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When does the Court have to approve my FLSA settlement?

Introduction

Most civil lawsuits end in a pre-trial settlement, meaning the case resolves before it is heard by a jury. Generally speaking, this statement holds true for employment law cases. When a case resolves in the pre-trial stage, the parties usually file a joint stipulation of dismissal or a notice so that the court can dismiss the lawsuit with prejudice. Most employment laws do not require the presiding court approve the terms and conditions of the settlement. However, private claims for wages under the Fair Labor Standards Act of 1938 (“FLSA”) do require the presiding court to scrutinize and approve the settlement for fairness. If the Secretary of Labor supervises the payment of unpaid wages, then the court does not have to approve the settlement. If the parties do not complete the settlement through one of these two avenues, then the settlement in unenforceable.

Factors of Fairness

There are several factors a court must consider when determining whether the settlement is fair and reasonable: (1) the existence of collusion behind the settlement; (2) the complexity, expense, and likely duration of litigation; (3) the stage of the proceedings and the amount of discovery completed; (4) the probability of plaintiff’s success on the merits; (5) the range of possible recovery; and (6) the opinions of counsel. There is a strong presumption among the courts in favor of finding a settlement fair. However, there are certain terms that courts give additional attention.

For example, the Eleventh Circuit has questioned the validity of contingency fee agreements for FLSA wage cases. Contingency fee agreements pay legal counsel a percentage of the total settlement, meaning the settlement is negotiated as a whole and counsel then takes a portion of that settlement. For FLSA cases, courts encourage the parties to negotiate the unpaid wages separate and apart from attorneys’ fees and costs. The FLSA requires judicial review of the reasonableness of counsel’s legal fees to assure both that counsel is compensated adequately and that no conflict of interest taints the amount the wronged employee recovers under a settlement agreement.

For a court to determine whether the proposed settlement is reasonable, counsel for the plaintiff must first disclose the extent to which the FLSA has or will be compromised by the deduction of attorneys’ fees, costs, or expenses pursuant to a contract between the plaintiff and counsel. When the plaintiff receives less than a full recovery, any payment above a reasonable fee is unfair. The courts use the lodestar method as a guide when reviewing attorneys’ fees, which looks at the hours an attorney worked on the case multiplied by a reasonable hourly rate. Courts will typically approve settlement agreements when the plaintiff’s attorneys’ fee was agreed upon separately and without regard to the amount paid to the plaintiff.

If you feel your rights under the Fair Labor Standards Act have been violated, or if you have any questions regarding your employment rights, please contact the experienced Birmingham employment law attorneys at Wrady Michel & King. You can contact us online or by calling us at (205) 319-9724.