Brian Murphy ()
Employers often prioritize preserving the confidentiality of the terms of a settlement of a pending or threatened litigation. This, of course, includes the settlement agreement itself. The reasons vary from concerns about chatter among employees and copycat lawsuits to external publicity and press inquiries. Given that confidentiality is frequently a key incentive to enter into a settlement, with respect to a great many claims, it is respected and permitted by the courts.
Where a settlement concerns individual claims under the Fair Labor Standards Act (FLSA), however, an employer faces steep challenges in securing confidentiality. Cheeks v. Freeport Pancake House, 796 F.3d 199 (2d Cir. 2015), eliminated any doubt and confirmed that parties cannot enter into a private settlement and stipulate to dismiss FLSA claims with prejudice without approval of a court or the Department of Labor (DOL). As part of the approval process, a court must review the settlement terms to ensure that they are “fair and reasonable.” The review of the settlement terms transforms the settlement agreement into a “judicial document” to which a presumption of public access, or filing on the docket, attaches.
This framework imposes substantial difficulties on preserving the confidentiality of a settlement, but there are paths for employers to explore. The options below have been tested with varying degrees of frequency and varying degrees of success, but should be considered in each instance where concerns about confidentiality are particularly acute.
Settlement Under Seal
First, an employer can attempt to file an FLSA settlement agreement under seal subject to an in camera inspection for fairness. New York courts have consistently held, however, that the circumstances justifying sealing are “limited” and may only be granted where the parties can make a “substantial showing” that the need to seal the agreement outweighs the strong presumption of public access. While it doesn’t appear that any New York court has articulated what will be sufficient to meet this standard in an FLSA case, New York courts have confirmed that an agreement among the parties as to confidentiality does not meet this standard, nor does an affirmative representation from the employer that it would not have entered into the settlement but for a confidentiality provision.
Second, an employer can seek to narrowly tailor the scope of any confidentiality provision or redaction from the filed agreement itself. An employer will likely meet opposition from the court if it seeks to redact the financial terms, as the amounts paid, both to the claimant and to the attorney, are the key components of the court’s “fair and reasonable” determination. Thus, the utility of this approach is likely limited to circumstances where an employer has an exacting interest in maintaining the confidentiality of noneconomic terms.
Third, an employer can agree to a bifurcated settlement structure whereby the parties (1) publicly file a settlement agreement with respect to any FLSA claims for the court’s review; and (2) execute a separate settlement agreement for non-FLSA claims, including New York Labor Law wage claims, without publicly filing or seeking approval from the court. The amount attributable to the settlement of the FLSA claims cannot be nominal or symbolic because the duty of the court to assess the terms as fair and reasonable would still attach. This approach was recently approved in Abrar v. 7-Eleven, No. 14-CV-6315 (ADS) (AKT), 2016 WL 1465360 (E.D.N.Y. April 14, 2016).
Fourth, an employer can seek to dispense with a settlement agreement altogether and, instead, recite the material terms of a settlement into the record in open court. That is, with permission from the court, the parties can agree to proceed in a manner that would mimic what might occur if a settlement were reached during a court-supervised mediation before a magistrate judge. This approach would still require counsel to satisfy the court that the settlement is “fair and reasonable” so that the court can meet its obligation. However, it would culminate in, at most, a transcript of the proceedings being filed on the docket, as in Tillman v. Luray’s Travel, 14-CV-105 (NGG) (JO), 2015 WL 7313867 (E.D.N.Y. Nov. 20, 2015).
Taking the Risk
Finally, if litigation is merely threatened, an employer can assume the risks of settling the matter without court or DOL approval of the terms. A court would likely find the unsupervised release of FLSA claims to be unenforceable if later challenged, and would likely deny any attempted Rule 12(b) motion filed in response to a later litigation. An employer prioritizing confidentiality can balance these inevitabilities against the likelihood of the employee filing a complaint, the potential elimination of any alleged damages, and the remaining statute of limitations.
With the exception of the final option, approval to proceed in each of these manners will be necessary from the court. If permission is not granted, employers must be prepared to revert to the standard procedure to achieve a publicly accessible settlement or continue with the litigation.