Not Much Confidence in Confidentiality: Settling FLSA Claims in the Post-Cheeks Era

By: Alex Reinauer

 

The Hofstra Labor & Employment Law Journal hosted a roundtable discussion at the Harvard Club on January 25, 2017 consisting of nine panelists (the “Panel”). [1] The topic, Post-Cheeks Wage and Hour Settlements, brought the discussion of several issues. The first topic addressed by the Panel, one that also garnered the lengthiest discussion, was the topic of confidentiality agreements.[2] The Panel discussed the framework set forth in Wolinsky v. Scholastic,[3] a framework that is most commonly used by New York Courts but has also been cited in other jurisdictions.[4] While the Wolinksy case was not cited in the Second Circuit Court of Appeals case, Cheeks v. Freeport Pancake House, Inc., the Wolinksy framework is continually used by New York Federal Courts.[5]

In the Southern District of New York, Sarah Wolinksy brought a claim against her former employer, Scholastic Inc., under the Fair Labor Standards Act (“FLSA”) and New York Labor Law alleging that the defendant “misclassified her as an independent contractor during the course of her employment in order to avoid granting her benefits or paying her overtime wages.”[6] Wolinksy and Scholastic did eventually reach a settlement agreement (the “Agreement”) and submitted it to the court for approval,[7] but the Court found issue with the Agreement’s confidentiality provision, one that “prohibit[ed] Wolinksy from disclosing, discussing, or otherwise publishing the existence or terms of the Agreement.”[8] The Wolinksy Court ultimately concluded that “the common law right of access to judicial documents requires that the Agreement be made public.”[9]

As one piece of commentary described the ruling, “Wolinsky reflects the difficult dilemma faced by employers in wage-hour cases: even where the parties are able to agree to amicably resolve their dispute (and thereby avoid a public trial), the agreement cannot receive judicial approval without forcing the parties to air those disagreements in public filings.”[10] Both the Wolinksy Court and the Panel discussed the importance of considering “the totality of circumstances” in determining whether or not a settlement is considered fair and reasonable.[11]

The discussion of confidentiality and the protective nature of the FLSA in the Wolinksy case moved the Panel discussion to settlement approval and the need for some form of oversight in order to prevent employers from taking advantage of employees in a manner that the FLSA was intended to prevent. The Cheeks Court held that the FLSA fell within the “applicable federal statute” exception under the Federal Rules of Civil Procedure section 41.[12] In turn, settlements and dismissals of FLSA claims with prejudice require approval by the district court or the Department of Labor (“DOL”).[13] In the absence of an approved settlement by a proper authority, members of the panel contended that employees are less likely to receive the compensation they are entitled to.[14] The need to enforce minimum wage standards in disputes between the employee and employer, much like the dispute that occurred in Cheeks, cannot be done in the absence of some form of oversight.[15] Some on the Panel proposed the possibility that an employee could negotiate for a larger settlement by agreeing to a confidentiality provision, but others were of the opinion that, much like an employee’s inability to contract for wages under the minimum standards, an employee cannot contract for a lesser settlement than he or she is entitled to.[16]

Since the Cheeks decision, settling FLSA claims in the Second Circuit has become far more difficult.[17] However, the Cheeks court did leave two looming questions concerning the  approval of FLSA settlements: “whether parties may settle without court or DOL approval by dismissing the case without prejudice, and whether court or DOL . . . approval is needed for a dismissal with prejudice before the opposing party serves either an answer or a motion for summary judgment.”[18] The future of FLSA settlements appear even more uncertain in light of a previous decision in the Fifth Circuit Court of Appeals.[19] An agreement to settle employees’ FLSA claims was enforced by the Fifth Circuit in Martin v. Spring Break ’83 Prods., LLC, absent approval by a court or the DOL, finding that a “‘bona fide dispute’ existed and the employees were represented by counsel.”[20] The decision provides a more lenient approach to private FLSA settlements than the one laid out in Cheeks.[21] Only time will tell if the Supreme Court decides to step in to resolve the question between the Circuits.

[1] Judge Seybert is a United States District Judge for the Eastern District of New York. Judge Sullivan is a United States District Judge for the Southern District of New York. Judge Ellis is a United States Magistrate Judge for the Southern District of New York. Judge Locke is a United States Magistrate Judge for the Eastern District of New York. Allan Bloom is a partner at Proskauer Rose LLP. A. Jonathan Trafimow is a partner at Moritt Hock & Hamroff LLP. Molly Brooks is a partner at Outten & Golden LLP. D. Maimon Kirschenbaum is a partner a Joseph & Kirschenbaum LLP. David B. Feldman, a shareholder at Ogletree Deakins Nash Smoak and Stweart P.C. served as the moderator.

[2] Panel at Hofstra Labor and Employment Law Journal Roundtable Discussion: Post-Cheeks Wage & Hour Settlements (Jan. 25, 2017).

[3] Wolinsky v. Scholastic, 900 F.Supp.2d 332, 334 (S.D.N.Y. 2012).

[4] Singleton v. AT&T Mobility Servs., LLC, 146 F. Supp. 3d 258 (D. Mass. 2015).

[5] See, e.g., Vasquez v. 701 W. 135th Café, Inc., No. 16cv692, 2016 U.S. Dist. LEXIS 171464 (S.D.N.Y. Dec. 12, 2016); Xu Chen v. Zaza Japan, Inc., No. 15-CV-3073 (SIL), 2017 U.S. Dist. LEXIS 900 (E.D.N.Y. Jan. 4, 2017).

[6] Wolinsky, 900 F.Supp.2d at 334.

[7] Id.

[8] Id.

[9] Id. at 335.

[10] Robert S. Whitman & Robert T. Szyba, Only one way out of this mess: settlement of FLSA lawsuit may need to be public to receive court’s approval, Lexology (July 23, 2012) (“Although some courts have been willing to approve such settlements on a confidential or in camera basis, this case adds to the line of authority rejecting such a practice.”) http://www.lexology.com/library/detail.aspx?g=bc29fe76-3ad5- 4b00-b786-8cda8b6da1d1.

[11] Wolinsky, 900 F.Supp.2d at 335.

[12] Cheeks v. Freeport Pancake House, Inc. 796 F.3d 199, 206 (2d Cir. 2015).

[13] While the Court in Cheeks acknowledged that the FLSA was silent on the issue, it concluded that previous cases “read in light of the unique policy considerations underlying the FLSA, place the federal statute within Rule 41’s exception.” Id.

[14] Panel at Hofstra Labor and Employment Law Journal Roundtable Discussion: Post-Cheeks Wage & Hour Settlements (Jan. 25, 2017).

[15] Id.

[16] Id.

[17] Robert S. Whiteman, Howard M. Wexler & Meredith A. Berger, District Court Turns the Other “Cheeks” on Parties’ Proposed Stipulation of Dismissal, Seyfarth Shaw LLP: Wage & Hour Litigation Blog (July 11, 2016), http://www.wagehourlitigation.com/settlement/turns-the-other-cheeks/.

[18] Id.

[19] See Martin v. Spring Break ’83 Prods., LLC, 688 F.3d 247 (5th Cir. 2012).

[20] Joshua B. Waxman, Second Circuit Holds that Parties May Not Stipulate to Dismiss With Prejudice FLSA Actions Without Court Approval, Littler (Aug. 14, 2015), https://www.littler.com/publication-press/publication/second-circuit-holds-parties-may-not-stipulate-dismiss-prejudice-flsa.

[21] Id.

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