United States District Court, W.D. Arkansas, Harrison Division
DALE SHEPARDSON, Individually and on Behalf of All Others Similarly Situated PLAINTIFF
v.
MIDWAY INDUSTRIES, INC; TOOL STEEL SERVICE, INC; and TOOL STEEL SERVICE OF CALIFORNIA, INC. DEFENDANTS
MEMORANDUM OPINION AND ORDER
TIMOTHY L. BROOKS, UNITED STATES DISTRICT JUDGE
Currently
before the Court is the Joint Motion for Stipulated
Collective Action Settlement and Settlement Approval (Doc.
20) filed by the parties in this case. For the reasons given
below, the Joint Motion is DENIED.
I.
BACKGROUND
Dale
Shepardson filed his Complaint (Doc. 1) against Defendants
Midway Industries, Inc., Tool Steel Service, Inc., and Tool
Steel Service of California, Inc. on October 4, 2018. The
Complaint is a hybrid class and collective action seeking to
recover under the Fair Labor Standards Act ("FLSA")
and the Arkansas Minimum Wage Act ("AMWA") for
Defendants' allegedly illegal practice of allowing
employees such as Shepardson to accumulate "comp
time" in lieu of receiving overtime premium pay when
they worked over forty hours in a given week.
On
February 8, 2019, the parties filed a Notice of Settlement
and Request for Removal of Case Management Hearing (Doc. 18)
with the Court. Broadly speaking, the parties noted that they
had reached a settlement in principle, but simply needed more
time to complete the settlement and dismissal paperwork. The
Court gave the parties an additional month in which to do so,
which resulted in the present motion. Because the
parties' notice of settlement came so early in the
proceedings, no collective or class action proceedings had
been initiated. Thus, the Joint Motion seeks to certify, for
settlement purposes only, the following group:
All current and former employees of Midway who received paid
time off in exchange for working overtime hours between
October 5, 2015, and the date of execution of this Settlement
Agreement.
In
exchange for settling and releasing the classes' FLSA and
AMWA claims, the Settlement Agreement notes that Midway
agrees to pay the total sum of $17, 306.00, with $5, 406.00
being allocated to settlement class members, $2, 000.00 being
allocated to Dale Shepardson as a service (incentive)
payment, and $9, 900.00 allocated to Class Counsel for
attorney's fees, costs, and expenses. In addition, the
Settlement Agreement specifies that members of the settlement
class must timely cash their settlement checks in order to
opt in to the settlement. The Agreement purports to release
the FLSA and AMWA claims only for those members of the
settlement class who do so.
II.
LEGAL STANDARDS
As the
Court stated above, no class or collective action has yet
been approved. Thus, the Court would first "[note] that
the law is unsettled as to whether judicial approval of a
proposed settlement of FLSA claims is required in the absence
of a certified class." King v. Raineri Const,
LLC, 2015 WL 631253, at *1 (E.D. Mo. Feb. 12, 2015). The
concern with private settlements of FLSA
claims-i.e., those not sanctioned by either the
Department of Labor[1] or a court-has largely concerned whether
such agreements effectively release the employee's rights
or whether any purported releases are invalid. The emerging
consensus has been that such release language in private FLSA
settlements may be valid where there is a judicial
determination that there was an actual bona fide dispute
between the parties and the settlement agreement fairly
resolves it. See, e.g., Picerni v. Bilingual Seit &
Preschool Inc., 925 F.Supp.2d 368, 372 (E.D.N.Y. 2013)
("[U]ntil some court determines that there was a bona
fide dispute as to how much plaintiff was owed in wages, and
that the offer of judgment fairly compromises it, the
employer has not eliminated its risk [of exposure to future
litigation]."); see also Martin v. Spring Break
'83 Prods., LLC, 688 F.3d 247, 257 (5th Cir. 2012)
(enforcing a private settlement agreement where plaintiffs
were represented and the court determined a bona fide dispute
existed when the settlement was entered).
Thus,
after litigation begins, the prevailing trend is that the
parties must obtain judicial approval of their FLSA
settlement agreements and may do so only after the district
court approves the settlement and enters a corresponding
judgment. Beauford, 781 F.3d at 405-06 ("After
commencing litigation, employees can waive their rights only
if the parties agree on a settlement amount and the district
court enters a stipulated judgment."); Cheeks v.
Freeport Pancake House, Inc., 796 F.3d 199, 200 (2d Cir.
2015) ("The district court held that parties cannot
enter into private settlements of FLSA claims without either
the approval of the district court or the Department of Labor
("DOL"). We agree that absent such approval,
parties cannot settle their FLSA claims through a private
stipulated dismissal with prejudice pursuant to Federal Rule
of Civil Procedure 41(a)(1)(A)(ii)."). Thus, the Court
will follow this trend and presume that judicial approval is
required in this particular case.
Before
a court approves an FLSA settlement agreement, it must
determine that "the litigation involves a bona fide
dispute and that the proposed settlement is fair and
equitable to all parties." Boland v. Baue Funeral
Home Co., 2015 WL 7300507, at *2 (E.D. Mo. Nov. 18,
2015) (citations omitted). "A settlement is bona fide if
it reflects a reasonable compromise over issues actually in
dispute, since employees may not waive their entitlement to
minimum wage and overtime pay under [the] FLSA."
King, 2015 WL 631253, at *2 (citing DA. Schulte,
Inc. v. Gangl, 328 U.S. 108, 115 (1946)). If the court
determines that there is a bona fide dispute, it must next
determine that the agreement purporting to settle that
agreement is fair and reasonable to all parties. Such a
determination usually involves considering:
the stage of the litigation and amount of discovery
exchanged, the experience of counsel, the probability of
plaintiffs' success on the merits, any
'overreaching' by the employer in the settlement
negotiations, and whether the settlement was the product of
arm's length negotiations between represented parties
based on the merits of the case.
King, 2015 WL 631253, at *2 (citing Carrillo v.
Dandan Inc., 51 F.Supp.3d 124, 132-33 (D.D.C. 2014)).
III.
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