Here Is Text From a Brief We Recently Filed in Support of the Argument That Flsa Settlements Must Be Approved by the Court. We Hope Wage and Overtime Rights Lawyers Will Find This Useful

As discussed below, all FLSA settlements (regardless of whether they concern collective action claims) should be subjected to judicial oversight.  Moreover, even if the Court declines to endorse such a rule, it nonetheless should require FLSA collective action settlements to be judicially approved.

A. All FLSA Settlements (Regardless of Whether They Concern Collective Action Claims) Should be Subjected to Judicial Oversight.

Shortly after the FLSA’s enactment, the Supreme Court issued two separate decisions prohibiting the waiver of FLSA rights through private agreements. First, in Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945), the Court held that employees were not bound by private agreements with their employers in which they purport to waive FLSA rights. See id. at 698-714. The Court based its holding on the FLSA’s legislative purpose:

The legislative history of the Fair Labor Standards Act shows an intent on the part of Congress to protect certain groups of the population from sub-standard wages and excessive hours which endangered the national health and well-being and the free flow of goods in interstate commerce. The statute was a recognition of the fact that due to the unequal bargaining power between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency and as a result the free movement of goods in interstate commerce.  To accomplish this purpose standards of minimum wages and maximum hours were provided. Neither petitioner nor the respondent suggests that the right to the basic statutory minimum wage could be waived by any employee subject to the Act. No one can doubt but that to allow waiver of statutory wages by the agreement would nullify the purposes of the Act.

Id. at 706-07 (footnotes omitted). The Court left open the issue of whether bona fide settlements of bona fide FLSA disputes may, under some circumstances, be deemed valid. See id. at 714.

Next, in Schulte Co. v. Gangi, 328 U.S. 108 (1946), the Supreme Court addressed “whether the [FLSA] precludes a bona fide settlement of a bona fide dispute over the coverage of the Act on a claim for overtime compensation and liquidated damages where the employees receive the overtime compensation in full.” Id. at 110. Relying on O’Neil, the Court held that such private settlements are not enforceable. See id. at 110-16; see also Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 740 (1981) (“We have held that FLSA rights cannot be abridged by contract or otherwise waived because this would ‘nullify the purposes of the statute and thwart the legislative policies it was designed to effectuate.”).

Importantly, O’Neil and Gangi concerned instances in which employees released FLSA rights privately and outside of the context of either adversarial court litigation or an active Department of Labor (“DOL”) investigation. Neither the Supreme Court nor the Third Circuit has addressed the circumstances under which FLSA claims may be released at the post-litigation stage. Thus, we look to other circuit courts for guidance.

In this regard, the Eleventh Circuit’s opinion in Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir, 1982), is recognized as the seminal case addressing the circumstances under which FLSA claims may be released at the post-litigation stage. The Lynn’s Food Court recognized that neither O’Neil nor Gangi resolved this issue. See id. at 1353 n. 8. The Court also recognized that an employee can waive his FLSA rights by accepting wage payments supervised by the United States Secretary of Labor. See id. at 1353.

Most importantly, Lynn’s Food Court explained:

The only other route for compromise of FLSA claims is provided in the context of suits brought directly by employees against their employer under section 216(b) to recover back wages for FLSA violations. When employees bring a private action for back wages under the FLSA and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.

Lynn’s Foods, 679 F.2d at 1353 (footnote omitted; emphasis supplied). The Court further explained why judicially approved settlements further the FLSA’s purpose:

Settlements may be permissible in the context of a suit brought by employees under the FLSA for back wages because initiation of the action by the employees provides some assurance of an adversarial context. The employees are likely to be represented by an attorney who can protect their rights under the statute. Thus, when the parties submit a settlement to the court for approval, the settlement is more likely to reflect a reasonable compromise of disputed issues than a mere waiver of statutory rights brought about by an employer’s overreaching. If a settlement in an employee FLSA suit does reflect a reasonable compromise over issues, such as FLSA coverage or computation of back wages that are actually in dispute; we allow the district court to approve the settlement in order to promote the policy of encouraging settlement of litigation. But to approve an ‘agreement’ between an employer and employees outside of the adversarial context of a lawsuit brought by the employees would be in clear derogation of the letter and spirit of the FLSA.

Id. at 1354 (footnote omitted; emphasis supplied); see also Taylor v. Progress Energy, Inc., 493 F.3d 454, 460 (4th Cir. 2007) ( “there is a judicial prohibition against the unsupervised waiver or settlement of [FLSA] claims”); O’Connor v. United States, 308 F.3d 1233, 1243-44 (Fed. Cir. 2002) (discussing Lynn’s Foods); Walton v. United Consumers Club, Inc., 786 F.2d 303, 306 (7th Cir. 1986) (courts “have refused to enforce wholly private [FLSA] settlements”).

By the undersigned’s estimate, at least 100 federal district courts have cited Lynn’s Foods for the general proposition that settlements of an individual (i.e. non-collective) FLSA lawsuits must be judicially approved.  See, e.g., Baker v. D.A.R.A. II, Inc., 2008 U.S. Dist. LEXIS 81347, *4-5 (D. Ariz. Sept. 24, 2008); Yue Zhou v. Wang’s Restaurant, 2007 U.S. Dist. LEXIS 60683, *2 (N.D. Cal. Aug. 8, 2007); Ferguson v. Upscale Saturday Night, Inc., 2006 U.S. Dist. LEXIS 63663, *2 (M.D. Fla. Sept. 6, 2006); Carey v. Space Coast Quality Lawn, 2006 U.S. Dist. LEXIS 45957, *3-5 (M.D. Fla. July 6, 2006); Cooks v. Osmose, Inc., 2004 U.S. Dist. LEXIS 29346, *3-4 (M.D. Tenn. Feb. 13, 2004).

Within the Third Circuit, the undersigned is aware of at least one reported opinion in which a district court explains that FLSA settlements of individual FLSA lawsuits should be judicially approved.  See Morales v. Pepsico, Inc., 2012 U.S. Dist. LEXIS 35284, *2-3 (D.N.J. Mar. 14, 2012). This lack of reported opinions is not surprising because court orders approving individual FLSA settlements are routine and do not generate substantive opinions. Indeed, the undersigned estimates that he has obtained at least 50 such orders over the past several years. Some examples from the Middle District of Pennsylvania are attached as Exhibit A.

Importantly, in individual FLSA cases, the court approval process can be done in a manner that does not burden the Court or the parties with formal motion practice. In the undersigned’s experience, FLSA approval orders in individual cases generally can be entered after the Court presides over a brief telephone conference in which the parties’ counsel represents the terms of the settlement. See Exhibit A. It is the accountability created by judicial oversight (not procedural formalities) that matters under the FLSA.

B. Even if the Court Declines to Endorse a Rule Subjecting All FLSA Settlements to Judicial Oversight, the Court Nonetheless Should Require FLSA Collective Action Settlements to be Judicially Approved.

FLSA collective action settlements should require judicial approval for all of the reasons described in Section A above.  Moreover, as discussed below, there are some additional reasons why the Court should require FLSA collective action settlements should be judicially approved.

a. Judicial Approval of FLSA Collective Action Settlements is the Common Practice in the District Courts of Pennsylvania.

The undersigned’s law firm has represented FLSA classes in at least 26 FLSA collective actions that have settled in the federal courts of Pennsylvania. A listing of these collective actions, as well as copies of the orders approving the settlements as fair and reasonable, is attached as Exhibit B. As indicated, judicial approval has been obtained in every FLSA collective action settlement involving the undersigned’s firm.

Moreover, no defense lawyer in any of these cases has ever sought to avoid judicial approval. On the contrary, lawyers who settle FLSA collective action lawsuits welcome the judicial approval process because, among other reasons, it protects them against potential allegations that the settlement was somehow unfair or inadequate. Simply put, lawyers and parties who negotiate in good faith and reach fair and reasonable settlements have nothing to fear from the court approval process.

b. Outside of Pennsylvania, Judicial Approval of FLSA Collective Action Settlements is the Common Practice.

The undersigned also has been involved in many FLSA collective actions that have settled outside of Pennsylvania. Some of these non-Pennsylvania actions have been “large-scale” matters involving numerous plaintiff's co-counsel and “large firm” defense counsel. See, e.g., In re Tyson Foods, Inc., 2012 U.S. Dist. LEXIS 7335 (M.D. Ga. Jan. 23, 2012); Gatewood v. Kock Foods of Mississippi, LLC, 569 F. Supp. 2d 687 (S.D. Miss. 2008); In re Pilgrim’s Pride FLSA Litig., 2008 U.S. Dist. LEXIS 40360 (W.D. Ark. May 14, 2008). Never, in any previous case, has any co-counsel or defense counsel suggested that an FLSA collective action settlement should proceed without judicial approval.

Indeed, research reveals an overwhelming number of opinions (literally too many to reference here) in which district courts recognize the need to review FLSA collective action settlements as fair and reasonable.  See, e.g., Brumley v. Camin Cargo Control, Inc., 2012 U.S. Dist. LEXIS 40599, *4-8 (D.N.J. Mar. 26, 2012); Barker v. City of Troy, 2012 U.S. Dist. LEXIS 12779, *1-2 (N.D.N.Y. Feb. 2, 2012); Bredbender v. Liberty Travel, Inc., 2011 U.S. Dist. LEXIS 38663, *50-52 (D.N.J. Apr. 8, 2011); Goudie v. Cable Communications, Inc., 2009 U.S. Dist. LEXIS 1907, *2 (D. Or. Jan 9, 2009); Baker v. D.A.R.A. II, Inc., 2008 U.S. Dist. LEXIS 81347, *4-5 (D. Ariz. Sept. 24, 2008); Collins v. Sanderson Farms, Inc., 568 F. Supp. 2d 714 (E.D. La. 2008).  Moreover, the seminal FLSA treatise does not seriously question the need for parties to obtain judicial approval of FLSA collective action settlements. See Ellen C. Kearns, The Fair Labor Standards Act, 2d Ed., at 19-197-207 (attached as Exhibit D).

c. FLSA Class Members Need the Protection of Judicial Oversight.

It is well-known that traditional Rule 23 class action settlements are subjected to extensive review and approval. See Fed. R. Civ. P. 23(e); see generally In re GMC Pick-Up Truck Fuel Tank Products Liability Litig., 55 F.3d 768 (3d Cir. 1995). Thus, when FLSA collective action claims proceed alongside Rule 23 class action claims asserting state law violations (these are known as “hybrid” actions), the parties enjoy all the benefits and protections of Rule 23 judicial review. The undersigned has obtained court approval of such “hybrid” settlements. See, e.g., Duval v. Tri-County Access Co., Inc., 2:10-cv-00118-RCM (W.D. Pa. Nov. 22, 2010, and Mar. 30, 2011); Sisko v. Wegmans Food Markets, Inc., 3:06-cv-00433-JMM (M.D. Pa. Aug. 27, 2007); Rodriguez-Fargas v. Hatfield Quality Meats, Inc., 2:06-cv-01206-LS (E.D. Pa. May 29, 2007).

Stand-alone FLSA collective actions are procedurally different from Rule 23 class actions, primarily because an FLSA class is limited to those class members who affirmatively join (or “opt-in”) to the lawsuit, while a Rule 23 class (upon certification) automatically includes all class members except those who affirmatively exclude themselves from (or “opt-out” of) the lawsuit.  See Knepper v. Rite Aid, Corp., 675 F.3d 249, 257 (3d Cir. 2012); DeAsencio v. Tyson Foods, Inc., 342 F.3d  301, 306 (3d Cir. 2003).  Notwithstanding, these FLSA collective actions carry the same basic public policy rationale as their Rule 23 counterparts.  As the Supreme Court has observed, FLSA collective actions provide employees with “the advantage of lower individual costs to vindicate rights by the pooling of resources” and benefit the judicial system by facilitating the “efficient resolution in one proceeding of common issues of law and fact.” Hoffman-La Roche Inc. v. Sperling, 493 U.S. 165, 170 (1989); see also Symczyk, 656 F.3d at 200 (collective actions “‘avoid multiple lawsuits where numerous employees have allegedly been harmed by a claimed violation or violations of the FLSA by a particular employer.’”). These are the same basic policy interests underlying the Rule 23 class action device. See In re GMC, 55 F.3d at 783-84.

In re GMC, Judge Becker explained how judicial approval of Rule 23 class actions is required in order to protect the rights and interests of class members who are not intimately involved in the litigation and, therefore, do not have either the information or the motivation to independently evaluate whether the settlement is fair. See In re GMC, 55 F.3d at 783-86. Thus, “‘the district court acts as a fiduciary who must serve as a guardian of the rights of absent class members. The Court cannot accept a settlement that the proponents have not shown to be fair, reasonable, and adequate.” Id. at 785 (quoting Grunin v. International House of Pancakes, 513 F.2d 114, 123 (8th Cir.), cert. denied, 423 U.S. 864 (1975)); see also Manual for Complex Litigation, Fourth at § 21.61 (“Because [in a Rule 23 class action] there is typically no client with the motivation, knowledge, and resources to protect its own interests, the judge must adopt the role of a skeptical client and critically examine the proposed settlement terms, and procedures for implementation.”).

Several courts have cogently observed that FLSA settlement approval standards need not be as rigorous as Rule 23(e) standards because collective action settlements do not bind absent class members who never join the lawsuit.  See Bredbender, 2011 U.S. Dist. LEXIS 38663, at *50-51; Reyes v. Altamarea Group, 2011 U.S. Dist. LEXIS 115984, *16 (S.D.N.Y. Aug. 16, 2011); deMunecas v. Bold Food, LLC, 2010 U.S. Dist. LEXIS 87644, *16 (S.D.N.Y. Aug. 23, 2010); Collins, 568 F. Supp. 2d at 719. This observation is surely correct. Notwithstanding, the policy concerns raised by Judge Becker in In re GMC apply to FLSA collective actions as well as Rule 23 class actions. See Collins, 568 F. Supp. 2d at 719 (approval of FLSA settlements is focused “on ensuring that an employer does not take advantage of its employees in settling their claim for wages”).

It is important to appreciate that FLSA collective actions usually involve numerous class members who are geographically dispersed. The great majority of these individuals simply are not engaged in the day-to-day litigation in the same way that an individual litigant is engaged. For example, in Craig v. Rite Aid Corp., 4:08-cv-02317-JEJ (M.D. Pa.), Judge Jones presides over an FLSA collective action involving over 1,000 opt-in plaintiffs from throughout the nation. While the undersigned and his co-counsel work very hard to communicate with these class members and keep them informed, a “traditional” attorney-client relationship simply is not possible. As with Rule 23 class actions, it is crucial to know that any settlement affecting the rights of so many individuals will be scrutinized by a judge to assess fairness. Indeed, the mere prospect of judicial scrutiny often enhances the fairness of FLSA settlements.

Also, many FLSA collective actions settle before “conditional certification,” and, therefore, before the potential opt-in plaintiffs are even notified of the settlement. Under these circumstances, Court approval ensures that potential opt-in plaintiffs receive a written notice that clearly explains the lawsuit and the settlement. Several examples of such notice forms are attached as Exhibit F. It is important for the Court to review such materials to ensure accurate notice. Both the Supreme Court and the Third Circuit have encouraged district court judges to be engaged in the notice phase of FLSA collective litigation. See Symczyk, 656 F.3d at 198-99 (citing Hoffman-LaRoche, 493 U.S. at 170-71.

d. Court Approval of FLSA Actions Is Necessary to Prevent Potential Attorney’s Fee Abuses.

As with Rule 23 settlements, FLSA collective actions can provide opportunities for lawyers to shortchange a class (or abandon class claims entirely) for excessive attorney’s fees. Thus, judicial approval of FLSA collective actions includes the consideration of whether attorney’s fees are fair and reasonable. See In re Tyson Foods, 2012 U.S. Dist. LEXIS 7335, at *8-12; Brumley, 2012 U.S. Dist. LEXIS 40599, at *28-38; Collins, 568 F. Supp. 2d at 728-29.

Moreover, many FLSA collective actions are “high-stakes” lawsuits that have been vigorously litigated for years on behalf of many opt-in class members. If and when such cases settle, the attorney’s fee recovery (which often is a percentage of a common settlement fund) can be substantial and can significantly impact the monies payable to the class. Such fee distributions should not be made without any judicial oversight.

On the other end of the spectrum, judicial approval of collective action settlements ensures that plaintiffs’ counsel (who almost always work on a contingency-fee-basis) are not “left out in the cold” through “private,” post-litigation settlements between employers and opt-in class members. The FLSA’s language mandates that prevailing parties under the FLSA recover attorney’s fees and costs. See Fegley v. Higgins, 19 F.3d 1126, 1134 (6th Cir. 1994).  Moreover, “attorney fees are an integral part of the merits of FLSA cases,” Shelton v. M.P. Ervin, 830 F.2d 182, 184 (11th Cir. 1987), and, as courts repeatedly explain, the ability of FLSA claimants to recover a reasonable attorney’s fees and costs is crucial to the statute’s enforcement scheme, see, e.g., Fegley, 19 F.3d at 1134-35. Judicial approval prevents both employers and opt-in class members (who generally do not enter into fee agreements with class counsel) from circumventing these important provisions by settling collective action claims without the involvement of class counsel.

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