By Rob Whitman and Howard M. Wexler

As we have noted in previous posts, courts have been paying increasingly close attention to the terms of FLSA settlements and, on occasion, refusing to approve agreements where they are concerned by, for example, the amount of attorneys’ fees as compared to money going to the plaintiffs.

One judge who has swum against the tide is Brian Cogan in the Eastern District of New York.  In a 2013 decision, he held that court approval of a settlement is not required for dismissal of an FLSA case since, in his opinion, “Ratcheting up the legal process to achieve some Platonic form of the ideal of judicial vindication did not seem necessary to accomplish any purpose under the FLSA.”  But other courts have disagreed with Judge Cogan’s decision, including many of his judicial brethren within the Second Circuit, so parties have continued to submit settlement agreements for court approval rather than agreeing to a private resolution and filing a boilerplate Stipulation of Dismissal out of an abundance of caution.

Encalada v. Baybridge Enterprises Ltd. was an FLSA case in which Judge Cogan was asked to approve the amount of attorneys’ fees after the parties settled pursuant to an accepted Rule 68 Offer of Judgment.  After noting that, “unlike most courts” he does not require a fairness hearing in connection with the settlement of an FLSA lawsuit, Judge Cogan nonetheless had to review the nature of the case and the reasonableness of fee application.  Before turning to the fees, Judge Cogan observed that “there is no other category of civil filings that has increased at a rate anywhere near that for cases brought under the FLSA.”  He then held that the requested fees were unreasonable given that the case was a fairly straightforward FLSA matter that did not involve any “complex issues like exemptions, coverage, collective action notification, classification, or statutory interpretation.”  Accordingly, Judge Cogan reduced the fee award by substantially cutting the attorney’s hourly rate.

Judge Cogan refused, however, to reduce the number of hours claimed by plaintiff’s counsel.  The employer asserted that “plaintiff unreasonably failed to settle early, effectively churning the case to enhance his legal fee,” but the judge was not persuaded, stating that “it is difficult for a court [to] tell which side, if either, is at fault for not settling earlier, as neither party admits to unreasonableness.”

Plaintiff has already filed a Notice of Appeal of Judge Cogan’s decision to the Second Circuit.  Thus, while the employer thought it had obtained finality as a result of the acceptance of the Offer of Judgment, it now has to litigate the fee issue and incur further costs as a result.

This decision again highlights the risks of submitting FLSA settlement agreements for approval:  the court may find some (or all) of its terms to be unreasonable and either modify them or send counsel back to the drawing board.  Submission for approval also usually requires the court to make the terms of the settlement publicly available on the docket, which raises a host of additional concerns for employers.  As such, the question of whether to seek court approval in any given case remains.  Employers may no longer assume that every FLSA settlement should or must be submitted for public approval, and if they do submit settlements for approval, should be prepared to vigorously defend their terms.