Thursday, September 8, 2016

Philadelphia Federal Judge Refuses to Approve FLSA Overtime Settlement Due to Overbroad Release

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Philadelphia area employment lawyer John A. Gallagher represents Pennsylvania employees located in towns such as Philadelphia, Rosemont, Narberth, Levittown, Limerick, Gulph Mills, Swarthmore, Bristol and Broomall sue for Unpaid Overtime.

Located in Chester County, Mr. Gallagher prosecutes claims for unpaid wages, compensation, benefits, vacation pay, commissions, bonuses and/or severance on a Contingent Fee basis.

Overtime Settlements Must Be Approved by Federal Judge
Settlement Agreements Reached on Overtime Claims Brought Under the Fair Labor Standards Must be Approved by a Federal Judge

Most employment lawyers are aware that any settlement reached on an overtime lawsuit filed in federal court under the Fair Labor Standards Act must be approved by the Judge presiding over the case before it is deemed binding and appropriate.  This is in contrast to most (if not all) other employment litigation settlements, which do not require such judicial approval as a matter of course.

In analyzing the propriety of such a settlement agreement, the court will, at a minimum, examine the financial terms of the agreement as compared to the allegations made by the plaintiff, the scope of the Release contained within the agreement and the provision setting forth the amount of attorney's fees being paid to the plaintiff's counsel

A Release in a Settlement Agreement in an FLSA Overtime Claim is Overbroad if it "Blindly" Includes a Release of All Potential Employment-Related Claims a Plaintiff Could Have Against His/Her Former Employer

Judge Robreno
In a July 18, 2016 decision issued in Howard v. Philadelphia Housing Authority, Judge Eduardo C. Robreno, who sits on the bench in the Eastern District of Pennsylvania, issued a decision in which he partially denied such an Agreement because the Release therein encompassed any and all claims that the plaintiff could have against the defendant former employer.  In doing so, Judge Robreno explained (bold, italic emphasis mine):

Here, Plaintiff’s Complaint alleged that Defendant terminated her employment in retaliation after she complained about wage and overtime FLSA violations that she was experiencing. Yet, the proposed Settlement Agreement asks Plaintiff to waive “any and all Claims” that “concern[] the termination of Plaintiff’s employment with Defendant, including, but not limited to, claims arising under the Fair Labor Standards Act and Pennsylvania wage and hour laws.” Settlement ¶ 5(a) (emphasis added). These broad terms, for which the parties seek judicial approval, exceed the legal basis of Plaintiff’s Complaint (i.e., wage and hour statutory protection) as well as the factual basis of her Complaint (i.e., alleged retaliation by her employer after she filed complaints with its HR department about wage and overtime pay violations). Legally, the proposed release provisions would preclude Plaintiff from bringing any future claim arising under statutes including “but not limited to” the FLSA and Pennsylvania wage and hour laws. Factually, the proposed release provisions would preclude Plaintiff from bringing “any and all Claims” “concerning the termination of Plaintiff’s employment.” If the Court blindly approved the waiver of “any and all Claims” “concerning the termination of Plaintiff’s employment,” the Court risks judicially endorsing a waiver of Plaintiff’s other statutorily protected rights that may be implicated by an allegedly unlawful termination…And such judicial endorsement exceeds the court’s judicial approval role under the FLSA. Moreover, where a defendant has provided consideration for the release of a plaintiff’s FLSA claims arising from a particular event, which is the case here, the Court is without knowledge as to the value of those claims…The release of an unknown claim based on a separate statutory cause of action frustrates the fairness of the benefit otherwise provided under the proposed Settlement Agreement. See id. Therefore, the Court will not, under the auspices of its FLSA settlement approval duty, approve the release provision as drafted in the proposed Settlement Agreement.

Additional Consideration May Be Necessary to Get a "Full Release" of an Overtime Claim Approved by a Federal Judge

While Judge Robreno's thoughtful and well-reasoned decision in Howard made on its face have intellectual appeal to plaintiff's attorneys such as me (I dislike overbroad Releases), it surely could make settling FLSA overtime cases more difficult.

Additional Consideration the Solution?
When a former employer settles a lawsuit filed by its former employee, it wants to make sure that it will never again have to deal with the former employee on any issues relating to his/her former employment. Here, Judge Robreno is saying that a Release that "blindly" (i.e. without any explanation) attempts to provide such security to a defendant is not valid.

I believe that the solution is to include within any such Release some "additional consideration" in exchange for the plaintiff's agreement to waive all claims he or she may have against the defendant. I do not believe a substantial sum would be required, but I do believe it would have to be a payment that was above and beyond that sum being paid in connection with the underlying overtime claim.

The economic reality of my suggestion may be unpleasant to defendants (and their counsel), but it is a fair and equitable way of avoiding the difficulties presented to all parties by a decision such as Howard.  

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John A. Gallagher is an employment lawyer who represents employees who need an employment lawyer in Southeastern Pennsylvania, including those working in Philadelphia County, Delaware County, Montgomery County, Bucks County, Chester County, Berks County and Lancaster County.

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