FLSA Settlement Terms: Be sure they’ll pass judicial muster

The United States District Court for the Southern District of New York on March 24, 2016 has rejected the terms of a collective action settlement in Yun v. Ippudo USA Holdings, No. 14-CV-8706 (S.D.N.Y.)[1] and re-confirmed the significance of the Second Circuit Court of Appeals’ decision in the matter of Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2015). The decision in Cheeks prohibited the parties from entering into an enforceable private settlement of Fair Labor Standards Act (“FLSA”) claims that weren’t approved by the district court or the Department of Labor. The decision in Yun has highlighted the issues that might crop up whilst approval is sought.

Yun had a total of 53 “collective members” – five “named plaintiffs” and 48 “opt-in plaintiffs”. While closely analyzing the terms of the proposed settlement, the court was guided by various previous decisions pronounced in the Southern District. Various clauses in the settlement were found to be “fair and reasonable;” for instance, recovery of about 52% of estimated back wages for the collective members due to the presence of certain defenses and the litigation proceeding to trial, service awards to the five named plaintiffs totaling 5% of the settlement funds, and a fee award representing one-third of the total rather than a lower fee based on lodestar rates since the case settled early before any depositions occurred.

However, a confidentiality provision requiring all collective members to keep the aggregate settlement amount confidential was rejected by the court. Moreover, this resulted in the defendants’ argument that aggregate amount created “a false and disproportional sense of culpability and liability” was rejected since the information was already disclosed on numerous places on public record through Electronic Court Filings (“ECF”) filings. The court also emphasized that confidentiality provisions in FLSA settlements are contrary to public policy.

Furthermore, the court rejected the release language of the proposal stating that the named plaintiffs along with the opt-in plaintiffs waive the right to bring claims relating to payment of compensation as well as any and all other claims of any type that they might have against the defendants. The court followed the pre-Cheeks Southern District precedents and held that although the parties are allowed to include claims not presented that arise from the same factual predicate as the settled conduct, FLSA releases cannot include waivers of claims that have no relationship to wage and hour issues. Consequently, the parties were ordered to file a revised settlement proposal.

The Yun decision serves as a warning to the FLSA settling parties that the Cheeks decision doesn’t warrant for mere approval of the settlement proposal, but also for the fact that approval shall not be treated solely as a rubber stamp; and claims that are found to be overreaching shall be rejected by the court. It has become important for the employers as well as the plaintiffs’ attorney to review the local precedents as to what provisions and what not will be approved.


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