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OK to award fees to sales rep who gave up FLSA lawsuit in exchange for dismissal of dueling non-compete suit

By Marjorie Johnson, J.D.

An employee gained a benefit since his employer had not waived the right to seek the $150K in its non-compete suit “out of pure generosity” but rather “leveraged the potential liability” to resolve the employee’s FLSA claims.

A district court did not err in awarding over $46K in attorneys’ fees to a sales representative who entered into a court-approved settlement in which he agreed to dismiss his FLSA collective action in exchange for his former employer’s dismissal of its separate state non-compete lawsuit against him, ruled the Eleventh Circuit, affirming the fee award in an unpublished opinion. Ruling that the employee was a “prevailing party,” the district court found that a “material alteration of the legal relationship” had occurred since the employee avoided having to pay the employer $150K, which was the stipulated value of its state suit against him (McBride v. Legacy Components, LLC, June 20, 2019, per curiam, unpublished).

Non-compete action leads to FLSA lawsuit. This litigation began when the employer filed a lawsuit against the sales rep asserting he violated their non-compete agreement after he left employment with the company. The employee responded by filing this federal wage-hour suit against the company asserting a putative class and collective action alleging wage violations under the FLSA and Florida law.

Settlement covers both. The parties subsequently reached a global settlement of both actions, which the state court approved as fair and reasonable. Under the settlement, the parties agreed that the employee breached the non-compete agreement, causing the company to suffer over $150K in damages, including attorney’s fees and costs. The employer, in turn, agreed to forego its litigation against him in exchange for his dismissal of his wage action. As a result, he agreed to file a motion in his federal suit to approve the settlement and determine his entitlement to and amount of any reasonable attorney’s fees and costs to be paid by the employer.

Attorneys’ fees awarded. The question of the employee’s entitlement to statutory attorney’s fees was first considered by a magistrate judge, who concluded that he was not a “prevailing party” and therefore not entitled to attorney’s fees. The district court disagreed, however, and awarded him $46,375 in attorney’s fees. The employer appealed.

Prevailing party. The Eleventh Circuit agreed with the district court that the employee was a prevailing party entitled to attorney’s fees. Notably, the Supreme Court has found that the fact that a party “prevailed through a settlement rather than through litigation does not weaken her claim to fees.” The key question was whether the employee “succeeded on any significant claim affording him some of the relief sought” and he “must be able to point to a resolution of the dispute which changes the legal relationship between itself and the defendant.”

“Judicially sanctioned” change. The Supreme Court has also clarified that a plaintiff is not a “prevailing party” when his suit merely triggers the defendant’s voluntary change in conduct. In that scenario, there has been “no judicially sanctioned change in the legal relationship of the parties.” Here, by contrast, the district court concluded that a settlement agreement expressly approved by the court was sufficient to meet the “judicially sanctioned” requirement and the parties did not dispute this legal conclusion on appeal.

Lack of monetary award not fatal. The district court rejected the employer’s contention that the employee could not be a prevailing party because he did not receive a monetary award or otherwise obtain relief on the merits of his FLSA claim—in other words, because he has not “succeeded on any significant claim.” This argument raised a factual question about the contents of the settlement agreement, which the district court resolved in the employee’s favor. It agreed with the employee that “there has been a material alteration of the legal relationship of the parties here because he has avoided having to pay $150,000,” the stipulated value of the company’s state suit against him.

Benefit gained by avoiding non-compete lawsuit. The court reasoned that the employer “did not waive the right to seek the $150,000 out of pure generosity” to the employee. Rather, it “leveraged the potential liability” in the state lawsuit to resolve the FLSA claims. Indeed, the settlement agreement specifically stated that it agreed to forego seeking the $150,000 “in exchange for the dismissal of the instant action.” Thus, the district court concluded that the fact that the employer may no longer seek those damages was a benefit that the employee gained in settling his wage action, and it was “a material changes in the legal relationship of the parties.”

The employer’s continued disclaimer of its liability under FLSA was not “unavailing and unsurprising” as many parties who choose to settle a lawsuit do so without admitting liability for the underlying allegations. Nonetheless, whatever the value of the FLSA suit may have been, the global settlement changed the legal relationship between the parties. The employer stipulated that it could have obtained substantial damages from the employee in the state non-compete suit. Because now it cannot, the employee gained something valuable.

Success on significant claim. Accordingly, it was not clear error for the district court to conclude that what the employee got in the settlement amounted to success on a significant claim that afforded him some of the relief he sought. While “some nuisance settlements, purely technical victories, and other de minimis successes—even judicially sanctioned ones—may not suffice to confer prevailing party status,” the district court found that the employee gained “real relief” that changed the legal relationship between him and the employer. While the employer argued that he “should not be rewarded for vexatiously filing this federal suit merely to generate leverage in his state suit,” that was a question properly decided by the district court.