How to Draft an FLSA-Compliant Settlement Agreement, Part 2

The Release

As discussed in Part 1, the Second Circuit’s August 2015, Dorian Cheeks decision[1] confirmed two prevailing rules followed by the great majority of federal courts with respect to privately-negotiated settlement agreements in FLSA wage claim litigation:  (1) the court must scrutinize the terms of such an agreement and decide that the agreement represents a fair and reasonable resolution of the parties’ dispute before the court may issue official approval of the agreement and (2) absent such approval, the agreement will neither immunize the employer from future wage claims by the same employees, nor support a stipulated dismissal with prejudice of the underlying action under FRCP 41(a)(1).

Below we discuss recent decisions that have applied these rules and rejected parties’ proposed settlement agreements on the grounds that they include an overly broad release.  Adhering to the teachings of these cases should assist employers when drafting appropriate releases in future cases.

Legal Standards Governing the Release

Employers seeking to resolve employment disputes generally view the release as the most important part of a settlement agreement.  Unfortunately, in the great majority of federal courts, Releases in FLSA litigation settlement agreements offer far less bang for the buck than those used in other contexts.  The following is a discussion of recent, representative case law from courts in jurisdictions throughout the country.

Southern District of New York

In a March 30, 2015 decision involving a putative FLSA collective action, Lopez v. Nights of Cabiria (“Cabiria”), a district court in the Southern District of New York provided a comprehensive discussion regarding the permissible scope of a release in an FLSA litigation settlement agreement. [2]  The case is of particular import because the Second Circuit endorsed the Cabiria court’s rejection of a proposed settlement agreement due to its “overbroad release” (among other impermissible features) – citing the case as an example of why judicial review of settlement terms is so necessary in the FLSA litigation context.[3]

The release at issue in Cabiria provided that the settling employees would waive any and all claims arising “‘from the beginning of the world,” including (1) “unknown claims” and (2) non-wage claims that had “no relation to the instant suit.”[4]  Dubbing such terms “far too sweeping” to be “‘fair and reasonable,’” the Cabiria court rejected the parties’ proposed settlement agreement in toto, and refused to dismiss the underlying litigation.[5]

In justifying this outcome, the court first drew upon class action settlement jurisprudence.

The court explained that even in non-FLSA class actions, courts routinely reject releases containing “claims not presented and even those which could not have been presented” – unless the releases specify that such additional released claims “ar[o]se out of the identical factual predicate as” the claims raised in the action being settled.[6]

The court noted that no such limitation was present in the release that the Cabiria  parties had proposed.[7]

The court then went on to hold that their proposed release was “doubly problematic,” because courts have a duty to police FLSA settlements with more exacting scrutiny than settlements in other class cases.[8]  The court explained that although the parties had “every right to enter into a settlement that waives claims relating to the existing suit in exchange for a settlement payment,” the court would “not countenance employers using FLSA settlements to erase all liability whatsoever in exchange for partial payment of wages allegedly required by [the FLSA] statute.”[9]  The court concluded that the parties must remedy these “deficiencies” in their release “before approval [would be] appropriate.”[10]

Middle District of Pennsylvania

The same result was reached in a single-plaintiff FLSA case decided in January 2015, by a district court in the Middle District of Pennsylvania, Bettger v. Crossmark (“Bettger”).[11]  The parties there had proposed an all-inclusive release like that in Cabiria.  After surveying a large number of cases from throughout the country, the Bettger court concluded that courts routinely limit the scope of FLSA litigation releases “to ‘claims related to the specific litigation’ in order to ensure equal bargaining power between the parties.”[12] The Bettger court followed suit.  It denounced the parties’ proposed release as “inappropriately comprehensive” and “antithetical to the FLSA,” rejected their proposed settlement agreement, and refused to dismiss the litigation.[13]

A sampling of recent decisions from around the country shows a widespread consensus among outcomes consistent with those discussed above.  See, for example:

• Southern District of California, Ambrosino v. Home Depot USA, Inc.: court refused to approve a proposed FLSA settlement agreement where the release sought to include claims unrelated to those asserted in the complaint, ruling that such a release was wholly improper in the FLSA context.[14]
• District of Kansas, Barbosa v. Nat’l Beef Packing Co., LLC: court required that the parties amend the release clause in their settlement agreement because it impermissibly included the employer’s plan administrator as a “releasee” – suggesting that the settling employees would be waiving benefit claims, despite no such claims having been advanced in the FLSA suit; the court deemed such a release “overly broad and unfair to the opt-in plaintiffs.”[15]
• Middle District of Florida, Moreno v. Regions Bank: court rejected the parties’ proposed settlement agreement because it included a broad release of all claims, reasoning that “an employer is not entitled to use an FLSA claim … to leverage a release from liability unconnected to the FLSA.”[16]

Affirmative Drafting Guidance

The above court decisions teach what “not to do” when drafting a release clause in an FLSA litigation settlement agreement.  To obtain more affirmative, positive instruction on what “to do,” practitioners should study the “before” and “after” release language in cases where, following initial court disapproval, the parties have amended their release terms and submitted revised settlement agreements that the courts have approved.[17]  By reviewing these materials, employers will increase their chance at securing court approval of proposed release language the first time around – speeding the process of producing an enforceable settlement agreement that will support litigation dismissal and bar the settling employees from reasserting their same wage claims in the future.

[1] Dorian Cheeks v. Freeport Pancake House, 796 F.3d 199, 203-06 (2d Cir. 2015) (“Dorian Cheeks”).  Hereinafter, to avoid needless repetition, we adopt by reference all terms defined in Part 1 of this series – a copy of which is available here.

[2] — F. Supp. 3d –, 2015 WL 1455689 (S.D.N.Y. Mar. 30, 2015) (“Cabiria”).

[3] Dorian Cheeks, 796 F.3d at 206, quoting Cabiria, 2015 WL 1455689, at *2.

[4] Cabiria, 2015 WL 1455689, at *2, *6 (emphasis added).

[5] Id., at *2.

[6] Id., at *6 (emphasis added).

[7] Id.

[8] Id., at *7.

[9] Id.

[10] Id.

[11] No. 1:13-CV-2030, 2015 WL 279754 (M.D. Pa. Jan 22, 2015).

[12] Id., at *8 (emphasis added), quoting Singleton v. First Student Mgmt. LLC, 2014 WL 3865853 (D.N.J. Aug. 6, 2014).  See also id., at *8-9, citing, inter alia, Brumley v. Camin Cargo Control, Inc., 2012 WL 1019337 (D.N.J. Mar. 26, 2012); Hogan v. Allstate Beverage Co., 821 F. Supp. 2d 1274 (M.D. Ala. 2011); cf. In re Wells Fargo Wage & Hour Emp’t Practices Litig. (No. III), 2014 WL 1882642 (S.D. Tex. May 12, 2014).

[13] 2015 WL 279754, at *8. 

[14] 2014 WL 1671489, at *2 (S.D. Cal. April 28, 2014).

[15] 2014 WL 5099423, at *8 (D. Kan. Oct. 10, 2014).

[16] 729 F. Supp. 2d 1346, 1351-52 (M.D. Fla. 2010).   A minority of courts have permitted broad releases in special circumstances, such as where the amount paid by the employer represents all wage amounts that employee-plaintiffs claimed were due, or where the parties have entered into secondary, side agreements under which the employer pays additional compensation in exchange for a broad release.  See, e.g., Tall v. MV Transp., 2015 WL 302827 (D. Md. Jan. 22, 2015); Pariente v. CLC Resorts & Devels., Inc., 2014 WL 6389756 (M.D. Fl. Nov. 14, 2014).

[17] In Bettger, for example, see M.D. Pa. Case 1:13-CV-02030-CCC, Dkt. Nos. 58 & 59, and in Barbosa, see D. Kan. Case 2:12-cv-02311-KHV-TJJ Dkt. Nos. 64 & 64-1.  Additional examples may be found by in the docket entries from most of the other cases cited herein, as well as in many others.