The Second Circuit admits that many settlement terms for overtime claims are less than $20,000 even after recent mandates that federal judges conduct fairness reviews to compare the amount of attorneys’ fees being paid versus the amount paid to clients or employees, federal judges’ powers limited to: 1) accept settlement terms as written, 2) reject them to delay proceedings and see whether different terms are reached, or 3) allow parties to litigate, since federal district court judges have no authority to rewrite settlement terms or agreements.

The case is Fisher v. SD Protection Inc., No. 18-2504-cv (2nd Cir. February 4, 2020).

Plaintiff’s employment was short-lived; just 6 months. He supervised student tour groups in hotel hallways as a chaperone. He regularly worked 49 hours a week earning $10 per hour. His employer refused to pay a maximum total of $585 in overtime compensation and failed to provide the employee with a wage notice and wage statements. The employee brought a lawsuit to recover damages on those claims.

If employee recovered everything that he claimed he was owed at trial he would have potentially recovered $585 of unpaid overtime, another $585 as liquidated damages for nonpayment of overtime, $5,000 under New York’s Labor Law for wage notice violations, and $5,000 under New York’s Labor Law for wage statement violations. In an absolute best case scenario, employee’s total recovery would have have been $11,170. The federal district judge rewrote the settlement terms or agreement giving the employee even more which prompted this appeal.

Although these claims might appear to be simple or “run of the mill” they rarely are. Employers often deny any liability. Then they object to liquidated damages or prevailing party attorneys’ fees liability. Some even file for bankruptcy. This employer either resided in Florida or moved there possibly thinking they could escape liability, which would be consistent with the public policy of Florida.

The employee’s lawyer had to make two trips to Florida to depose the employer. The first deposition was cut short by the employer and the court had to order its continuation. Almost $5,000 in costs were expended to pursue this relatively modest claim.

Eventually employer agreed to pay employee a total of $25,000 per the settlement terms or agreement reached between employee and former employer. Employee plaintiff would be paid $2,000 with the balance going to his lawyer for expenses, costs, and attorney’s fees. The court, pursuant to its authority to review FLSA settlement terms at fairness hearings mandated by the Cheeks decision, disagreed and rewrote the amounts to be paid to employee and his lawyer.

New York’s Second Circuit Court of Appeals said that was wrong. Federal district judges do not have the power to rewrite contracts. And settlement terms and settlement agreements are contracts. Only parties can determine the settlement terms of the contracts they freely and voluntarily enter.

The Second Circuit wrote that the district judge had 3 choices. He could either accept the settlement terms as drafted by the parties, he could reject those terms and see whether the parties came up with terms which the court might approve, or he could set the matter for trial and let them litigate it.

The decision is interesting because it goes into considerable detail about how lawyers who represent employees expect to be paid reasonable fees for acting as private attorneys general regardless of whether a claim is “run of the mill” or not. Reaching settlement terms on overtime claims is an important part of many of our practices. Were we not permitted to settle these claims pursuant to terms which are reasonable for us and our clients, many of us could not afford to pursue them. The court noted the Congressional intent at the time of passage of wage and hour laws was to reasonably compensate private attorneys general for pursuing such claims.

If only some judges could spend a day in our lives they might encourage more settlement terms favorable to us who do this work; keeping our clients’ interests paramount of course. But courts sometimes lose sight of the fact that the risk we take is that some employers will either be noncollectable, slow pays, or unavailable as this one went to Florida.

It’s unknown whether the judge considered the Florida deposition to be akin to a working vacation. But I am certain the deposition was not pleasant and neither were either of the trips to Florida.

If this trial judge’s next paycheck depended on the approval of overtime settlement terms as required by Cheeks, it’s probable that the review would have been different. Hopefully the remand explores those issues.

Settlement Term Sheets not binding; Settlement Agreements and General Releases are.

Term sheets should not be confused with Settlement Agreements and Releases.

Reasons why settlement agreements should be reviewed by an employment lawyer.