Why it matters: A Fair Labor Standards Act (FLSA) case out of California federal court has become a cautionary tale for employers. Employees of Aeropostale sued the retailer in 2012 seeking unpaid bonuses. The parties negotiated a deal and presented it to the judge for preliminary approval. Calling the proposed settlement “one of the worst I have ever seen,” the judge rejected the terms, which would have paid the majority of the roughly 600 collective action members no money whatsoever with a full release of their claims. Instead of going back to the drawing board, the parties filed a joint stipulation that Aeropostale would voluntarily agree to pay each of those who opted in full payment – without the need to release any claims – with one exception: the named plaintiff, who will proceed to trial on her claims later this summer.

Detailed Discussion

A series of plaintiffs filed three collective actions against national retailer Aeropostale. One suit involved allegations of failure to pay overtime wages and the failure to timely pay wages due and was granted preliminary approval for a settlement totaling $1.5 million.

In a second suit, a state court judge gave a thumbs-up to a $2.1 million settlement for a class of Aeropostale employees seeking payment for vacation, rest period, and waiting time.

The third action – filed by the same plaintiffs’ counsel as the first two suits – alleged the retailer violated the FLSA by failing to include nondiscretionary bonus amounts in the pay for nonexempt store employees. U.S. District Court Judge William Alsup granted conditional certification for the collective action and 594 employees opted in.

The parties then filed a motion for preliminary approval of the proposed deal – without an expert class-damages report, as requested by the judge – that was soundly rejected by the court. “The question now is whether the proposed settlement is fair and reasonable,” Judge Alsup wrote. “It is not, decidedly not.”

Pursuant to the proposed deal, the “true up amount” was agreed to be $8,645.61, which would be paid to the opt-ins, who would receive their money after signing a release for FLSA claims and any other similar provisions under state or federal law. But the court broke down the payments, revealing that 60 percent of the collective action members would receive $0, with 38 percent receiving between $1 and $200, and just 2 percent getting between $201 and $588.

The court further examined the numbers to show that of the 38 percent in the middle category, 78 percent would receive between $1 and $25. “This means that the vast majority (ninety percent) of collection action opt-ins would receive nothing or virtually nothing in this proposed settlement but nonetheless would provide a release and covenant not to sue,” Judge Alsup said. “No one should have to give a release and covenant not to sue in exchange for zero (or virtually zero) dollars. To protect the absent opt-in members, they will not be required to give up on their claims in exchange for zero dollars.”

“This settlement is so unfair, it cannot be fixed,” the court wrote. “The Court is tentatively convinced that the opt ins would be better off fending for themselves and escaping the negotiating authority of plaintiff’s counsel.”

Just a few days later, the parties filed a joint stipulation in response. Reaffirming that the parties believe the true-up amount to be $8,645.61, the defendant agreed to issue a payment to each collective action member (excluding the named plaintiff) without seeking a release from them. Aeropostale noted that “a large portion of the remaining class members were owed less than $25,” a statement that the plaintiff did not disagree with.

Therefore, the parties agreed that the conditional certification order be vacated and the case should proceed as to the named plaintiff’s claim only, with trial set for August.

To read the order denying preliminary approval for the settlement in Daniels v. Aeropostale West, Inc., click here.

To read the joint stipulation, click here.