On September 21, 2017, a federal district judge rejected a $19.1 Million proposed deal to end a nationwide wage-hour class action against the TGI Friday’s restaurant chain. In Zorrilla v. Carlson Restaurants Inc., 14-cv-2740 (SDNY), a class of nearly 29,000 tipped workers in nine states alleged violations of the FLSA and state wage-hour laws, including that the restaurant improperly took a tip credit, required an unlawful tip pool, and failed to pay spread-of-hours and uniform-related expenses. After more than four years of litigation, the parties reached perhaps the largest wage-hour settlement for the restaurant industry and sought court approval as required under the FLSA.

The court rejected the settlement agreement without prejudice to renew based on two common wage-hour class action settlement pitfalls: (1) confidentiality provisions, and (2) release and waiver provisions.

The court first rejected the confidentiality provisions because they could be construed to prevent employees and their counsel from discussing the case publicly and the parties did not offer “compelling justifications” for requiring confidentiality. As a general rule, courts rarely approve wage-hour settlements with confidentiality provisions.

The court then rejected the release and waiver provisions as overly broad because they required plaintiffs to waive “discrimination, harassment, retaliation, or hostile work environment claims of any kind,” which have “no relationship to wage-and-hour issues.” The court required the parties to limit the releases “to wage-and-hour claims relating to the existing suit.” Notably, not all courts impose such strict requirements on releases in wage-hour settlements.

On September 28, 2017, plaintiffs filed a revised settlement agreement and request for court approval.

According to the plaintiffs’ motion for settlement approval, the restaurant employed a Rule 68 pick-off strategy early on in the litigation, offering between “$82,000.00 and $2,500.00” to more than 23 proposed named plaintiffs.

Tip credits and tip pooling have proved hot topics for wage-hour class action plaintiffs in recent years and can lead to substantial liability. Employers taking advantage of tip credits should carefully scrub pay policies and practices to ensure compliance, which at a minimum requires proper notice and recordkeeping.