Courts are questioning validity of settlement provissions

July 29, 2019

Non-Kosher Provisions in FLSA Settlements in the Second Circuit

I came across a short court order a few days ago that admonished settling parties in an FLSA suit for including an impermissible provision in the settlement.  Vasquez v. T&W Rest., Inc., 2019 U.S. Dist. LEXIS 121129 (S.D.N.Y. July 19, 2019).  In the opinion, Magistrate Judge Pitman reminded the parties that “provision[s] prohibiting the re-employment of plaintiff . . . are not permissible in an FLSA settlement.” 

There are many district court opinions within the Second Circuit which have disallowed certain provisions in FLSA settlements.  One might call these frowned-upon provisions a “greatest hits of various provisions that have been struck down or questioned by various courts” in the Second Circuit—Judge Pauley from Olano v. Designs by RJR, Ltd., 2017 U.S. Dist. LEXIS 166279, at *7 (S.D.N.Y. Oct. 6, 2017).

Overbroad releases: provisions that payment constitutes full and final settlement of all past, present, and future claims and causes of action by a plaintiff against a defendant. See generally Cheeks v. Freeport Pancake House, 796 F.3d 199 (2d Cir. 2015).

• Including a general release of all past, current, or future claims, whether known or unknown, suspected or unsuspected, relating to any matter up to the execution date of a settlement agreement, which is not limited to claims related to the settling action or a plaintiff’s employment with an employer. Olano at *9-10.
• Broad confidentiality provisions which cover terms and conditions of settlement agreements, all discussions and negotiations leading to such agreements, and all documents exchanged in connection with such agreements. See, e.g., Wolinsky v. Scholastic Inc., 900 F. Supp. 2d 332 (S.D.N.Y. 2012).
• Provisions which provide that if a release of claims is held to be null and void, the settlement agreement shall be interpreted or modified to bar any claim an employee may assert or the employee shall then execute an enforceable general and unlimited release of all If neither is possible, then the employee must return the payment to the employer upon the employer’s demand.  This is generally impermissible in the Second Circuit.  See generally Thallapaka v. Sheridan Hotel Assocs. LLC, 2015 U.S. Dist. LEXIS 117179 (S.D.N.Y. Aug. 17, 2015).
• Non-disparagement gag order provisions prohibiting an employee from discussing the case or settlement unless compelled by law and requiring the employee to respond to any inquiries about a settlement with “[t]he matter has been resolved to the satisfaction of the parties.” See Sakiko Fujiwara v. Sushi Yasuda Ltd., 58 F. Supp. 3d 424, 434 (S.D.N.Y. 2014) (“Nondisclosure agreements in FLSA settlement contravene public policy.”).

These cases make clear that judges within the Second Circuit are taking quite seriously their obligation to ensure the fairness of settlements under the FLSA.  Clients should be aware that, especially after Cheeks, courts are scrutinizing the foregoing types of sharp provisions in these settlements.