Your former employee files suit against your company in federal court in Connecticut claiming that she is entitled to overtime under the Fair Labor Standards Act. You go to a settlement conference before a magistrate judge. After a few hours of back and forth negotiation, you reach a settlement with the ex-employee.
Is judicial approval of the settlement necessary?
It’s clear that in discrimination cases, the answer is no. Parties settle such claims all the time without judicial intervention.
But, federal judges in Connecticut are noting that there is a developing split of authority on whether judicial approval is needed to settle FLSA claims.
On the one side, there are cases like Socias v. Vornado Realty L.P. (E.D.N.Y. 2014), from earlier this year, which requir a fairness hearing prior to voluntary dismissal of a FLSA action.
On the other, there are cases like Picerni v. Bilingual Seit & Preschool Inc. (E.D.N.Y. 2013) which hold that no judicial approval is required prior to settlement of FLSA lawsuit.
Who’s right? That issue will eventually have to be decided by the Second Circuit and perhaps even the U.S. Supreme Court if a circuit split develops.
In the meantime, companies and their lawyers should be prepared for courts to bring this issue up on their own (the latin phrase is sua sponte). If so, there are a number of factors that the court may look too, as outlined in one case, Lliguichuzhca v. Cinema 60, LLC (S.D.N.Y. 2013).
As the court noted, in “scrutiniz[ing] the settlement agreement to determine [whether] the settlement is fair and reasonable[,]” the court must look at the following factors: whether there was “overreaching” by the defendant-employer, whether plaintiff was represented by “competent” counsel; whether there were “legitimate concerns about the collectability of any judgment against defendant”; and whether the “proposed settlement [was] . . . the product of negotiation between represented parties following extensive litigation[,]” especially because “[a]rm’s length bargaining between represented parties weighs in favor of finding a settlement reasonable.”
This “fair and reasonable” standard may not be terribly difficult to satisfy, but for parties who believe that the settlement they reached on their own should be enough, it can still be a bit nervewracking.
For employers, be mindful of your settlements of FLSA claims. As the saying by Yogi Berra (and the song by Lenny Kravitz) goes, “It ain’t over ’til it’s over.”