In a decision that may increase the benefit to defendants of making an offer of judgment in cases involving claims under the Fair Labor Standards Act (FLSA), the Fifth Circuit recently held in Gurule v. Land Guardianthat a rejected offer of judgment can be used to significantly reduce the attorneys’ fees a prevailing plaintiff can recover in such cases. In so holding, the Fifth Circuit joined several other Circuits in finding that a rejected offer of judgment that is greater than the amount the plaintiff recovers at trial is an important factor in determining the degree of success achieved by a prevailing plaintiff. Thus, while the rejection of a more favorable offer of judgment does not preclude the recovery of attorneys’ fees by a prevailing FLSA plaintiff, it can nevertheless substantially reduce the amount of attorneys’ fees a court will award as reasonable.

In many cases filed under the Fair Labor Standard Act (FLSA), in which former employees seek to recover alleged unpaid overtime or minimum wages, each individual plaintiff’s unpaid wage damages may be small. However, as the case goes on, the plaintiff’s attorneys’ fees can mount quickly and can become a significant part of any judgment, as the FLSA includes a fee shifting provision that allows a prevailing plaintiff to recover their fees from the defendant employer. A recent decision from the Fifth Circuit Court of Appeals, however, confirmed – for the first time in that Circuit – that an offer of judgment can be used to significantly reduce the attorneys’ fees a prevailing plaintiff can recover.

Under the “offer of judgment” mechanism detailed in Federal Rule of Civil Procedure 68 (Rule 68), a defendant makes a settlement offer to resolve the case. If accepted, the offer is filed at the courthouse and the case ends. However, if the receiving party rejects the offer, prevails at trial, and recovers an amount that is less than the offer, the rejecting party must pay the offeror’s costs incurred after the offer was made.

When the statute under which the plaintiff has sued defines “costs” to include “attorneys’ fees,” a plaintiff who rejects a Rule 68 offer of judgment and then achieves a less favorable judgment at trial cannot recover attorneys’ fees under the statute. The FLSA, however, defines “attorneys’ fees” separately from “costs.” This means that Rule 68 does not preclude a plaintiff who recovers less at trial than what they were offered in an offer of judgment from recovering attorneys’ fees. However, in December 2018, the Fifth Circuit joined several other circuits in holding that the rejection of an offer of judgment that is more than the judgment the plaintiff ultimately obtains is a factor that should significantly reduce an award of attorneys’ fees to a prevailing plaintiff under the FLSA.

In Gurule v. Land Guardian, Inc., 912 F.3d 252, the plaintiff sued to recover alleged unpaid minimum wages. Approximately a year and a half before trial, the defendant made the plaintiff a Rule 68 offer of judgment for approximately $3,000, which she rejected. Following trial, the plaintiff obtained an award of just over $1,000 in compensatory damages. The trial court reduced the amount of attorneys’ fees it awarded the plaintiff under the FLSA by 60 percent based on several factors, including the fact that the plaintiff had rejected a more favorable Rule 68 offer of judgment.

The Fifth Circuit affirmed the sixty percent reduction in attorneys’ fees, noting that, although Rule 68 did not preclude an attorneys’ fee award after the rejection of a more favorable offer of judgment, such rejection should nonetheless be considered in determining the amount of attorneys’ fees that is reasonable to award. In so finding, the Fifth Circuit noted that the “most critical factor” in assessing the amount of attorneys’ fees that is reasonable in a particular case is the prevailing party’s “degree of success.” The Fifth Circuit then instructed that “[i]n measuring that success, a court should ask whether the party would have been more successful had his attorney accepted a Rule 68 offer instead of pressing on to trial.”

This decision provides yet another reason why Rule 68 offers of judgments should be considered in appropriate cases. While the potential shifting of costs provides an incentive to make an offer of judgment, the potential for significantly reducing an award of attorneys’ fees to a prevailing plaintiff can provide an even larger incentive to defendants when considering whether to make an appropriate Rule 68 offer of judgment in an FLSA lawsuit.