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End run around plaintiff’s counsel to reach settlement didn’t spare employer obligation to pay attorneys’ fees

October 8th, 2013  |  Ron Miller

Employers who take it upon themselves to privately settle wage claims with employees do so at their own risk. That point was driven home again by the Eleventh Circuit in an unpublished opinion in Wolff v Royal American Management, Inc. In the salient ruling Lynn’s Food Stores, Inc v US Dep’t of Labor, the Eleventh Circuit rejected a private settlement of back wage claims between an employer and its employees. The agreement in that case was not negotiated or supervised by the Department of Labor nor was it entered as a stipulated judgment in an action brought against the employer by its employees. Further, there was no evidence that any of the employees had consulted with an attorney before signing the agreement. Moreover, some of the employees who signed the agreement could not speak English. Thus, the agreement did not reflect a reasonable compromise of disputed issues, but was an attempted waiver of statutory rights brought about by the employer’s overreaching, concluded the appeals court.

Although the situation in Wolff was not as one-sided as that evidenced in Lynn’s Foods, the result was still punishing for the employer. The issue presented in Wolff was whether an employee’s voluntary acceptance of payment from her employer as settlement of her claims for unpaid overtime precluded a separate award of attorneys’ fees under the FLSA. In this instance, a district court concluded that the offer was fair and reasonable and entered judgment in favor of the employee. However, it was determined that the settlement did not provide the employee with all of the relief to which she was entitled to under the FLSA, so it did not moot her claim, and she was entitled to seek attorneys’ fees and costs from the employer.

Settlement offer. After filing her complaint alleging FLSA violations, the employee calculated that her employer failed to pay her $1800 in overtime wages. With liquidated damages, that brought her total itemized damages to $3600. In December 2011, the employer tendered $3600 to the plaintiff through her attorney and moved to dismiss the action. The employee’s counsel returned the check. In December 2012, the employer offered to settle the case for $5,000, but the employee’s counsel claimed that he never submitted the offer to the employee because it was never put in writing. Evidently, the employer became frustrated with its attempts to put the matter behind it, so it mailed the employee a 1099 form reflecting a payment of $3600. The employee called to determine the reason for the 1099. At that time, the employee for the first time learned of the prior tender offer to her attorney. She stated that she wanted to settle the case. Thereafter, the employee met with the employer, signed a general release and took the $3600 check. The employee’s counsel was not involved.

Subsequently, the parties moved the court to determine whether the payment and release rendered the action moot, stripping the employee of attorneys’ fees on the ground that there was no judgment in the case to indicate that she was the prevailing party. Ultimately, the district court approved the settlement as reasonable, even though it was reached without the participation of the employee’s counsel. However, the district court found that the settlement had not mooted the lawsuit awarded the employee’s counsel more than $61,000 in fees and costs.

Prevailing party determination. Because the FLSA seeks to protect employees from “inequalities in bargaining power between employers and employees,” Congress has made its provisions mandatory. Moreover, the FLSA plainly requires that a plaintiff who receives a judgment in his favor is entitled to attorney’s fees and costs.” The Supreme Court has recognized that a plaintiff is a prevailing party only when she obtains either (1) a judgment on the merits, or (2) a settlement agreement “enforced through consent decree.”

In the absence of a judgment on the merits, to be a prevailing party, an FLSA plaintiff needs a stipulated or consent judgment or its “functional equivalent” from the district court evincing the court’s determination that the settlement “is a fair and reasonable res[o]lution of a bona fide dispute over FLSA provisions.”

Here, the employer’s settlement offer to the employee did not include an offer of judgment in the employee’s favor and against the employer. Rather, the employee signed a release providing that she acknowledged receipt of the $3600 check as full and complete satisfaction of any monies owed to her by the employer. Under such circumstances, the employer’s offer did not constitute full relief of the employee’s claim. Thus, the employer’s settlement with the employee did not moot her FLSA claim, and she was entitled to seek attorneys’ fees and costs from the employer.

The appeals court observed that the district court plainly found that the settlement was reasonable, and entered judgment in favor of the employee. Moreover, the district court found that the parties did not intend the settlement to preclude attorneys’ fees. Accordingly, the appeals court rejected the employer’s claim that the district court abused its discretion in awarding the fees in this case, and the judgment of the district court was affirmed.

As tempting as a nice tidy settlement of a wage claim may appear, as Wolff demonstrates private settlements are froth with their own perils. “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.” In this instance, the employer provided the appeals court with no reason to depart from Lynn, which directs a district court to enter judgment after “scrutinizing” for the fairness of a proposed settlement entered into between the employee and the employer in an action for back wages.