FLSA Settlement Rejected in Light of Overbroad Release

A recent case, Lopez v. Uno Express Cleaners Inc., 18-cv-10737, 2019 WL 6873796 (SDNY Dec. 17, 2019), illustrates how courts evaluate settlement agreements under the Fair Labor Standards Act (FLSA), as mandated by the Second Circuit’s decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015).

In this case, plaintiff, who was employed by defendants as a dry-cleaning worker and an ironer, asserts that she worked more than 64 hours per week but was only paid a fixed salary of $432 per week (except in December, when she was paid $500 per week), and that she was not granted meal or rest breaks, was required to record fewer hours than she actually worked, and forced to sign documents misrepresenting the number of hours she worked. She also alleges that defendants failed to maintain accurate time records and did not give plaintiff an appropriate wage notice or wage statements.

Ordinarily, with certain exceptions, parties to litigation are free to resolve, or settle, their claims. See Fed. R. Civ. P. 41(a)(1)(A). The Second Circuit has held that “in light of the unique policy considerations underlying the FLSA … stipulated dismissals settling FLSA claims with prejudice require the approval of the district court or the [Department of Labor] to take effect.”

A court will approve such a settlement if it finds it to be “fair and reasonable”, based on an evaluation of the following five non-exhaustive factors:

(1) the plaintiff’s range of possible recovery; (2) the extent to which the settlement will enable the parties to avoid anticipated burdens and expenses in establishing their respective claims and defenses; (3) the seriousness of the litigation risks faced by the parties; (4) whether the settlement agreement is the product of arm’s-length bargaining between experienced counsel; and (5) the possibility of fraud or collusion.

While the court found the settlement amount reasonable, it declined to approve the settlement because the release was “overly broad and essentially operates as a general release”. The court cited the rule that Cheeks-compliant “[r]eleases may not include claims that have no relationship whatsoever to wage-and-hour issues and may not cover claims that were never raised by Plaintiff in the case.”

Applying the law, the court noted that “[t]he proposed release includes, for example, claims brought under ERISA, the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, the ADA, and others.” Therefore, the court concluded that “the settlement cannot be approved with this provision.”

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