FLSA Settlement Disapproved, Based on One Provision Regarding Additional Claims

In Cano v. Cherry Lawn Farms, Inc. et al, No. 19-9469, 2021 WL 2481489 (S.D.N.Y. June 17, 2021), the court denied (without prejudice) the parties’ application to approve, in accordance with Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), a settlement agreement resolving plaintiff’s claims for unpaid wages in violation of the Fair Labor Standards Act (FLSA).

The court provides the following general summary of the law in this area:

In the Second Circuit, parties cannot privately settle FLSA claims with a stipulated dismissal with prejudice under Federal Rule of Civil Procedure 41 absent the approval of the district court or the United States Department of Labor. Thus, a district court in this Circuit must review a proposed FLSA settlement and determine whether it is fair and reasonable. When reviewing a proposed settlement agreement in an FLSA case, district courts consider the totality of circumstances to assess whether the agreement is fair and reasonable. (Citations, bracketing, and internal quotation marks omitted.)

It explained that the “totality of the circumstances” includes the following 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.

On the other side, the court explained, the following factors weigh against approving the settlement:

(1) the presence of other employees situated similarly to the claimant;

(2) a likelihood that the claimant’s circumstance will recur;

(3) a history of FLSA non-compliance by the same employer or others in the same industry or geographic region; and

(4) the desirability of a mature record and a pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or in a workplace.

Here, held the court, all five factors weighed in favor of, and none of the four factors weighed against, approval. [For the court’s analysis on this point, the reader is encouraged to review the court’s decision.] Furthermore, the proposed agreement does not contain confidentiality or non-disparagement provisions that would preclude court approval, and the agreement’s “Waiver and Release of Wage and Hour Claims” section was “appropriately limited to the wage-and-hour claims asserted in this action and related claims that could have been asserted.”

However, the court held that one provision of the proposed settlement agreement, paragraph 10, precluded the court’s approval. That paragraph includes “three sentences that amount to an impermissibly overbroad general release.” The objectionable paragraph provides, in relevant part, that:

Plaintiff agrees not to directly or indirectly commence, continue, assist or participate in any lawsuit, charge, claim or proceeding, in any forum (including but not limited to any court or agency), against any of the Defendants other than to specifically enforce the terms of this Agreement. This covenant not to sue shall concern only those claims and damages arising prior to the Effective Date of this Agreement (including, but not limited to, any and all penalties, damages, attorney’s fees and interest that may have otherwise been payable). The Effective Date of this Agreement shall be the latest date of execution by a signatory hereto. (Emphasis supplied by court.)

In the court’s assessment, the identified language was “far too sweeping to be fair and reasonable as it would waive practically any possible claim against the defendants, including unknown claims and claims that have no relationship whatsoever to wage-and-hour issues.” (Internal quotation marks omitted.)

It noted that if the parties delete this language from the proposed settlement agreement, it would be able to approve its remainder; however, “if the parties are inclined instead to attempt to modify this language, they must do so in a manner consistent with the well-established limitations on such overbroad releases and tailor the new proposed language accordingly, such as by limiting this provision to wage-and-hour issues.”

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