Imagine that you are involved in years of heated litigation. You and your adversary come to a solution, then propose the matter to the Court for approval. Next thing you know, you’re either cleaning up or back to square one. This is what happened to TGI Friday’s. When it comes to the Fair Labor Standards Act (FLSA), there are certain no-no’s that Courts in certain jurisdictions routinely decry related to confidentiality and releases.
No Secrets Here
Fundamentally, the Court wants wage and hour matters to be of public record, so making them confidential thwarts that. Second, if you have a collective or class action based on wage and hour causes of action, then the release should contain that and make sense. Inconsistency comes when the Court permits confidential arbitrations but forbids confidential FLSA settlements.
In the Southern District of New York, a nationwide settlement totaling $19 million for tipped workers was rejected by the Court for containing confidentiality and overly broad releases. There were nearly 30,000 tipped workers in the class, which alleged a plethora of tip credit violations, including impermissible tip sharing, failure to provide tip credit notice and various state wage and hour law violations, such as New York’s spread of hours and uniform expenses (see Zorrilla v. Carlson Restaurants Inc., 14-cv-2740). Confidentiality provisions are eschewed unless one can articulate specific rationale for it with considerable precision.
TMI for TGI Friday’s
The Court rejected Friday’s overly broad release, which various courts view as inappropriate in the context of a wage and hour case. For example, what if the Company raided the pension plan? For a wage and hour release, that claim would need to be released, even though it wasn’t litigated. More common is that certain individuals may have harassment claims or other employment-related disputes with the company that are wholly unrelated to the wage and hour case, but the company seeks to release them.
Another part of the litigation was the defendant’s attempt to pick off the lead plaintiffs via Rule 68. This was popular for some time but is falling out of fashion. The defendants would try to proffer what they unilaterally thought was maximum relief and then motion to dismiss so the case wouldn’t advance to the class certification stage. The perils and pitfalls of this technique have been exposed by savvy counsel and addressed by the US Supreme Court. Occasionally it is still employed, but it did not work here.
Based on the Court’s ruling here, the obvious solution is not to omit the contested clauses, but the Defendants may not want to do so quickly. Another irony is that the confidentiality sought is highlighted by the disapproval, whereas an approval even without a confidentiality clause could have silently sailed away like Friday’s short-lived Mangorita.
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