You know the feeling. Regardless of whether you are an in-house attorney or outside counsel, you have settled a significant FLSA litigation matter. You breathe a sigh of relief. All that is left is the paper work for the settlement agreement and court approval. You and your client are happy. But, wait, the court has rejected your settlement? How can that be?
Recently, courts have denied approval of settlement agreements for various reasons – the way funds will be distributed or broad releases. One judge in overseeing a proposed settlement involving a music retailer noted that the financial settlement to the putative class was less than the proposed attorneys’ fees in the proposed settlement. This one is easy to ignore in 49 states because it involves California state claims and therefore brought under a different statute and procedural vehicle from FLSA claims.
But, judges in FLSA cases in several states have also recently rejected proposed settlements for similar reasons – the judge determined the settlement was not fair. Courts are trying to verify that there was really an arms-length negotiation between plaintiff’s counsel and defendant’s counsel. Courts aim to ensure that the funds are being distributed fairly and not heavily weighted in favor of a group of plaintiffs or attorneys’ fees. Courts are also very concerned about the appropriateness of a full, general release of all claims rather than a release limited to those asserted under the FLSA. Finally, judges are leery of confidential settlements and are now rejecting settlements that are filed under seal or involve confidentiality provisions.
With recent statistics showing a 5% increase in FLSA filing over the last year, lawyers on both sides of the docket need to consider these factors when reaching terms and drafting settlement agreements. Courts are obviously willing to reject those settlements that they find to be unfair. It is in all parties’ interest to reach an agreement that a court will approve. That means employers may not be able to insist on favored terms like full releases and confidentiality. It also means that lawyers should be discussing the breakdown among attorneys’ fees and settlement awards during the negotiation process to avoid reaching an agreement that will not be approved.
What these recent cases remind us is that reaching a deal is not the end of the road, obtaining approval is. And, judges are willing to withhold approval if they do not view the deal is fair to all of the class members. These issues should be discussed as you are reaching the final stages of negotiations to avoid an order denying approval.