There are a number of unique issues that affect the negotiation and execution of settlement agreements involving claims under the Fair Labor Standards Act (FLSA). The following is an overview of the special rules and procedures that apply to FLSA settlements:
Court Approval or Department of Labor Supervision Required
Deep-pocketed employers have considerable leverage over working-class employees in the context of FLSA settlement negotiations. As the following cases demonstrate, the imbalance of power between employers and employees creates the potential for employer-abuse in FLSA settlement agreements:
- Nall v. Mal-Motels, Inc., 723 F.3d 1304, 1306 (11th Cir.2013) (employee testified she felt pressured to accept employer’s out-of-court settlement offer because “she trusted [the employer] and she was homeless at the time and needed money”) (internal quotation marks omitted);
- Walker v. Vital Recovery Servs., Inc., 300 F.R.D. 599, 600 n.4 (N.D. Ga. 2014) (“According to Plaintiff’s counsel, twenty-two plaintiffs accepted the offers of judgment—many for $100—because ‘they are unemployed and desperate for any money they can find.’”);
- Guareno v. Vincent Perito, Inc., No. 14-cv-1635 (S.D.N.Y. Sept. 26, 2014) (rejecting a proposed FLSA settlement agreement in part because it contained a provision restricting the plaintiff’s attorney from representing “any person bringing similar claims against Defendants” because “[s]uch a provision raises the specter of defendants settling FLSA claims with plaintiffs, perhaps at a premium, in order to avoid a collective action or individual lawsuits from other employees whose rights have been similarly violated”); and
- Nights of Cabiria, LLC, 96 F. Supp. 3d 170, 173, 177, 181 (S.D.N.Y. 2015) (refusing to approve an FLSA settlement agreement because, among other things, it included “a battery of highly restrictive confidentiality provisions . . . in strong tension with the remedial purposes of the FLSA” and an overbroad release that would “waive practically any possible claim against the defendants, including unknown claims and claims that have no relationship whatsoever to wage-and-hour issues”).
To prevent employers from coercing employees into settlement agreements that are contrary to the FLSA’s policy goals, the law places strict limits on an employee’s ability to settle or waive their FLSA claims. Specifically, an employee’s agreement to settle their FLSA claim is not binding unless (1) approved by a court or (2) supervised by the U.S. Department of Labor (DOL).
Court-Approved FLSA Settlement Agreements
In the context of a lawsuit, if the parties reach a tentative FLSA settlement agreement, the presiding judge must review and approve the agreement. For the agreement to become effective, the court must enter a written order expressly approving the settlement agreement as reflecting a “fair and reasonable compromise” of a “bona fide dispute” under the FLSA.
When a district court dismisses a lawsuit “with prejudice,” the dismissal terminates federal jurisdiction over the lawsuit and the court loses all power to enforce the terms of any settlement agreement that may lie behind that dismissal. Consequently, a district court’s approval of a FLSA settlement agreement, unless embodied in a judicial order retaining jurisdiction of the case in order to be able to enforce the settlement without a new lawsuit, has no legal significance. A court’s order approving a FLSA settlement agreement must therefore include a deliberate retention of jurisdiction until the parties have performed their respective duties under the agreement.
DOL-Supervised FLSA Settlement Agreements
The FLSA gives the DOL authority to investigate potential violations and to file a lawsuit on behalf of employees for unpaid wages. The FLSA also authorizes the DOL to supervise an employer’s agreement to pay employees the wages they are owed under the FLSA plus an additional, equal amount as “liquidated damages” in exchange for the employee’s waiver of rights under the FLSA.
At least one court has held that “there was adequate supervision [of an FLSA settlement agreement] where a DOL official investigated the claim for back wages, determined the amount owed the employee, presented the check to the employee on the employer’s behalf, and required the employee to sign a receipt waiving his right to sue.” Niland v. Delta Recycling Corp., 377 F.3d 1244, 1247 (11th Cir. 2004).
A Settling Employer Must Pay the Employee’s Attorneys’ Fees and Costs
If a plaintiff-employee qualifies as a “prevailing party” on their claim for unpaid wages, the FLSA requires that the defendant-employer pay the plaintiff’s attorneys’ fees and costs. Courts have recognized that a plaintiff who benefits from a court-approved FLSA settlement agreement qualifies as a “prevailing party.” Thus, where a plaintiff benefits from a court-approved FLSA settlement agreement, the defendant must pay the plaintiff’s attorneys’ fees and costs in that case.
The FLSA’s mandate that employers pay attorneys’ fees and costs to prevailing plaintiffs is meant to incentivize litigants to act as “private attorneys general” to vindicate their rights in the courts.
Requests to Seal FLSA Settlement Agreements
In general, when parties to a lawsuit ask a court to seal court records from public access, the court must weigh the public’s interest in having transparent courts and the first-amendment values of freedom of speech against the parties’ interest in secrecy. The public’s interest in settlement agreements in FLSA cases is particularly strong because the FLSA is designed to protect the health and welfare of our nation’s labor force by ensuring that they receive fair, livable wages. An employer who fails to pay its employees in compliance with the FLSA endangers the national health and well-being.
In furtherance of this public interest, courts recognize a strong presumption in favor keeping FLSA settlement agreements unsealed and available for public review. See, for example, the following cases:
- Tran v. Thai, Civil Action No. H-08-3650, 2009 WL 2477653, at *1 (S.D. Tex. Aug. 12, 2009) (“The presumption of public access to settlements of FLSA actions is particularly strong. . . . Absent an extraordinary reason, the court cannot seal such records.”) (internal quotation marks omitted).
- Prater v. Commerce Equities Management Co., Civil Action No. H-07-2349, 2008 WL 5140045, at *9 (S.D. Tex. Dec. 8, 2008) (“In the FLSA context, there is a strong presumption in favor of keeping the settlement agreements in FLSA wage-settlement cases unsealed and available for public review.”).
- Yaklin v. W-H Energy Services, Inc., Civil Action No. C-07-422, 2008 WL 4951718, at *1 (S.D. Tex. Nov. 17, 2008) (“Where the judicial record at issue is a settlement agreement, settling Fair Labor Standards Act (‘FLSA’) claims, the public’s interest in accessing the document often outweighs any interest in confidentiality.”).
- Joo v. Kitchen Table, Inc., 763 F. Supp. 2d 643, 648 (S.D.N.Y. 2011) (“[T]his Court joins the overwhelming consensus of district courts that have considered the issue to hold that an FLSA settlement cannot be sealed absent some showing that overcomes the presumption of public access.”).
- Hens v. Clientlogic Operating Corp., Civil Action No. 05-CV-381S, 2010 WL 4340919, at *3 (W.D.N.Y. Nov. 2, 2010).
- Tabor v. Fox, No. 5:09-CV-338-BR, 2010 WL 2509907, at *1 (E.D.N.C. June 17, 2010) (holding that in FLSA cases, “there is no doubt that the common law presumption of access applies” to settlement agreements).
- Taylor v. AFS Technologies, Inc., No. CV-09-2567-PHX-DGC, 2010 WL 2079750, at *1-2 (D. Ariz. May 24, 2010) (“The Court concludes that before being formally approved, the settlement agreement must be made part of the record in this case and may not be filed under seal.”).
- Kianpour v. Restaurant Zone, Inc., No. DKC 11-0802, 2011 WL 3880463, at *2 (D. Md. Aug. 30, 2011).
- Perry v. National City Bank, Civil Action No. 05-cv-891-DRH, 2008 WL 427771, at *1 (S.D. Ill. Feb. 14, 2008).
- Stalnaker v. Novar Corp., 293 F. Supp. 2d 1260, 1263-64 (M.D. Ala. 2003) (explaining that courts may not “rubber stamp” a stipulation by the parties to seal an FLSA settlement agreement because a presumption of public access attaches FLSA settlements).
- Scott v. Memory Company, LLC, Civil Action No. 3:09-cv-00290-SRW, 2010 WL 4683621, at *2 (M.D. Ala. Nov. 10, 2010) (“A court faced with a request to seal judicial documents should weigh the interests protected by the presumption of openness (especially in FLSA cases) and the first-amendment values of freedom of speech and of the press, against the parties’ interest in secrecy.”).
- Boone v. City of Suffolk, Va., 79 F. Supp. 2d 603, 609 (E.D. Va.1999) (unsealing of FLSA settlement agreement upon finding that it is judicial document to which presumption of access applies).
- Baker v. Dolgencorp, Inc., 818 F. Supp. 2d 940, 943 (E.D. Va. 2011) (“[T]he common law right of access to judicial records and documents is implicated in a motion to file an FLSA settlement agreement under seal.”).
- Poulin v. General Dynamics Shared Resources, Inc., No. 3:09-cv-00058, 2010 WL 1655962, at *2-3 (W.D. Va. Apr. 23, 2010).
- Dees v. Hydradry, Inc., 706 F. Supp. 2d 1227, 1244-45 (M.D. Fla. 2010) (“Sealing an FLSA settlement agreement between an employer and employee, reviewing the agreement in camera, or reviewing the agreement at a hearing without the agreement’s appearing in the record … thwarts Congress’s intent both to advance employees’ awareness of their FLSA rights and to ensure pervasive implementation of the FLSA in the workplace.”).
- Huntsinger v. Roadway Specialty Devices, Inc., No. 8:09-cv-1798-T-33MAP, 2009 WL 3697989, at *1 (M.D. Fla. Nov. 3, 2009) (“The document at issue in the Motion — a settlement agreement in a FLSA case — does not fall into one of the categories, such as discovery materials, that are generally shielded from public exposure.”).
The fact that the parties to a FLSA settlement agreement mutually desire to keep the terms of their agreement confidential does not, alone, outweigh the strong presumption in favor of public access to FLSA settlement agreements. Where an FLSA settlement agreement contains trade secrets, private information about a child, or could be used for scandalous or libelous purposes, then the interest in secrecy is sufficiently compelling to seal the agreement.
Non-Disclosure Provisions in FLSA Settlement Agreements
A number of courts have rejected provisions in FLSA settlement agreements that prohibit settling employees from discussing the terms of their settlement. As one such court explained,
Pragmatically, the best way for a worker to learn about his or her employment rights is directly or indirectly from a co-worker or an outside organization. Yet non-disclosure provisions prevent workers “from using a win to publicize both the wrongdoing of the employer and the possibility of success more generally.” For these reasons, a non-disclosure agreement in an FLSA settlement, even when the settlement papers are publicly available on the Court’s docket, is “contrary to well-established public policy” because it inhibits one of the FLSA’s primary goals — to ensure “that all workers are aware of their rights.”
Camacho v. Ess-A-Bagel, Inc., No. 14-cv-2592 (LAK) (S.D.N.Y. Jan. 9, 2015).
Similarly, an FLSA settlement agreement may not contain provisions that place restrictions on an attorney’s disclosure of the agreement because doing so would create an unethical restriction on the lawyer’s right to practice law.
Release Provisions in FLSA Settlement Agreements
Provisions in FLSA settlement agreements that provide for an employee’s release of “any and all claims against Defendants, known or unknown, which may have arisen up to the date of the Settlement Agreement” are unlawfully overbroad. Farthing v. Taher, Inc., No. 2:16-CV-08641-ODW (GJSx) (C.D. Cal. Nov. 9, 2017).
Federal courts across the country have refused to approve FLSA settlement agreements that contained overbroad release provisions:
- Cheeks. v. Freeport Pancake House, Inc., 796 F. 3d 199, 206 (2d Cir. 2015) (discussing cases in which courts have rejected proposed FLSA settlements that contain an overbroad release);
- Olano v. Designs by RJR, Ltd., No. 17-cv-5703 (S.D.N.Y. Oct. 6, 2017) (rejecting as unlawful “[a] provision [in an FLSA settlement agreement stating] that the payment constitutes full and final settlement of all past, present, and future claims and causes of action by Plaintiff against Defendants”); and
- Moreno v. Regions Bank, 729 F. Supp. 1346, 1351 (M.D. Fla. 2010) (“[A]n employer is not entitled to use an FLSA claim . . . to leverage a release from liability unconnected to the FLSA.”).
Non-Disparagement or “Gag-Order” Provisions in FLSA Settlement Agreements
Non-disparagement or “gag order” provisions found in settlement agreements will typically prohibit the plaintiff from discussing the details of the case or the terms of their settlement agreement unless required by law. Such provisions may also require that the settling party respond to questions about their case from others with a statement like, “The matter has been resolved.”
A number of courts have refused to approve FLSA settlement agreements that contain such provisions on the ground that they are contrary to the public’s interest in ensuring that employees are paid in compliance with the FLSA. See, e.g.,
- Camacho v. ESS-A-BAGEL, INC., No. 14-cv-2592 (LAK) (S.D.N.Y. Jan. 9, 2015) (concluding that a provision in an FLSA settlement agreement that would require the parties to respond to questions about lawsuit with “[t]he Parties’ dispute has been amicably resolved” amounted to an impermissible “gag order”);
- Olano v. Designs by RJR, Ltd., No. 17-cv-5703 (S.D.N.Y. Oct. 6, 2017) (refusing to approve a settlement agreement in an FLSA case that contained a “gag order” provision); and
- Sakiko Fujiwara v. Sushi Yasuda Ltd., 58 F. Supp. 3d 424, 434 (S.D.N.Y. 2014) (“Nondisclosure agreements in FLSA settlements contravene public policy.”).
Waivers of Future Employment Provisions in FLSA Settlement Agreements
Employers sometimes hold grudges against employees who have filed employment claims against them in a lawsuit regardless of whether the claims had merit. In the context of settlement negotiations, employers will therefore sometimes push for the inclusion of a waiver provision preventing the employee from working for the employer’s company or any its affiliates in the future.
A number of courts have rejected FLSA settlement agreements that contained waivers of future employment provisions. See, for example, the following cases:
- Olano v. Designs by RJR, Ltd., No. 17-cv-5703 (S.D.N.Y. Oct. 6, 2017) (refusing to approve an FLSA settlement agreement that contained a “waiver of [the plaintiff’s ability to seek or hold] future employment with Defendants or any of their affiliates, parent companies, subsidiaries, or successors”); and
- Flores v. Food Express Rego Park, Inc., No. 15-CV-1410 (KAM) (SMG) (E.D.N.Y. Feb. 1, 2016) (observing that provisions waiving a plaintiff’s future employment with the defendant “is in some tension with the broad remedial purposes of the FLSA”).