May’s Employer Express touched on a split between the 11th and 5th Circuits on whether private settlements of wage and hour claims under the Fair Labor Standards Act (“FLSA”) require Department of Labor (“DOL”) or court approval to be enforceable. The 9th Circuit, however, appears to have no intention of straying from its requirement of judicial approval for such settlements. A 9th Circuit judge recently rejected a proposed $1.97 million settlement of a proposed class action brought by financial service representatives claiming that Metlife violated the FLSA and California law by encouraging its employees to work overtime without pay and confiscating a portion of their commissions if they left the company before being employed for 12 quarters.
The proposed settlement was to be paid out to 431 current and former Metlife employees via two sub-funds. The first fund, the Novitiate Fund, would compensate financial services representatives who lost portions of their commissions for terminating employment prior to attaining 12 quarters of employment. The second fund, the Expense Reimbursement and Overtime Fund, purported to cover three injuries – deductions for operating expenses from employees who were employed longer than 10 quarters, uncompensated overtime, and unreimbursed business expenses. The judge found the settlement to be inequitable based on the second fund, which was meant to cover both employees who suffered only two of the three injuries and employees who suffered all three. For the agreement to be equitable, employees who worked more than 10 quarters and were thus charged certain fees for office space, clerical support, and other operating costs, should receive an additional amount of the settlement compared to the employees who were solely owed for uncompensated overtime and unreimbursed business expenses.
As we discussed in last month’s newsletter, in late February the Eastern District of New York held in Picerni v. Blungual Seit & Preschool, Inc. that no judicial approval is required to settle a private FLSA lawsuit. The decision was in stark contrast to an earlier Eastern District decision issued the month prior, in January 2014, requiring a fairness hearing prior to settlement (Socias v. Vornad Realty). While the Second Circuit has yet to weigh in on the issue, the 9th Circuit’s most recent denial of the Metlife proposed settlement demonstrates that California judges are in no rush to deviate from the well-traveled procedural approval requirement.
We will continue to monitor and update you on developments in this area. In the meantime, employers who think they may be improperly classifying employees as exempt from overtime pay should reach out to us to develop a comprehensive compliance solution that minimizes exposure to future employee claims. Kelley Drye’s Wage and Hour Class Action Defense practice group can assist with all aspects of wage and hour issues, including FLSA settlements.