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Broad Non-Disparagement Clause in FLSA Settlement Rejected in Federal District Court in New York

Wage and hour cases brought pursuant to the Fair Labor Standards Act (“FLSA”) are on the rise but are often resolved early when a complaint is filed.  These cases are settled quickly because more times than not employers do not have accurate time records for the number of hours the employee worked.  This makes such cases worse than a “he said she said” situation because the statutes place the weight of the scales falling heavily on the side of the employee. While settlement is common, there is an unusual twist:  claims brought under the FLSA require either agency or Court approval to be fully and finally resolved.  In most instances, this means that the settlement agreement must be submitted publicly on the record for the Court’s approval.  This often creates a host of concerns for employers but the most predominant fear is copycat litigation.

Although copycat litigation is more times than not non-existent in actual practice, the need for court rulings make such concerns unavoidable.  A court can only rule on a settlement by reviewing it, which means the actual settlement becomes a public record.  While lawyers have historically been able to include confidentiality clauses in such settlements, that is often no longer true.  Many courts have held that standard confidentiality provisions which prevent the plaintiff from discussing the current case or settlement terms are null and void.  However, not all courts reject these provisions entirely.  In practice, it is often times just luck of the draw regarding the Judge assigned to your case and whether plaintiff’s counsel is willing to include the provision in a settlement agreement.

In a recent case, United States District Judge Abrams of the Southern District of New York took the prohibition on confidentiality provisions one step further.  In Santos v. El Tepeyac Butcher Shop, Inc., the plaintiffs brought FLSA claims for unpaid overtime.  The parties submitted a settlement agreement for court approval where the plaintiffs would receive $50,000 with $20,000 attributed to attorney’s fees.  Judge Abrams held the settlement agreement was fair and reasonable based on his review of the facts of the case but rejected the agreement finding it contained an over-broad non-disparagement clause.  Specifically, Judge Abrams held that the non-disparagement clause which prevented the plaintiffs from making any “negative statement” about the defendant did not have a carve out for the plaintiffs to discuss their experiences with the current litigation.   Judge Abrams held that such a provision had the effect of silencing the plaintiffs for bringing successful FLSA claims.  As a result, he directed the parties to resubmit the settlement agreement with the carve out included.

Judge Abram’s ruling limiting the reach of non-disparagement clauses in FLSA cases makes it more difficult for employers in New York to prevent plaintiffs from discussing the outcome of their FLSA cases – be it a non-disparagement clause or confidentiality clauses.  Therefore, employers in New York resolving FLSA cases may need to consider revising the non-disparagement clause in their settlement agreements to include a carve out for discussion of experiences with the current litigation.

Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.