Cheeks v. Freeport Pancake House, Inc.Cheeks v. Freeport Pancake House, Inc.
Dorian Cheeks appeals, pursuant to
BACKGROUND
Cheeks worked at both Freeport Pancake House, Inc. and W.P.S. Industries, Inc. (together, “Freeport Pancake House”) as a restaurant server and manager over the course of several years. In August 2012, Cheeks sued Freeport Pancake House seeking to recover overtime wages, liquidated damages and attorneys’ fees under both the FLSA and New York Labor Law. Cheeks also alleged he was demoted, and ultimately fired, for complaining about Freeport Pancake House’s failure to pay him and other employees the required overtime wage. Cheeks sought back pay, front pay in lieu of reinstatement, and damages for the unlawful retaliation. Freeport Pancake House denied Cheеks’ allegations.
After appearing at an initial conference with the district court, and engaging in a period of discovery, the parties agreed on a private settlement of Cheeks’ action. The parties then filed a joint stipulation and order of dismissal with prejudice pursuant to
Rather than disclose the terms of their settlement, the parties instead asked the district court to stay further proceedings and to certify, pursuant to
DISCUSSION
The current appeal raises the issue of determining whether parties may settle FLSA claims with prejudice, without court approval or DOL supervision
Subject to Rules 23(e), 23.1(c), 23.2, and 66 and any applicable federal statute, the plaintiff may dismiss an action without a court order by filing:
(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or
(ii) a stipulation of dismissal signed by all parties who have appeared.
The FLSA is silent as to
We start with a relatively blank slate, as neither the Supreme Court nor our sister Circuits have addressed the precise issue before us. District courts in our Circuit, however, have grappled with the issue to differing results. Those requiring court approval of private FLSA settlements regularly base their analysis on a pair of Supreme Court cases: Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed. 1296 (1945) and D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 66 S.Ct. 925, 90 L.Ed. 1114 (1946).
Brooklyn Savings involved a night watchman who worked at Brooklyn Savings Bank for two years. 324 U.S. at 699, 65 S.Ct. 895. The watchman was entitled to overtime pay for his work, but was not compensated for his overtime while he worked for the bank. Id. at 700, 65 S.Ct. 895. The watchman left the bank’s employ, and two years later the bank computed the statutory overtime it owed him and offered the watchman a check for $423.16 in exchange for a release of all his FLSA rights. Id. The watchman signed the release, took the check, and then sued the bank for liquidated dаmages pursuant to the FLSA, which were admittedly'not included in the settlement. Id.
The Supreme Court held that in the absence of a genuine dispute as to whether employees are entitled to damages, employees could not waive their rights to such damages in a private FLSA settlement. Id. at 704, 65 S.Ct. 895. Because the only issue before the court was the issue of liquidated damages, which were a matter of statutory calculation, the Court concluded thаt there was no bona fide dispute between the parties as to the amount in dispute. Id. at 703, 65 S.Ct. 895. The Court noted that the FLSA’s legislative history “shows an intent on the part of Congress to protect certain groups of the population from substandard wages and excessive hours which endangered the national health and well-being and the free flow of goods in interstate commerce.” Id. at 706, 65 S.Ct. 895. In addition, the FLSA “was a recognition of the fact that due to thе unequal bargaining power as 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.” Id. at 706-07, 65 S.Ct. 895. Concluding that the FLSA’s statutory language indicated that “Congress did not intend that an employee should be allowed to waive his right to liquidated damages,” the Court refused to enforce the release and allowed the watchman to proceed on his claim for liquidated damages. Id. at 706, 65 S.Ct. 895. However, the Court left unaddressed the issue of whether parties could privately settle FLSA claims if such settlements resolved “a bona fide dispute between the parties.” Id. at 703, 65 S.Ct. 895.
A year later, in D.A. Schulte, the Supreme Court answered that question in part, barring enforcement of private settlements of bona fide disputes where the dispute centered on whether or not the employer is covered by the FLSA. 328 U.S. at 114, 66 S.Ct. 925. Again, the Supreme Court looked to the purpose of the FLSA, which “was to secure for the lowest paid segment of the nation’s workers a subsistence wage,” and determined “that neither wages nor the damages for withholding them are capable of reduction by compromise of controversies ovеr coverage.” Id. at 116, 66 S.Ct. 925. However, the Supreme Court again specifically declined to opine as to “the possibility of compromises in other situations which may
Brooklyn Savings and Gangi establish that (1) employees may not waive the right to recover liquidated damages due under the FLSA; and (2) that employees may not privately settle the issue of whether an employer is covered under the FLSA. These cases leave open the question of whether employees can enforce private settlements of FLSA claims where there is a bona fide dispute as to liability, i.e., the number of hours worked or the amount of compensation due. In considering that question, the Eleventh Circuit answered “yes,” but only if the DOL or a district court first determines that the proposed settlement “is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.” Lynn’s Food Stores, Inc. v. United States Dep’t of Labor, 679 F.2d 1350, 1355 (11th Cir.1982).
In Lynn’s Food, an employer sought a declaratory judgment that the private settlements it had entered into with its employees absolved it of any future liability under the FLSA. Id. at 1351-52. The private settlements were entered into after the DOL found the employer “was liable to its employees for back wages and liquidated damages,” id. at 1352, but were not made with DOL approval. The putative settlements paid the emplоyees far less than the DOL had calculated the employees were owed.
In rejecting the settlements, the Eleventh Circuit noted 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.” Id. (internal quotation marks omitted). The court reasoned that requiring DOL or district court involvement maintains fairness in the settlement proсess given the great disparity in bargaining power between employers and employees. Id. The Eleventh Circuit noted that the employer’s actions were “a virtual catalog of the sort of practices which the FLSA was intended to prohibit.” Id. at 1354. For example, the employees had not brought suit under the FLSA and were seemingly “unaware that the Department of Labor had determined that Lynn’s owed them back wages under the FLSA, or that they had any rights at all under the statute.” Id. Despite that, the employer “insinuated that the employees were not really entitled to any back wages,” and suggested “that only malcontents would accept back wages owed them under the FLSA.” Id. The employees were not represented by counsel, and in some cases did not speak English. Id. The Eleventh Circuit noted that these practices were “illustrative of the many harms which may occur when employers arе allowed to ‘bargain’ with their employees over minimum wages and overtime compensation, and convinces us of the necessity of a rule to prohibit such invidious practices.” Id. at 1354-55.
The Fifth Circuit concluded that the agreement between the union and employer was binding on the plaintiffs and barred the plaintiffs from filing a FLSA claim against the employer. Id. at 253-54. The Fifth Circuit carved out an exception from the general rule barring employees’ waiver of FLSA claims and adopted the rationale set forth in Martinez v. Bohls Bearing Equipment Co., 361 F.Supp.2d 608, 633 (W.D.Tex.2005) (“[A] private сompromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.”). The Fifth Circuit reasoned that “[t]he Settlement Agreement was a way to resolve a bona fide dispute as to the number of hours worked — not the rate at which Appellants would be paid for those hours — and though Appellants contend they are yet not satisfied, they received agreed-upon compensation for the disputed number of hours worked.” Martin, 688 F.3d at 256. The Fifth Circuit noted that the concerns identified in Lynn’s Food— unrepresented workers unaware of their FLSA rights — “[were] not implicated.” Id. at 256 n. 10. Martin, however, cannot be read as a wholesale rejection of Lynn’s Food: it relies heavily .on evidence that a bona fide dispute between the parties existed, and that the employees who accepted the earlier settlement were represented by counsel. Id. at 255, 256 n. 10; Bodle v. TXL Mortg. Corp., 788 F.3d 159, 165 (5th Cir.2015) (emphasizing that the private settlements approved in Martin did not “undermine the purpose of the FLSA because the plaintiffs did not waive their claims through some sort of bargain but instead received compensation for the disputed hours”).
While offering useful guidance, the cases discussed above all arise in the context of whether a private FLSA settlement is enforceable. The question before us, however, asks whether the parties can enter into a private stipulated dismissal of FLSA claims with prejudice, without the involvement of the district court оr DOL, that may later be enforceable. The parties do not cite, and our research did not reveal, any cases that speak directly to the issue before us: whether the FLSA is an “applicable federal statute” within the meaning of
Nothing in Brooklyn Savings, Gangi, or any of their reasoned progeny expressly holds that the FLSA is one of thoseRule 41 — exempted statutes. For it is one thing to say that a release given to an employer in a private settlement will not, under certain circumstances, be enforced in subsequent litigation — that is the holding of Brooklyn Savings and Gangi — it is quite another to say that even if the parties want to take their chances that their settlement will not be effective, the Court will not permit them to do so.
Id. at 373.
The Picemi court also noted that “the vast majority of FLSA cases ... are simply too small, and the employer’s finances too marginal, to have the parties take further action if the Court is not satisfied with the settlement.” Id. at 377. Thus, the Picemi court concluded, “the FLSA is not one of the qualifying statutes that fall within the exemption from
Seemingly unpersuaded by Picemi, the majority of district courts in our Circuit continue to require judicial approval of private FLSA settlements. See, e.g., Lopez v. Nights of Cabiria, LLC, — F.Supp.3d -, No. 14-cv-1274 (LAK), 2015 WL 1455689, at *3 (S.D.N.Y. March 30, 2015) (“Some disagreement has arisen among district courts in this circuit as to whether such settlements do in fact require court approval, or may be consummated as a matter of right under
In Socias v. Vornado Realty L.P., the district court explained its disagreement with Picemi:
Low wage employees, even when represented in the context of a pending lawsuit, often face extenuating economic and social circumstances and lack equal bargaining power; therefore, they are more susceptible to coercion or more likely to accеpt unreasonable, discounted settlement offers quickly. In recognition of this problem, the FLSA is distinct from all other employment statutes. .
297 F.R.D. 38, 40 (E.D.N.Y.2014). The Sodas court further noted that “although employees, through counsel, often voluntarily consent to dismissal of FLSA claims and, in some instances, are resistant to judicial review of settlement, the purposes of FLSA require that it be applied even to those who would decline its protections.” Id. at 41 (internal quotation marks, alteration, and emphasis omitted). Finally, the Sodas court observed that judicial approval furthers the purposes of the FLSA, because “[wjithout judicial oversight, ... employers may be more inclined to offer, and employees, even when represented by counsel, may be more inclined to accept, private settlements that ultimately are
We conclude that the cases discussed above, read in light of the unique policy considerations underlying the FLSA, place the FLSA within
Examining the basis on which district courts recently rejected several proposed FLSA settlements highlights the potential for abuse in such settlements, and underscores why judicial approval in the FLSA setting is necessary. In Nights of Cabina, the proposed settlement agreement included (1) “a battery of highly restrictive confidentiality prоvisions ... in strong tension with the remedial purposes of the FLSA;” (2) an overbroad release that would “waive practically any possible claim against the defendants, including unknown claims and claims that have no relationship whatsoever to wage-and-hour issues;” and (3) a provision that would set the fee for plaintiffs attorney at “between 40 and 43.6 percent of the total settlement payment” without adequate documentation to support suсh a fee award. 2015 WL 1455689, at *1-7. In Guareno v. Vincent Perito, Inc., the district court rejected a proposed FLSA settlement in part because it contained a pledge by plaintiffs attorney not to “represent any person bringing similar claims against Defendants.” No. 14cvl635, 2014 WL 4953746, at *2 (S.D.N.Y. Sept.26, 2014). “Such a provision raises the specter of defendants settling FLSA claims with plaintiffs, perhaps at a premium, in order to avoid a collective action or individual lawsuits from other employees whоse rights have been similarly violated.” Id.; see also, e.g., Nall v. Mal-Motels, Inc., 723 F.3d 1304, 1306 (11th Cir.2013) (employee testified she felt pressured to accept employer’s out-of-court settlement offer because “she trusted [the employer] and she was homeless at the time and needed money”) (internal quotation marks omitted); Walker v. Vital Recovery Servs., Inc., 300 F.R.D. 599, 600 n. 4 (N.D.Ga.2014) (“According to Plaintiffs counsel, twenty-two plaintiffs accepted the offers of judgment — many for $100 — because ‘they are unemployed and desperate for any mоney they can find.’ ”).
We are mindful of the concerns articulated in Picemi, particularly the court’s observation that the “vast majority of FLSA cases” before it “are simply too small, and the employer’s finances too marginal,” for proceeding with litigation to make financial sense if the district court rejects the proposed settlement. 925
CONCLUSION
For the reasons given above, we affirm and remand for further proceedings consistent with this opinion.
. Pursuant to Section 216(c) of the FLSA, the Secretary of Labor has the authority to "supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee or employees under” the FLSA.
. As it is not before us, we leave for another day the question of whether parties may settle such cases without court approval or DOL supervision by entering into a
. Because this appeal was certified before the parties presented the district court with evidence to support their proposed settlement, we express no opinion as to whether a bona fide dispute exists here, or what the district court must consider in deciding whether to approve the putative settlement of Cheeks' claims.
. Other Circuits agree with the Eleventh Circuit's conclusion that waiver of a FLSA claim in a private settlement is not valid. Copeland v. ABB, Inc., 521 F.3d 1010, 1014 (8th Cir. 2008) (“FLSA rights are statutory and cannot be waived”); see also Whiting v. Johns Hopkins Hospital, 680 F.Supp.2d 750, 753 (D.Md.2010) aff'd Whiting v. The Johns Hopkins Hosp., 416 Fed.Appx. 312 (4th Cir.2011) (same); Walton v. United Consumers Club, Inc., 786 F.2d 303, 306 (7th Cir.1986) (same).