Massachusetts Highest Court Rules that Taxicab Drivers Are Independent Contractors Under the Wage Act
The Massachusetts Independent Contractor statute is among the strictest in the country, and employers face an uphill battle in proving that individuals satisfy the three-prong test for correctly being classified as independent contractors. The test, however, is not impossible to surmount, as demonstrated by a decision issued earlier this week.
On April 21, 2015, the Massachusetts Supreme Judicial Court (SJC) held in Sebago, et al. v. Boston Cab Dispatch, Inc., et al., that taxicab companies may classify taxicab drivers as independent contractors. The plaintiffs in this case were taxicab drivers that leased taxis and medallions at a flat-rate from taxicab and medallion owners. The plaintiffs brought suit against three groups of defendants: taxicab and medallion owners, dispatch service companies and a taxicab garage. They claimed that the defendants jointly misclassified them as contractors rather than employees, entitling them to relief under Massachusetts’ minimum-wage and overtime laws.
The SJC ruled against the taxicab drivers. In reaching this conclusion, the court first addressed the issue of whether the defendants were joint employers. It held that the defendants should not be considered “as a single employer exercising monolithic control over the taxicab industry.” Instead, entities can formulate legitimate business-to-business arrangements to secure services, and this, on its own, does not render the entities joint employers. Thus, when analyzing claims under the independent contractor statute, the SJC explained that courts must look separately at each defendant’s relationship with the plaintiffs to assess potential liability.
Before determining whether the taxicab drivers were employees, the court assessed the threshold question of whether the taxicab drivers provided services to the defendants. The court held that the drivers provided no services to the garage, but that the drivers did provide services to the dispatch companies and the taxicab and medallion owners.
Next, the court turned its analysis to whether the dispatch companies and taxicab and medallion owners could lawfully classify the drivers as independent contractors under Massachusetts’ independent contractor statute. The SJC explained that all three of the following elements must be met in order for the defendants to prevail: (1) the drivers must be “free from control and direction in connection with the performance of the service,” both under their contracts and in fact; (2) the service being performed must be “outside the usual course of the business of the employer”; and (3) the drivers must be “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.”
Under the first prong, freedom from direction and control, the SJC determined that the drivers were mostly independent. The drivers selected their own shifts and which passengers to pick up or refuse. The court also found that the defendants satisfied the second prong because the drivers’ services were outside the usual course of the defendants’ businesses. The court reasoned that the medallion owners’ leasing businesses were not dependent on the success of the drivers’ operations. Rather, a driver paid a daily flat-rate to lease a taxicab, and the taxicab and medallion owner retained this fee regardless of how much money the driver earned on a given day. The court similarly found that the dispatch companies were not in the business of giving rides; instead, they were in the business of selling dispatch services to medallion owners.
Finally, under the last prong, the court found that the drivers engaged in an independent trade or business. Specifically, the drivers had the freedom to lease from whomever they wanted on whatever days they wanted. The drivers were not tied to particular medallion owners, and they were free to advertise their services as they wished. Because the defendants carried their burdens under all three prongs of the statute, the SJC ruled that the drivers were properly classified as independent contractors. A significant component of the court’s rationale was that regulations governing the taxicab industry recognized that drivers could be independent contractors as well as employees. Under this regulatory scheme, the entities–be it the taxicab and medallion owners, dispatch companies or the drivers themselves–are free to plan an arrangement that provides for either result.
Sebago is important because it reiterates that legitimate business-to-business relationships are outside of the stringent Massachusetts independent contractor statute. The plaintiffs’ bar will likely claim that the unique regulatory scheme covering the taxicab industry makes this case inapposite to misclassification disputes arising in other industries. However, the decision suggests that businesses in any industry will not be treated as employers for purposes of state wage laws when the services they provide are legitimately different from those provided by a contractor.
First Circuit Holds that Variable “Per Diem” Payments May be Part of an Employee’s Regular Rate of Pay for Calculating Overtime
The U.S. Court of Appeals for the First Circuit held recently in Newman v. Advanced Technology Innovation Corp., that a per diem payment that is based on the number of hours worked by an employee must be considered part of the regular rate of pay for calculating overtime. In Newman, two former employees claimed they were owed additional overtime pay under the Fair Labor Standards Act (FLSA), because their employer failed to include per diem payments when calculating their regular rate of pay. The per diem payments were intended to reimburse the employees for travel expenses incurred, and the employer had a practice of reducing the per diem payment depending on the number of hours worked by the employee. The district court for Massachusetts granted summary judgment for the defendant, explaining that per diems generally are excluded from the calculation of an employee’s regular rate for overtime purposes.
On appeal, the First Circuit reversed and ordered that judgment be granted in favor of the plaintiffs. Although the FLSA states that an employee’s regular rate of pay does not include, “reasonable payments for traveling expenses” incurred by employees, the Department of Labor had taken the position in a handbook that a per diem payment is part of the regular rate of pay when it is calculated based on hours worked. The First Circuit accepted this position, and because the employer had adjusted the per diem payments based on hours worked, the Court concluded that the per diems should have been included in the plaintiffs’ regular rate of pay for overtime purposes.
The decision in Newman is a reminder that in order to properly treat a per diem as a non-wage, the method of calculating the per diem should not be based on hours worked. A per diem can be partially discounted and still not be considered a wage, but the discount must not be hours-based. The Newman decision also warns that courts will “pierce the labels parties affix to the payments” and consider the realities of how employees are being compensated. To be safe, employers should carefully examine how their per diem policies are written and enforced in order to ensure that they do not incur unanticipated overtime liability.
Employer Prevails in Donning and Doffing Case
By Bernie Siebert
On May 6, 2014 Judge Richard P. Matsch of the United States District Court for the District of Colorado ruled that the plaintiffs from a Greeley, Colorado meat processing plant did not prove that they were entitled to additional pay for donning and doffing, walk time and an unpaid meal period. The case spanned nearly six years and involved two trial proceedings, one trial to determine liability and a second to determine damages. The decision is attached here.
In 2011, following a weeklong trial, the Court ruled that there was a question as to when the workday begins and ends and a question as to whether employees were receiving a full 30 minute unpaid meal period. He ordered that a second trial concerning the issue of damages be held. That trial was held in 2013 with final arguments in January, 2014.
In its May 6th Opinion and Order, the Judge ruled that he was incorrect in believing that the 30 minute meal period was required by law or regulation. Rather, the Court found that the 30 minute unpaid meal period was a product of the collective bargaining agreement between the company and the United Food and Commercial Workers Union. The Court specifically ruled that there was no legal requirement that a meal period be 30 minutes. Because the Union never pursued a grievance claiming that employees were not receiving a full thirty minute meal period (which included the time required for donning and doffing), the Court found that the Union had accepted the 30 minute provision knowing that employees were not in fact receiving a full 30 minutes. The Court then turned to the issue of the compensability of the donning and doffing and walk time.
In 2000 the Company and Union agreed to certain amounts of time for performing donning and doffing, walk to wash and washing tasks. In 2007, the Company and Union agreed to certain amount of time for walk time at the beginning of the shift. That agreement was incorporated into the parties’ 2009 agreement. As part of that agreement, the company paid two years of back walk time to then current employees. The Union opposed making the same payments to former employees. At the trial on damages, each side presented expert time study witnesses. Naturally, the Plaintiffs’ expert testified that employees were substantially underpaid for donning and doffing and walk activities. The company’s expert testified that employees were being properly compensated for all such activities. The Court had previously ruled that Section 203(o) of the Fair Labor Standards Act applied thus excluding the donning and doffing time at the beginning and end of each shift, primarily leaving open the issues of donning and doffing at the meal period and walk time. The Court noted that the substantial differences in the amounts calculated by the two experts reflect the difficulty in determining “the realities of the workplace by these methods.” Ultimately, the Court adopted the findings of the company’s expert. The Court stated that “…the adversarial process of civil litigation is not designed for adjudicating this dispute and judges are ill-equipped to evaluate the work of industrial engineers doing time studies.” The Court found because of the conflicting views, that it could not say “with a reasonable probability that Plaintiffs have met their burden of proving their entitlement to additional compensation.”
Finally, the Court stated “It must be admitted that the result now reached is contrary to the expectations generated by the previous Order. It is, however, the result of careful reflection on the evidence in this case and the court opinions cited above.” The Court also noted that the Company’s attorney had stated that the company would, to the extent profitable, make the walk time payments to those former employees that did not receive such in 2009. The Court stated that it took the representation as a pledge to do so. The case was dismissed with costs awarded to the company.
Massachusetts SJC Decides that Managers at LLCs Can Individually Liable For Wage Act Violations
Yesterday, the Massachusetts Supreme Judicial Court held that managers of limited liability companies can be individually liable under the Massachusetts Wage Act for unpaid wages due to employees. Historically, the Wage Act has been interpreted to impose individual liability on officers of corporations, but not on managers of LLCs. In Cook v. Patient Edu, the SJC dramatically departed from past interpretations of the Act and determined that managers of LLCs may have to personally pay the price for wage and hour violations affecting employees.
The decision arises out of a lawsuit originally brought in Massachusetts Superior Court, against Patient Edu, LLC and two of its managers by Cook, a former employee, for unpaid wages. Cook claimed that he accepted a position as Patient Edu’s business development director, for which he was to be paid a sizable base salary and bonuses, but was not paid during the first six months of his employment and then only sporadically thereafter. The Superior Court dismissed the claim against the two managers, concluding that the Wage Act “does not, by its plain language, impose individual liability on the managers of an LLC.”
On appeal, the SJC reversed the lower court, holding that “a manager who ‘controls, directs, and participates to a substantial degree in formulating and determining’ the financial policy of a business entity . . . may be a ‘person having employees in his service’ . . . and thus may be subject to liability for violations of the Wage Act.” The court recognized that the Wage Act does not, by its plain language, impose liability on managers at LLC’s (but rather only on individuals involved in the management of a “corporation”), but explained that this was in part because when the individual liability language was added to the statute, limited liability companies did not exist as a form of business association. The court concluded that a more expansive interpretation of the Wage Act was justified because “the legislative intent of the Wage Act, to hold individual managers liable for violations, is clear.”
The SJC’s decision greatly expands the potential liability of managers of LLCs, making clear that they cannot use that form of business entity to avoid personal liability. In a civil action under the Wage Act, a successful plaintiff is entitled to treble damages as well as attorneys’ fees. Massachusetts-based LLCs, as well as other LLCs with employees working in Massachusetts, should be aware of the expanded potential liability.
Out-of-State Workers May Bring Suit under Massachusetts Independent Contractor Statute
In a decision issued in late May 2013, the Massachusetts Supreme Judicial Court (SJC) held that plaintiffs who live and work outside of Massachusetts for Massachusetts-based companies can sue for purported violations of Massachusetts’ independent contractor law. In Taylor v. Eastern Connection Operating, Inc., the SJC held that out-of-state plaintiffs may bring suit where a written contract between the parties contains an enforceable Massachusetts choice of law and forum selection provision, and where Massachusetts law is not contrary to a fundamental policy of the state where the plaintiffs live and work. This ruling is particularly important because the Massachusetts independent contractor law sets more stringent criteria for engaging a worker as an independent contractor than many other states’ laws.
The SJC’s ruling arises out of a case brought by three individuals who live in New York but work for a courier company headquartered in Massachusetts. Under their contracts, they were classified as “independent contractors” who were to perform pickup and deliveries exclusively in New York. The contracts further provided that the contract and all rights and obligations of the parties were to be construed under Massachusetts law and that any lawsuits between the parties were to be brought in a court in that jurisdiction. In 2010, the plaintiffs brought a class-action lawsuit in Massachusetts Superior Court against the courier company, alleging that they were misclassified as independent contractors rather than employees in violation the Massachusetts independent contractor statute and that they were not paid wages and overtime in violation of the Massachusetts wage statute and overtime statute. The Superior Court dismissed the lawsuit, concluding that the Massachusetts independent contractor statute did not apply to non-Massachusetts residents working outside of Massachusetts and that, as independent contractors, the wage and overtime statutes did not apply to the plaintiffs.
On appeal, the SJC held that the choice-of-law provision in the contracts was enforceable, finding both that Massachusetts has a “substantial relationship” to the transaction between the plaintiffs and defendant given the defendant’s Massachusetts headquarters, and that the application of Massachusetts law would not contravene a fundamental policy of New York. Given the parties’ agreement, the Court concluded that the plaintiffs could assert a claim under the Massachusetts independent contractor statute. Furthermore, because the plaintiffs could ultimately be deemed employees rather than independent contractors under the statute, the plaintiffs may also be able to assert claims under the Massachusetts wage and overtime statutes.
The SJC’s decision greatly expands the potential liability of Massachusetts companies that have independent contractors and employees who live and work outside of Massachusetts. The decision makes clear that Massachusetts companies are not immune from claims under Massachusetts wage-and-hour statutes simply because their workers live and work outside of the Commonwealth. In light of the SJC’s decision, Massachusetts-based companies that have independent contractors or employees living and working outside of Massachusetts should carefully review their contracts and employee handbooks to assess whether those documents leave them exposed to potential liability under Massachusetts law.
Massachusetts Supreme Judicial Court Rules That A Release Must Specifically Reference The Massachusetts Wage Act In Order Be Binding Under That Statute
In Crocker v. Townsend Oil Company, Inc., the Massachusetts Supreme Judicial Court (SJC) ruled this week that in order to release potential past claim under the Massachusetts Wage Act, the release must be plainly worded and understandable to the average person and must contain express language that Wage Act claims are being released.
The SJC’s ruling arises out of a case involving alleged misclassification of employees as independent contractors. The defendant, Townsend, is a home heating oil delivery business. The plaintiffs, Edward Crocker and Joseph Barrasso, worked for Townsend delivering oil as independent contractors pursuant to contract carrier agreements. Eventually, Townsend terminated its relationship with both plaintiffs using contract carrier termination agreements that contained a mutual general release of claims. The plaintiffs subsequently sued Townsend for unpaid wages under the Wage Act, asserting that they were in fact employees and were entitled to unpaid wages (including overtime pay). A Superior Court judge initially granted summary judgment in favor of Townsend, but a second judge vacated that decision, concluding that the general releases executed by the plaintiffs were insufficient to release the plaintiffs’ claims under the Wage Act. The SJC ultimately transferred the case on its own motion to address the validity of the general release.
In concluding that the general releases executed by the plaintiffs were insufficient to waive Wage Act claims, the Court addressed the tension between its own policy of giving broad effect to general releases and specific language in the Wage Act prohibiting “special contracts” between employers and employees that would exempt employers from Wage Act liability. (This language has been cited in the past to invalidate employee agreements to defer wages that are otherwise due.) Citing important public policy considerations underlying the Wage Act, the SJC held that a release can effectively cover Wage Act claims, but only if the release of the Wage Act claims is stated in “clear and unmistakable terms.” The Court further explained that the release must be “plainly worded and understandable to the average individual” and must “specifically refer to the rights and claims under the Wage Act that the employee is waiving.” The Court’s logic is that such clear wording will ensure that employees are not unwittingly waiving rights.
The take away from this decision is that employers should make a special effort to ensure that its release agreements meet the SJC’s new standard, including that the Massachusetts Wage Act is specifically referenced as a statute under which claims are being released.
Jonathan Keselenko and Chris Feudo
Foley Hoag LLP
Boston, Massachusetts
Call to Discuss Wage Deduction That “Ended Nicely” Not a Protected Complaint Under the FLSA
On November 26, 2012, the Eighth Circuit held that an employee’s call to a supervisor to resolve a pay deduction was not a complaint protected under the Fair Labor Standards Act (FLSA). Montgomery v. Havner, No. 12-1977 (8th Cir. Nov. 26, 2012).
The Plaintiff Leslie Montgomery worked as a paralegal for attorney Kyle Havner at the Havner law office. Kathy Havner (Kyle Havner’s wife) worked as office manager. She and Montgomery had a series of disagreements regarding, among other things, Montgomery’s choice of dress and use of Facebook during work hours. On June 16, 2011, Montgomery stopped working and began cleaning her desk at approximately 4:45 p.m. Kathy Havner observed Montgomery not working. At 4:55 p.m., Kathy Havner told Montgomery and the two other employees they could leave for the day and she would clock them out. Montgomery learned from another employee that she had been clocked out at 4:45 p.m. while the other employees were clocked out at 4:55 p.m.
When Montgomery got home, she called Kathy Havner to ask why she had been clocked out at 4:45 p.m. Kathy Havner explained the deduction and Montgomery explained her side of the story. The conversation was “civil and ‘ended nicely’ with Kathy Havner agreeing to adjust Montgomery’s clockout time.” Id. at 2-3. A short time later, Havner called Montgomery back to discuss a different issue about another employee taking breaks. The conversation became heated and, soon after, Kyle Havner called Montgomery and fired her.
Montgomery brought suit against the law firm and both Kyle and Kathy Havner. She asserted that the Havners retaliated against her for raising a wage complaint, in violation of the FLSA. The district court granted summary judgment in the Defendants favor, concluding that Montgomery failed to establish a prima facie case of retaliation.
The Eighth Circuit agreed, explaining: “‘To fall within the scope of the antiretaliation provision, a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection….’” Id. at 4 (quoting Kasten v. Saint-Gobain Performance Plastics Corp., 563 U.S. ___, ___, 131 S. Ct. 1325, 1335 (2011)). Considering the circumstances and content of the phone call, the Eighth Circuit found that “[n]o reasonable jury could conclude Montgomery’s discussion with Kathy Havner about the ten-minute deduction was a sufficiently clear and detailed FLSA complaint for the Havners reasonably to understand Montgomery was alleging an FLSA violation.” Id. at 5.
Although the Supreme Court’s decision in Kasten found that a protected complaint under the FLSA can be asserted by oral complaints as well as written ones, the Eighth Circuit’s affirmance of summary judgment and dismissal of Montgomery’s FLSA claim here demonstrates that not every wage-related dialog necessarily entitles an employee to FLSA protection. Moreover, the court’s attention to the fact that the conversation between Montgomery and Kathy Haven was civil and “ended nicely” emphasizes the importance of timely and appropriate supervisor response to employee “complaints,” whether or not they rise to the level of protected activity.
Tracey Holmes Donesky and Christina Sans
Leonard, Street and Deinard P.A.
Paid Sick Leave Bill May be on Move in Massachusetts
The Massachusetts Legislature’s Joint Committee on Labor and Workforce Development is considering a bill that would require all employers in the Commonwealth to provide sick time to their employees and employers with more than six employees to compensate their employees for this sick time. While passage by the Legislature in the remaining months of the session is uncertain, employers may want to consider the bill’s potential effects on their operations.
Currently in Massachusetts, there is no requirement that employers provide any sick time (paid or unpaid) to employees (although laws such as the Family and Medical Leave Act provide employees with a right to unpaid leave under certain circumstances). Under the bill, workers would be eligible for an hour of sick time for every 30 hours worked. Whether the sick time is paid would depend on the employer’s size. Businesses with fewer than six employees would be required to provide 40 hours of unpaid sick time in a year to employees. Businesses with six to 10 employees would need to provide 40 hours of paid sick time, and businesses with more than 10 employees would be required to provide 56 hours of paid sick time.
The revised bill would allow businesses that offer other forms of paid time off – including vacation or other leave policies – to meet the mandate as long as they provide an equal or greater number of hours. The bill would give the Attorney General authority to enforce the paid sick time provisions; however, similar to other wage and hour provisions, an employee could bring his own suit after providing the Attorney General with 90 days notice. Prevailing employees would be eligible for treble damages, lost wages, the costs of litigation and attorneys’ fees.
The release of the revised bill mirrors efforts in other states and municipalities to mandate paid sick leave time. As mentioned in this blog previously, Connecticut passed legislation last year to mandate paid sick leave days; however, businesses with less than 50 employees are exempted from that law. Seattle, San Francisco and the District of Columbia also require certain employers to provide paid sick time.
If the bill is reported favorably from the Labor and Workforce Development Committee, it is likely headed to the Senate Ways and Means Committee before reaching the Senate floor. The legislative session ends on July 31.
New Connecticut Law Mandating Paid Sick Leave for Service Workers To Go Into Effect in 2012
Effective January 1, 2012, employers with 50 or more employees in Connecticut are required to pay sick leave to qualified “service workers.” Connecticut becomes the first state in the country to mandate paid sick leave.
A “service worker” under the law is an employee “primarily engaged” in a broad list of occupations as defined by the federal Bureau of Labor Statistics Standard Occupational Classification system. These occupations include, by way of example only, hotel and restaurant workers, retail salespersons, office clerks, secretaries, security guards, cashiers, nurses, social workers and health care workers. This list is not exhaustive, and a full list of professions can be found at the State of Connecticut’s website. A service worker does not include temporary workers and employees who are exempt from the overtime requirements of the Fair Labor Standards Act.
Employees are eligible for sick leave after 680 hours of employment. An employer must provide one hour of paid sick leave for every 40 hours worked, up to a maximum of 40 hours of sick leave per calendar year. Service workers are permitted to use the paid sick leave for their own illness or the illness of a child or spouse or if they are the victim of family violence or sexual assault. An employer can satisfy its obligations by offering other paid leave, such as vacation, personal days or paid time off so long as it allows employees to use the paid time off for sick leave and so long as the paid time off is granted and accrues in a manner that meets or exceeds the requirements of the law.
Service workers are entitled to carry over up to 40 hours of unused, accrued sick time from one calendar year to the next. However, service workers are not entitled to use more than 40 hours of sick time per year, regardless of how many hours they have in their sick leave bank. Unused sick leave does not need to be paid at termination, unless an employer promises otherwise. Note that, under the new law, service workers who do not average ten or more hours a week in the most recently completed calendar year are not entitled to paid sick leave.
An employer with 50 or more service employees in Connecticut must provide notice to service workers upon hire regarding their entitlement to paid sick leave. A poster in a conspicuous place will satisfy these obligations. Connecticut has issued a recommended poster, a link to which can be found here.
Jonathan Keselenko
Foley Hoag LLP
Not So Fast My Friends! Judicial Approval & Settlement of FLSA Claims
Employers facing FLSA litigation will sometimes turn quickly to offers of judgment or settlement negotiations with named plaintiffs to minimize the costs of protracted litigation. For some employers, this presents an appropriate strategy. For others, this only invites further litigation with different plaintiffs. In any event, the private settlement of FLSA disputes requires careful consideration beyond settlement of the “typical” case. As a federal court in Florida recently held, “an employer undertakes a private resolution of an FLSA dispute at his peril.”
In Dees v. HydraDry, Inc., No. 8:09-cv-1405, 2010 WL 1539813 (M.D. Fla. Apr. 19, 2010), District Court Judge Steven D. Merryday rejected a stipulation of dismissal of an FLSA claim and reminded employers and their counsel of potential pitfalls in the settlement of FLSA claims. In particular, Judge Merryday held that “[a]n employee entitled to FLSA wages may compromise his claim only under the supervision of either the U.S. Department of Labor or a federal district court.”
In Dees, the parties reached a settlement agreement on the plaintiff’s claims for overtime compensation and presented the district court with a stipulation of dismissal. In the stipulation, the parties reported that the employer agreed to pay the plaintiff actual and liquidated damages and listed each amount. The parties also reported a separate agreement to pay attorneys’ fees and costs of the plaintiff and again listed the amounts. As a result, the parties concluded and noted in the stipulation that “no judicial scrutiny is needed.” The district court disagreed.
In a 29-page opinion, Judge Merryday concluded that, in order to effectuate the purposes of the FLSA, settlements of FLSA claims based on payment of actual damages, liquidated damages, fees, and costs – even in full – require judicial approval if any compromise of an employee’s FLSA rights is included in the agreement.
For example, the employer in an FLSA case might offer full monetary compensation to the employee for the FLSA claim but might require the employee to refrain from informing fellow employees about the result the employee obtained. Or the employer might require the employee to trim the shrubbery at the employer’s home each weekend for a year. In either instance, the employee outwardly receives full monetary compensation for his unpaid wages but effectively the additional term (the “side deal”) confers a partially offsetting benefit on the employer.
As a result, under Judge Merryday’s order, if an employee concedes or agrees to anything outside of full compensation, parties must seek judicial approval of the settlement agreement for FLSA claims, disclose to the court all disputes resolved by such agreements, and disclose all terms and conditions of the agreements to the court.
Judge Merryday noted that in the Eleventh Circuit, settlement of FLSA claims outside the context of DOL supervised settlements has long required court review and approval. Lynn’s Foods Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982). Interpreting and applying the Lynn’s Foods standard, Judge Merryday then set forth a two-step process to evaluate settlements of FLSA claims. First, the court must evaluate the agreement to determine if it is “fair and reasonable” to the employee. Second, if the agreement is fair and reasonable to the employee, the court must evaluate whether the agreement frustrates implementation of the FLSA. If the agreement satisfies both conditions, courts within the Eleventh Circuit may approve settlements of FLSA claims.
Perhaps most interesting, Judge Merryday also opines on the enforceability of confidentiality provisions within settlements of FLSA claims. Specifically, Judge Merryday concluded, “A confidentiality provision in an FLSA settlement agreement both contravenes the legislative purpose of the FLSA and undermines the Department of Labor’s regulatory effort to notify employees of their FLSA rights.” Accordingly, Judge Merryday opines that courts should reject any settlement of FLSA claims with such provisions because such provisions are “unreasonable.”
Judge Merryday goes further, however. While the parties do not appear to have filed their stipulation of dismissal under seal or to have sought leave to do so, Judge Merryday squarely rejected any potential argument or suggestion that FLSA settlements may be filed under seal or submitted for in camera review. As Judge Merryday concluded:
Reviewing an FLSA settlement agreement under seal conflicts with the public’s access to judicial records, frustrates appellate review of a judge’s decision to approve (or reject) an FLSA compromise, contravenes congressional policy encouraging widespread compliance with the FLSA, and furthers no judicially cognizable interest of the parties. A proper consideration of the intent of Congress and the public’s interest in judicial transparency permits only one method to obtain judicial review of a compromise of an FLSA claim. The parties must file the settlement agreement in the public docket.
Consequently, Judge Merryday ordered the parties to move for approval of their settlement agreement and attach the agreement to their motion. After the parties did so, Judge Merryday approved the settlement agreement on May 25, 2010.
While Judge Merryday’s decision and Eleventh Circuit’s Lynn’s Foods approval rule is not the law in other circuits, this recent decision raises a number of important issues that should be carefully considered by employers and their counsel in all jurisdictions to ensure the enforceability of agreements resolving FLSA claims. Be careful out there.
By Eric P. Kelly and Michael F. Delaney, Spencer Fane Britt & Browne LLP
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