noted that an "Obama Board" might well seek to expand the use of such remedies even before or without Congressional action on EFCA.

Given all of the above, if EFCA were to be enacted in the modified form described above or in some similar form, employers would clearly be facing a significantly altered organizing landscape, one in which unions would have many tools and tactical advantages that they do not have today. This will likely be true regardless of whether card check is ultimately included in EFCA or other labor law reform legislation. Employers need to face the reality that union organizing will likely move deeper underground and that by the time that an employer receives notice that a representation petition has been filed with the NLRB and that an election will be held within the following week, it will often be too late to begin the process of convincing the employees why they are better off without representation.

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