How to Draft an FLSA-Compliant Settlement Agreement, Part 3

Confidentiality and Nondisclosure

Introduction

As previously introduced, 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 settlement agreement in FLSA wage claim litigation: (1) the court must scrutinize the terms of such an agreement and decide that it is fair and reasonable before the court may approve 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 FLSA litigation under FRCP 41(a)(1).  Below we discuss recent court decisions that have applied these rules and refused to approve settlement agreements on the grounds that their confidentiality and nondisclosure (hereinafter, “nondisclosure”) clauses were incompatible with the FLSA.

General Presumption In Favor of Public Access

To begin, employers should understand that there is a general presumption in favor of public access to FLSA settlement agreements.  This presumption is a corollary to the majority rule that such agreements are legally invalid unless first reviewed and officially approved by the court – as the Second Circuit recognized and confirmed in Dorian Cheeks.  Indeed, the dispute in Dorian Cheeks came to the Second Circuit after parties had jointly requested dismissal of an FLSA action based on a confidential settlement agreement.  The district court rejected that request and instead issued an Order to Show Cause, directing the parties to “file a copy of the[ir] proposed settlement agreement on the public docket” and “show cause why the proposed agreement reflects a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought about by an employer’s overreaching.”[2]

Although the Second Circuit did not specifically discuss the “public docket” portion of the district court’s Order when affirming it (other than to note that the “public access” question was before it on appeal[3]), other courts have recognized that the “overwhelming majority of courts” require public docketing of FLSA settlement agreements.[4]  In denying motions for “in-camera” judicial review of such agreements and motions to file such agreements under seal, these courts have reasoned that the parties’ arguments for confidentiality – such as the need to protect the employers’ business interests, or concerns that disclosure would lead to frivolous copycat litigation, or would discourage settlements generally – all were insufficient to overcome the strong presumption in favor of public access.[5]

The same principles underlying these court decisions have also guided courts’ review of the nondisclosure clauses contained within proposed FLSA settlement agreements.

Legal Standards Governing Nondisclosure Provisions

Absent unusual circumstances where a nondisclosure clause is sought by and will benefit the employee-plaintiff(s) (such as where public disclosure of the settlement agreement could threaten their ability to earn a living in a small industry, or reputation in a small community),[6] courts have generally rejected FLSA settlement agreement clauses that prevent the employee-plaintiff(s) from divulging the terms of the agreement or from discussing the facts underlying the case in general.[7]

Representative of recent court decisions is the March 30, 2015 ruling by the District Court for the Southern District of New York in Cabiria,[8] which the Second Circuit cited as an example of a district court properly rejecting a settlement agreement based on its inclusion of “a battery of highly restrictive confidentiality provisions” that were “in strong tension with the remedial purposes of the FLSA.”[9]  The agreement at issue: 

(1) barred the employee-plaintiffs “from discussing the settlement with anyone except their ‘immediate family members, financial advisors and attorneys … unless pursuant to subpoena or other compulsory legal process,’”

(2) required that both parties, “if asked about the status of the pending action or the [a]agreement,” “respond ‘solely by stating that The Parties’ dispute has been amicably resolved’” and

(3) “state[d] that plaintiffs ‘shall not directly or indirectly encourage, solicit or support third party, person or entity …with respect to any litigation, arbitration and/or civil action in which defendants could be implicated or discussed in any way, unless pursuant to subpoena or other compulsory legal process.’”[10]

The Cabiria court held that these provisions ran “afoul of the ‘public’s independent interest in assuring that employees’ wages are fair.’”[11]  The court explained that barring the plaintiffs from speaking about their experiences would “thwart[] Congress’s intent to ensure widespread compliance with the statute … by silencing the employee who has vindicated a disputed FLSA right.”[12]

The court also reasoned that although the settlement agreement would be “publicly available” from the court’s electronic docket, many of the workers whom the FLSA was designed to protect – such as those who were poorly educated or non-English speaking – were unlikely to access the agreement from the docket.[13]

The court elaborated that pragmatically, the best way for these workers to learn about their rights to proper wages was through co-workers or outside organizations and that the parties’ proposed non-disclosure provisions would block such information, inhibiting one of the FLSA’s primary goals:   ensuring that all workers are aware of their rights.[14]

The above rulings are consistent with those reached by other courts in jurisdictions throughout the country that have rejected inclusion of similar nondisclosure terms in FLSA litigation settlement agreements.[15]

Conclusion

Employers should consider these rulings when deciding whether to propose nondisclosure provisions in their FLSA settlement agreements in future cases.  Absent unusual circumstances, courts appear generally unlikely to approve such provisions.

[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 defined from Parts 1 and 2 of this series –which are available here and here, respectively.

[2] No. 2:12-cv-04199-JS-ARL, Dkt. 17 (E.D.N.Y. Jan. 24, 2014), aff’d, 796 F.3d 199 (2d Cir. 2015).

[3] Dorian Cheeks, 796 F.3d at 201.

[4] Lopez v. Nights of Cabiria, — F. Supp. 3d –, 2015 WL 1455689, at *4 (S.D.N.Y. Mar. 30, 2015) (“Cabiria”); Green v. Hepaco, LLC, 2014 WL 2624900, at *5 (W.D. Tenn. June 12, 2014) (surveying cases).

[5] See, e.g., Pollock v. Byrider Finance, LLC, 2015 WL 4040400 (W.D. Pa. June 30, 2015);  Adams v. Bayview Asset Mngt., LLC, 11 F. Supp. 3d 474 (E.D. Pa. 2014); Snook v. Valley OB-GYN Clinic, P.C., 2014 WL 7369904 (E.D. Mich. Dec. 29, 2014); Green, 2014 WL 2624900; Alewel v. Dex One Serv., Inc., 2013 WL 6858504 (D. Kan. Dec. 30, 2013); Joo v. Kitchen Table, Inc., 763 F. Supp. 2d 643 (S.D.N.Y.2011); Scott v. Memory Co., LLC, 2010 WL 4683621 (M.D. Ala. Nov. 10, 2010).

[6] See, e.g., Luker v. Wilcox Hosp. Bd., 2014 WL 3518386 (S.D. Ala. July 16, 2014); Crabtree v. Volkert, Inc., 2013 WL 593500 (S.D. Ala. Feb. 14, 2013).

[7] Although beyond the scope of this column, there has also been a rash of recent regulatory agency activity that impacts the permissibility of nondisclosure provisions in all types of employment agreements (including settlement agreements in non-FLSA cases), particularly agreements involving financial services industry employers and employers that maintain federal contracts. For a comprehensive discussion on this topic, see Amanda D. Haverstick, ‘Revising Nondisclosure and Nondisparagement Clauses,’ The Legal Intelligencer (July 22, 2015) (analyzing recent actions by regulatory agencies – including the Securities and Exchange Commission, Financial Industry Regulatory Authority and Office of Inspector General – that have denounced all types of employment law agreements that containing overly broad confidentiality and/or nondisparagement provisions).

[8] 2015 WL 1455689.

[9] 796 F.3d at 206.

[10] Cabiria, 2015 WL 1455689, at *2.

[11] Id., at *5 (quotation omitted).

[12] Id. (emphasis added).

[13] Id.

[14] Id.

[15] See, e.g., Alvarez v. Michael Anthony George Constr. Corp., 2015 WL 3646663 (E.D.N.Y. June 10, 2015); Green, 2014 WL 2624900; Pariente v. CLC Resorts & Devels., Inc., 2014 WL 6389756 (M.D. Fl. Nov. 14, 2014); Briggins v. Elwood Tri, Inc., 3 F. Supp. 3d 1277 (N.D. Ala. 2014); Galvez v. Americlean Servs. Corp., 2012 WL 1715689 (E.D. Va. May 15, 2012); Dees v. Hydradry, Inc., 706 F. Supp. 2d 1227 (M.D. Fl. 2010).