Shepardson v. Midway Industries, Inc.

          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. ...