Settlement

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Seyfarth Synopsis: The New York Court of Appeals holds that the state’s class action rules require notice of settlements to be sent to putative class members – even though no class has been certified.

In a decision sure to send shivers up the spines of wage and hour practitioners in New York, the State’s highest court has held that notice of a class action settlement must be distributed to all members of the putative class, even when the settlement comes before a class has been certified.  Together with Cheeks v. Freeport Pancake House, a Second Circuit ruling that pertains to FLSA settlements, the decision erects some very high hurdles for parties seeking early settlements in wage and hour cases in New York.

The case involved appeals in two separate wage and hour cases:  Desrosiers v. Perry Ellis Menswear, brought by an unpaid intern seeking wages, and Vasquez v. National Securities Corporation, in which a financial products salesperson alleged that his pay fell below minimum wage.  Both cases were brought in state court as putative class actions under the New York Labor Law.  Both were settled early – before class certification – but the plaintiffs filed motions seeking leave to send notice of the settlement to members of the putative classes.

In a 4-3 decision, the Court of Appeals (New York’s highest court) held that notice is required, even though the classes had not been certified in either case.

At issue was the language of CPLR 908, which states that a class action “shall not be dismissed, discontinued, or compromised without the approval of the court,” and that “[n]otice of the proposed dismissal, discontinuance, or compromise shall be given to all members of the class in such manner as the court directs.”  The defendants argued that the statute’s reference to a “class action” means a certified class action, while the plaintiffs contended “that an action is a ‘class action’ within the meaning of the statute from the moment the complaint containing class allegations is filed.”

Finding ambiguity in the statutory text, the majority looked to the legislative history and other interpretive guidance.  It placed particular weight on the State legislature’s failure to amend CPLR 908 in the decades since a 1982 decision from an intermediate appellate court holding that it does apply to pre-certification settlements.  The court held that this failure, in the face of the “sole appellate judicial interpretation of whether notice to putative class members before certification is required,” amounts to legislative acceptance of that decision’s construction of the rule.

The majority also drew a distinction between CPLR 908 and Federal Rule of Civil Procedure 23(e), on which it was modeled.  Rule 23 was amended in 2003 to provide that a district court is required to approve settlements only in cases where there is a “certified class” and that notice must be given only to class members “who would be bound” by the settlement.  In contrast, CPLR 908 has not be so amended, despite proposals by the New York City Bar Association and scholarly criticisms of the rule.

Thus persuaded that the text of the rule requires notice before certification, the court declined to consider the practical implications of its decision on the desirability of early settlements in class actions:

Any practical difficulties and policy concerns that may arise from [the court’s] interpretation of CPLR 908 are best addressed by the legislature, especially considering that there are also policy reasons in favor of applying CPLR 908 in the pre-certification context, such as ensuring that the settlement between the named plaintiff and the defendant is free from collusion and that absent putative class members will not be prejudiced. The balancing of these concerns is for the legislature, not this Court, to resolve.

In dissent, three judges took the majority to task for what they described as an unwarranted reading of the rule in light of the overall context of the class action provisions in CPLR Article 9.  In their view, the fact that the plaintiffs had never moved for, let alone received, a ruling granting class certification meant that the case was not a class action at all.  “In each of the actions here,” they said, “plaintiffs did not comply with the requirements under article 9 of the CPLR that are necessary to transform the purported class action into an actual class action, with members of a class bound by the disposition of the litigation.”

Responding in particular to the plaintiffs contention that a case becomes a “class action” from the moment it is filed putatively as such, the dissent said:

There is nothing talismanic about styling a complaint as a class action. Indeed, any plaintiff may merely allege that a claim is being brought “on behalf of all others similarly situated.” However, under article 9 of the CPLR, the court, not a would-be class representative, has the power to determine whether an action “brought as a class action” may be maintained as such, and may do so only upon a showing that the prerequisites set forth in CPLR 901 have been satisfied.

As we have observed repeatedly in this blog, the Second Circuit’s holding in Cheeks, which requires court approval of FLSA settlements and tends to preclude various customary settlement provisions like confidentiality clauses, poses obstacles that may lessen the desirability of settlements in wage and hour cases.  And in Yu v. Hasaki Restaurant, the Second Circuit is now being asked to decide whether court approval is required even for a settlement achieved through an Offer of Judgment under FRCP 68.  Now, with Desrosiers on the books, the challenges for early settlements have been extended to wage hour settlements brought in state court under New York law.  (The case will presumably not apply to New York Labor Law claims brought in federal court, where Rule 23 rather than CPLR Article 9 would apply.)

The lesson for New York practitioners is as simple as it is daunting: if you want to settle a wage and hour case early, be prepared to jump through some significant procedural hoops.

Co-authored by Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis:  The majority of courts have held that releases of FLSA rights require approval by a court or the US Department of Labor.  A recent case in the Southern District of New York highlights a dilemma employers face when seeking “finality” through DOL-approved settlements.

In Wai Hung Chan v. A Taste of Mao, Inc., five employees asserted FLSA claims for unpaid minimum wage and overtime.  Before the lawsuit was filed, the employer agreed with the DOL to pay back wages of $38,883.80 to 19 of its employees, including four of the five plaintiffs in the lawsuit.  During negotiations on that agreement, the DOL confirmed that it had the authority to represent and resolve all of the employees’ claims, and it subsequently mailed WH-60 forms notifying them of the settlement and their right to a share of it.  Meanwhile, the employer transmitted the settlement funds to the DOL for distribution to the employees.

The five Chan Plaintiffs did not sign the WH-60 forms and instead commenced the lawsuit, seeking back pay for a period exceeding that covered by the DOL settlement.  The employer sought summary judgment on grounds that the DOL still possessed the settlement funds that it remitted on behalf of the plaintiffs, even though they did not sign the WH-60 forms.

District Judge William H. Pauley, III rejected the employer’s argument that the plaintiffs “constructively accepted the funds when the DOL, as their authorized representative, took possession of such funds.” He held that the plaintiffs’ refusal to sign the WH-60 forms was “tantamount to a rejection” of the settlement offer, invoking a presumption that “employees do not have to take the settlement unless they specifically opt into it.”  The court held that the employer expressly acknowledged this possibility as part of its settlement with the DOL by agreeing that any unclaimed funds would be disbursed to the U.S. Treasury.

Judge Pauley also rejected the employer’s argument that the plaintiffs should be bound to the agreement on grounds that “employers who in good faith strive to settle claims should be afforded the benefit of knowing that they will not face liability in the future.” Although he was sympathetic to the employer’s predicament, he stated that “it is Congress – not this Court – which must force a solution to that quandary…even if it means compelling an outcome that forces [the employer] to address the same allegations it believed were resolved through the DOL Settlement.”

The Chan decision highlights yet another potential hurdle to complete and binding settlements of employee wage claims.  In the Second Circuit  and elsewhere, releases of FLSA rights require approval, and agreements submitted for judicial approval are subjected to close scrutiny that is difficult to bypass.  In light of Chan, DOL approval doesn’t make the process any easier.  The circumstances described in Chan demonstrate that employers may not be able to obtain true finality in such settlements and may still face the risk of subsequent litigation.

Co-authored by Brett C. Bartlett and Samuel Sverdlov

Seyfarth Synopsis: The Southern District of New York recently held that parties may not settle FLSA claims without court approval through an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure.

Background: Rule 68

Under Rule 68, a party defending a claim can make an “offer of judgment” to the other party. If the other party accepts the offer, the clerk must enter judgment pursuant to the offer’s terms. However, if the offered party rejects the offer and obtains a less favorable judgment at trial, that party must then pay the costs incurred by the offering party after the offer was made. Courts have explained that the purpose of Rule 68 is to prompt parties to evaluate the risks and costs of litigation and to balance those risks against the likelihood of success.

Cheeks Decision

As we have previously discussed, in Cheeks v. Freeport Pancake House, Inc., a landmark decision of the Second Circuit, the court held that absent approval by either the district court or the DOL, parties “cannot” settle FLSA claims with prejudice. The Cheeks decision has made it increasingly difficult for parties to reach a settlement of FLSA claims in the Second Circuit, and accordingly, litigants have increasingly tried to avoid the requirement for judicial or DOL approval by entering into settlements pursuant to Rule 68.

Recent SDNY Decision

In the recent case of Mei Xing Yu v. Hasaki Restaurant, Inc., et al., the parties attempted to do just this — bypass judicial scrutiny of an FLSA settlement by settling their claims pursuant to a Rule 68 offer of judgment. The parties in Hasaki argued that the language of Rule 68 provides that the clerk “must” enter judgment of an accepted offer of judgment. The SDNY, however, held “that parties may not circumvent judicial scrutiny of an FLSA settlement via Rule 68.” Judge Furman reasoned that FLSA settlements are ripe for abuse by defendant employers, and that there are a number of scenarios where a settlement must pass judicial scrutiny, even where there is a Rule 68 offer of judgment. For instance, among other examples, judicial scrutiny is required in qui tam actions under the False Claims Act, settlements on behalf of a minor, and in cases where injunctive relief is sought.

The majority of district courts in the Second Circuit disagree with Judge Furman, and have held that Rule 68 offers of judgment in FLSA cases do not need to undergo judicial scrutiny. Given the split in authority on this issue within the Second Circuit, Judge Furman certified the decision for interlocutory appeal, noting an immediate appeal would “materially advance the ultimate termination of the litigation.” Further, the court held that “resolution [of this issue] by the Second Circuit is plainly desirable, if not necessary.”

Outlook for Employers

Until there is resolution of this issue, employers in the Second Circuit should carefully consider whether a Rule 68 offer of judgment in an FLSA case is worth the risk that the district court would nonetheless require scrutiny of the settlement. Given that Hasaki has been certified for appeal to the Second Circuit, we hope to have clarity on whether settlement of an FLSA case pursuant to Rule 68 requires judicial approval.

Authored by Robert S. Whitman and Howard M. Wexler

Seyfarth Synopsis: The U.S. District Court for the Southern District of New York recently announced that cases filed under the FLSA and assigned to Judges Abrams, Briccetti, Carter, Daniels, Ramos, Seibel, and Woods will be ordered directly to mediation, before the initial Rule 16 conference, with limited pre-mediation disclosures. If successful, other Districts may implement similar procedures.

As we all know, wage and hour litigation continues to soar to record highs.  We expect 2016 will be another record year and that the revisions to the white collar exemptions effective December 1st will further increase the number of lawsuits around the country.

In an attempt to stem its ever-increasing caseload of FLSA cases, the U.S. District Court for the Southern District of New York recently announced that, beginning October 3, 2016, cases filed under the FLSA and assigned to Judges Abrams, Briccetti, Carter, Daniels, Ramos, Seibel, and Woods will be ordered directly to mediation, before the initial Rule 16 conference, with limited pre-mediation disclosures.

The mediation must take place within 60 days of the referral to mediation.  The limited information exchange includes the following:

  1. Any existing documents that describe the Plaintiff’s duties and responsibilities.
  2. Records of wages paid to and hours worked by the Plaintiff (e.g., payroll records, time sheets, work schedules, wage statements and wage notices).
  3. The Plaintiff must produce a spreadsheet of alleged underpayments and other damages.
  4. The Defendant(s) must produce any existing documents describing compensation policies or practices.
  5. If the Defendants intend to assert an inability to pay, then they must produce proof of financial condition, including tax records, business records, or other documents demonstrating their financial status.

If the parties reach a settlement at the mediation, “they shall prepare a joint statement explaining the basis for the proposed settlement, including any provision for attorney fees, and why it should be approved as fair and reasonable,” in accordance with Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015).

The SDNY’s announcement comes on the heels of the effort by its sister court, the Eastern District of New York, to expand its mediation program for FLSA cases by “seeking mediators with substantial knowledge of the Fair Labor Standards Act (FLSA) to join the EDNY Mediation Panel.”

We fully expect the non-participating Judges within the SDNY, and other courts across the country, will be monitoring the effectiveness of the pilot program as well as the EDNY’s efforts to foster early mediation in FLSA cases.  If the program is successful, and the pace of new case filings remains high, other Districts may implement similar procedures.

Co-authored by Robert S. Whitman, Howard M. Wexler, and Meredith A. Berger

Seyfarth Synopsis: A district court judge within the Second Circuit held that, in light of Cheeks v. Freeport Pancake House, court or DOL approval is required for a valid dismissal of FLSA claims with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A).

Settling FLSA cases in the Second Circuit is becoming more and more difficult. In Cheeks v. Freeport Pancake House, the Second Circuit held that judicial or DOL approval is required for a valid dismissal of FLSA claims with prejudice. Cheeks is a controversial decision. The majority of courts have held that releases of FLSA rights have to be approved by a court or the DOL in order for the release to be valid, which often means that parties have to file otherwise confidential settlement agreements in publicly-available electronic court filing systems. A number of employer and plaintiffs’ counsel in many circuits have managed to settle FLSA cases like they settle other cases—that is, without filing settlement agreements publicly—by agreeing to dismissal with prejudice, which results in later-filed claims being subject to dismissal by claim preclusion principles even if not by a release. Cheeks limited that practice in the Second Circuit.

But the Cheeks court left open two related questions: whether parties may settle without court or DOL approval by dismissing the case without prejudice, and whether approval is needed for a dismissal with prejudice before the opposing party serves either an answer or a motion for summary judgment.

In Martinez v. Ivy League School, Inc., Judge Denis Hurley of the Eastern District of New York answered the second question, holding that under Cheeks, court or DOL approval is required for a valid pre-answer dismissal with prejudice.

As is fairly common, the parties in Martinez reached an early settlement after engaging in limited discovery before the defendant filed an answer. The plaintiff informed the court of the parties’ agreement and filed a notice of voluntary dismissal “with prejudice” pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i), which states, “the plaintiff may dismiss an action without a court order by filing…a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment.” The plaintiff did not submit a copy of the parties’ agreement for the court’s approval or even describe the terms of the resolution of the case. Judge Hurley thereafter requested a copy of the settlement agreement and, in the alternative, issued an Order to Show Cause why court approval of the settlement is not required in light of Cheeks.

In response, the parties argued that court or DOL approval is not needed because Cheeks “is limited to cases where there has been a stipulated dismissal with prejudice…after the defendant has appeared in the case, thereby subjected itself to the jurisdiction of the court.”

Judge Hurley disagreed and held “the reasoning in Cheeks applies with equal force to the dismissal of an FLSA action with prejudice pursuant to Rule 41(a)(1)(A)(i).” Citing Cheeks, he said the FLSA is a “uniquely protective statute,” and as such, requiring judicial or DOL approval for a valid dismissal under Rule 41(a)(1)(A)(i) is consistent with its underlying purpose and helps eliminate potential abuse, such as exceedingly disproportionate attorneys’ fees payments. Accordingly, Judge Hurley ordered the plaintiff to “provide this Court with the specifics of the settlement to enable the Court to determine whether it is fair and reasonable.”

This decision, while not binding on any other court, underscores the need for litigants to give very careful consideration to the challenging issues raised by settlements in even the simplest of FLSA cases. As tempting as it may be for both sides to resolve cases with a handshake, basic settlement agreement, and one-line Stipulation of Dismissal with Prejudice, that practice is limited within the Second Circuit. Other circuits have not been as suspicious of the efforts of parties and their attorneys to amicably resolve cases.

Authored by Noah Finkel

As noted by this blog on several occasions, including most recently here, the U.S. Supreme Court and several appellate courts have grappled with the question of whether and to what extent a defendant facing a class or collective action can moot a case by offering a plaintiff complete relief under Rule 68 or in a settlement offer. Today the Supreme Court made clear in Campbell-Ewald Co. v. Gomez that an unaccepted offer of complete relief under Rule 68 does not render a case moot and thus does not end a purported class or collective action.

To be sure, the Court’s ruling narrows the grounds on which a defendant can obtain an early dismissal of a class or collective action by making a Rule 68 offer of complete relief to the class representative. As our colleagues explain here, the Court has now held that if a class representative rejects or declines to accept the offer, then “basic principles of contract law” mean that the offer has no force, and the class representative’s claim is not mooted. Indeed, under the express terms of Rule 68, an unaccepted offer of judgment expires after 14 days. (If an offer is accepted, then that may be a different story—particularly if the case is a collective action and not a class action, as discussed here.)

But does this make the mootness maneuver moot? No—and especially not in wage-hour cases, where in several classes of cases a defendant-employer readily can determine the maximum amount of a class representative’s claim for damages. As this blog has explained here, there is a better way for a defendant-employer to moot a class action, and that is by making a tender of complete relief to the plaintiff/class representative without reliance on Rule 68. Do not even reference a settlement agreement or release. Rather, make the tender unconditional. As many courts have held, if the plaintiff/class representative has been provided with all relief sought in the lawsuit for him or herself, and this is done before a class is certified or opt-in plaintiffs join a collective action, then there is no longer a live controversy between the parties on the merits and the court no longer has subject matter jurisdiction over the claim. Indeed, today’s opinion expressly noted that “[w]e need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff … .”

What about the attorneys’ fees that the plaintiff’s counsel incurred in bringing the putative class or collective action? Depending on the statute, those might not need to be included. Under the FLSA, for example, only a “prevailing plaintiff” is entitled to attorneys’ fees, and if a case is dismissed as moot, the plaintiff did not prevail.

A tender of complete relief is not for every case. There are several reasons why a defendant employer would not seek to moot a wage-hour case by making such a payment. Many regular-rate cases, failure to pay overtime or minimum wage claims, tip credit matters, certain off-the-clock theories, and other pleadings that contain specifics on the amount of alleged underpayments may be amenable to calculating a plaintiff’s maximum recovery, but calculating “complete relief” in many wage-hour cases may not be so clear. In other types of cases, the amount needed to pay complete relief may be calculable but exorbitant. And in all cases, there is a risk that other potential plaintiffs may be waiting in the wings, and a tender of full relief to the first current or former employee who files a claim can lead others to make similar claims—leading to an endless and expensive game of whack-a-mole. Ultimately, each employer in each case needs to decide the propriety of the mootness maneuver on a case-by-case basis, weighing the cost of an offer (or offers) of complete relief against the cost of defending a collective or class action. As Justice Kagan warned in her dissent in Genesis Healthcare v. Symczyk—the Supreme Court’s most recent foray into the mootness issue before today—“don’t try this at home.”

Authored by Alex Passantino

‘Twas the week before Christmas, 2-0-1-5
When the poetry elves on the blog came alive.
Crafting their rhymes with a purpose so clear:
Presenting the wage-hour gems of the year.

In January, for new regs in this year our breath bated.
Then for six painful months, we speculated and waited.
And just as we geared up to celebrate Independence,
Out came a proposal that will create more defendants.

With a salary level that for 10 years has been flat,
They looked at New York’s and said “higher than that.”
More than double the old; and then they got clever …
The proposed sal’ry level will increase for forever.

Anticipated changes to duties caused quite a fuss
When DOL said “If you’ve got some ideas, just tell us.”
Of the Department’s proposal, employers were understandably wary,
So we wrote down some ideas on how to make it less scary.

Nearly 300 thousand comments they have to review,
It will be late into next year before they are through.

Next up on the list of your wage-hour joy,
Are the efforts to change what it means to employ:
Contractors. Joint employment. Fissured industry.
Interns. The “third way” and gig economy.

Economic reality. Right to control.
They’re integral to your business? Now you’re in a deep hole.
So many angles, it can drive you berserk.
As agencies and courts figure out what is “work.”

And if divergent decisions bring you a sense of elation,
Then please focus attention on class certification.
Approvals, denials, and some decerts, too.
No matter the side, there’s a case for you.

But as summer approached, there arose quite a stir,
A case that’d explain what the class cert rules were.
A Supreme explanation, o my-o, o me-o
We’d learn about class via Bouaphakeo.

They’ve argued, but there’s no decision, not yet,
And a limited ruling on records might be all that we get.
But the cases keep coming. Their numbers broke the charts.
Whether giant class actions or cases broken in parts.

And the response to those filings? The employers’ retort?
A wide range of ways to get them out of court.

Some cases get mooted. Some cases do not.
At Genesis’s open question, SCOTUS might take a shot.
Does an offer of judgment that’s not been accepted
Mean the plaintiff cannot proceed with his class as expected?

Increasingly used as a litigation life saver
Arbitration agreements with a class action waiver;
And when asked if state laws could class waivers prevent, yo,
The Supremes laid the smack-down to dear Sacramento.

With all of these options, it comes as a surprise then,
That one resolution keeps on getting the Heisman.
For reasons that many cannot understand,
To settle wage claims courts think they must hold your hand.

That’s our year in review, we whipped you right through it.
Next year? The new regs and a mad dash to review it.
But before 2015 joins the past’s ranks,
You keep on reading our blog, and for that we give thanks!

THANKS TO ALL OF OUR READERS. BEST WISHES FOR A HAPPY, HEALTHY, AND PROSPEROUS NEW YEAR!

Co-authored by Robert S. Whitman and Howard M. Wexler

As we have noted in previous posts (most recently, here), courts have been paying increasingly close attention to the terms of FLSA settlements and, on occasion, refusing to approve agreements. Some parties have responded to this trend by entering into private settlements and filing a simple stipulation of dismissal with prejudice.

At least within the Second Circuit, this is no longer permitted. Court or DOL approval is now definitively required to obtain a dismissal with prejudice of FLSA claims.

Cheeks v. Freeport Pancake House Inc. was an FLSA case not unlike many others. The claims appear to have been standard-issue, and the parties reached a settlement shortly after the Initial Conference. The parties then filed a joint Stipulation of Dismissal with Prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii). However, the District Judge, Joanna Seybert, refused to honor the stipulation. She ordered the parties to “file a copy of the settlement agreement on the public docket” and “show cause why the proposed settlement reflects a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought about by an employer’s overreaching.”

The parties instead asked the judge to certify the case for immediate review by the Second Circuit on the issue of whether FLSA actions are an exception to Rule 41(a)(1)(A)(ii)’s general rule that parties may stipulate to a dismissal with prejudice without the involvement of the court.

The Second Circuit heard oral argument on November 14, 2014, and because the two sides were in agreement that court approval should not be required, the court solicited the views of the DOL, which submitted a letter brief taking the position that the “FLSA falls within the ‘applicable federal statute’ exception to Rule 41(a)(1)(A), such that the parties may not stipulate to the dismissal of FLSA claims with prejudice without involvement of a court or the DOL.”

The court agreed with the DOL. It started its analysis by noting that this issue is a “blank slate” as “neither the Supreme Court nor our sister Circuits have addressed the precise issue before us.” It then explored the “differing results” reached by district courts within the Circuit, including Judge Brian Cogan’s 2013 decision holding that court approval is not required (see our post on that decision here) and Judge Dora Irizarry’s subsequent decision taking the opposite position.

Although the Second Circuit was “mindful of the concerns” articulated by Judge Cogan, it held that the FLSA is a “uniquely protective statute,” and as such, requiring judicial or DOL approval is consistent with its underlying purpose and helps eliminate potential abuse, such as exceedingly disproportionate attorney awards.

Given the importance of this issue to FLSA litigants, and the volume of FLSA lawsuits, Cheeks may not be the final word on this topic. Although there is no split among the Circuits (as the Second Circuit noted, it is the first to weigh in on this issue), the DOL’s participation in the case and the unsettled nature of the question suggest that the case may be ripe for en banc or Supreme Court review. For now, however, it is clear that within the Second Circuit, the parties must submit their privately negotiated settlement agreements to the court in order for the case to be dismissed with prejudice. This means, of course, that the agreement will be a public document, and the Cheeks opinion suggests (but does not discuss) that strict confidentiality provisions in FLSA settlements may not survive court scrutiny either.

The court did leave open the question of “whether parties may settle such cases without court approval or DOL supervision by entering into a Rule 41(a)(1)(A) stipulation without prejudice.” Since such a dismissal does not resolve claims or bar future lawsuits, there does not appear to be nearly the same (if any) judicial interest in monitoring them. But that is an issue the court may well take up sometime soon.

In the meantime, as we have advised before, litigants need to give very careful consideration to the challenging issues raised by settlements in even the simplest of FLSA cases. As tempting as it may be for both sides to resolve cases with a handshake, basic settlement agreement, and one-line Stipulation of Dismissal with Prejudice, the days of such an approach may be coming to an end.

Co-authored by John L. Collins and Brian Wadsworth

If I settle my employment lawsuit and release “all claims,” does that include wage-hour claims if the subject never came up? Last week, in Bodle, et al. v. TXL Mortgage Corporation, the Fifth Circuit said no.

As wage-hour practitioners know, the law in most circuits makes settlement of wage-hour claims a hassle, requiring either court approval or supervision by the Department of Labor for an enforceable release. In either case, the settlement terms are not confidential and may be easily be discovered.

But not so in the Fifth Circuit. In Martin v. Spring Break ’83 Productions, L.L.C., the Fifth Circuit held in 2012 that a private settlement reached over a bona fide dispute under the FLSA is enforceable. So in the Fifth Circuit, parties can settle wage-hour claims privately in most circumstances with enforceable releases, without having to seek court or government approval. But what if the case being settled was not a wage-hour case, and wage-hour issues never came up before the signing of a general release of “all claims?” In those circumstances, the Fifth Circuit ruled wage-hour claims were not waived.

TXL Mortgage Corporation (“TXL”) sued former employees Ambre Bodle and Leslie Meech in Texas state court for violation of their noncompetition covenants. The parties settled the litigation with a private settlement agreement and agreed final judgment. The settlement agreement said that Bodle and Meech “fully and completely release and discharge TXL . . . from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature . . . whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute or regulation.”

But on the exact same day they settled the state court litigation, Bodle and Meech turned around and sued TXL and its president, William Dale Couch, in federal court under the FLSA, claiming they were owed overtime pay. The trial court dismissed the case on the basis of the release, relying on Martin.

In Martin, the Fifth Circuit found the private settlement agreement of FLSA claims enforceable, because it resolved a “bona fide dispute” between the parties over the number of hours worked. But unlike Martin, the state court action in Bodle was not about a wage-hour dispute at all. It was a dispute over restrictive covenants. The district court reasoned that because the topic of unpaid commissions arose during settlement discussions, that was close enough to FLSA-type claims to render the general release enforceable as to overtime claims. The Fifth Circuit said this was not good enough because there was no discussion of overtime claims during settlement talks, and thus no bona fide wage-hour dispute.

In the wake of Bodle, questions remain as to the enforceability of releases against FLSA claims in contexts other than settlement of FLSA suits. Would a release as part of the settlement of a race discrimination discharge lawsuit that specifically references FLSA claims be enforceable against such claims? What about a release in return for severance pay in a reduction-in-force situation if the issue of wage-hour claims were specifically addressed? Currently, Martin and Bodle do little to provide concrete answers.

Authored by Simon L. Yang

Final approval of a class action settlement sometimes isn’t so final.

At least that’s what the Ninth Circuit reminded Labor Ready Southwest, Inc. and a class of current and former employees earlier this week. On Tuesday, the Ninth Circuit vacated an order granting final approval of their class settlement of FLSA and California Labor Code claims and asked the Central District of California for a redo.

The Ninth Circuit on several occasions made clear that it was expressing no opinion on the ultimate fairness of the class settlement negotiated by the parties. So what was the issue?

Acknowledging that a district court has to engage in a “difficult balancing act” when considering both the strong judicial policy in favor of settlements and the district court’s fiduciary duty owed to absent class members, the Ninth Circuit remanded the case based on the “high procedural standard” for settlements that occur without a certified class.

The Ninth Circuit said the district court provided inadequate assurance that it considered the fairness of the settlement, by failing to sufficiently inquire about certain aspects of the settlement: (i) defendant agreed to a “clear sailing” arrangement (where it would not object to a certain fee request), (ii) class counsel would “receive a disproportionate distribution of the settlement,” and (iii) unclaimed settlement funds would revert back to the defendant.

Again, the Ninth Circuit reiterated that the existence of any one (or even all three) of the above-identified settlement terms “does not mean the settlement cannot still be fair, reasonable, or adequate” but that it “required the district court to examine them, and adequately to develop the record to support its final approval decision.”

So, next time you have a final approval hearing, consider whether you might want to slow down to ensure there’s no doubt about either the fairness—or finality—of your settlement.