Settlement Terms and Agreements are generally drafted by employment lawyers, not courts. The Second Circuit admits that many overtime cases are less than $20,000 in spite of federal law which requires federal judges to conduct fairness reviews to compare the amount of attorneys’ fees being paid versus how much clients receive.
Federal courts in the Second Circuit are empowered 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 do not generally rewrite settlement terms or agreements.
The case is Fisher v. SD Protection Inc., No. 18-2504-cv (2nd Cir. February 4, 2020).
Judges generally accept, reject or suggest revision of FLSA settlement terms. In this case the federal district court judge rewrote the settlement terms. The Second Circuit Court of Appeals reversed, finding that was improper.
Settlement terms or agreements, like severance agreements, are contracts. And contracts are negotiated by the parties and their employment lawyers. Although judges can reject them, they don’t normally rewrite them. Courts either accept them as drafted, reject them and set matters for trial, or suggest that employment lawyers for both sides revisit and redraft such terms.
The money owed to the plaintiff was not substantial. He had only worked for six months. He earned $10 per hour and worked about 49 hours per week. He was owed a maximum total of 5 in overtime plus penalties for the employer’s failure to provide wage notices and wage statements.
The court determined that if the employee recovered everything owed to him, best case scenario, that would be 5 of unpaid overtime, another 5 as liquidated damages, ,000 under New York’s Labor Law for wage notice violations, and ,000 under New York’s Labor Law for wage statement violations. Total damages owed to this employee were ,170 in a best case scenario. The court rewrote the settlement terms which awarded even higher damages to the employee. An appeal was filed and this court disagreed with the trial court judge for rewriting the settlement terms incorporated into the settlement agreement.
On its face this case does not look complicated. But even relatively simple wage and hour cases can become complicated matters. Many employers dispute liability which is the first part of these matters. Even the employers who agree to liability, few will admit that liquidated damages are justified. Prevailing party attorneys’ fees are frequently contested. This employer had moved to Florida. Some file for bankruptcy down there. Florida’s public policy is much different from New York’s. It has been described as truly obnoxious to ours by several courts.
The plaintiff’s lawyer had to make two trips to Florida. Two depositions were taken. The employer obstructed the first one which required a follow-up trip. Given COVID today with remote and virtual depositions becoming more the norm, this issue may have been alleviated. The plaintiff’s law firm could have avoided the bulk of its ,000 in costs today. Today’s courts could readily order the continuation of a deposition by remote conference with a remote deposition.
Ultimately, the employer agreed to pay plaintiff a total of $25,000 to settle the matter. The plaintiff agreed to accept $2,000 of that amount with the balance to employee’s lawyer for expenses, costs, and attorney’s fees. Courts have authority pursuant to authority of the Second Circuit’s Cheeks decision to conduct fairness hearings. During those hearings federal judges in the Second Circuit determine whether settlement terms are fair and reasonable to the employee. This became necessary after some lawyers had made agreements regarding fees and costs which the Second Circuit ultimately found were not always in the best interests of employees. Fairness hearings became necessary to protect employees.
But the fairness hearings were not a green light for courts to rewrite settlement terms and settlement agreements. Courts usually either accepted them, rejected them, or suggested revisions. Unlike this case where the court took it upon itself to rewrite the terms.
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 and their employment lawyers negotiate and draft the settlement terms of the contracts they freely and voluntarily enter.
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.
Taking trips to Florida for depositions is no fun for some of us. Many of us would rather remain in New York although this trial judge apparently disagreed.
Settlement Term Sheets not binding; Settlement Agreements and General Releases are.
Term sheets should not be confused with Settlement Agreements and Releases.