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What do courts consider when deciding whether to approve an overtime settlement?

In a lawsuit brought by employees against their employer seeking back wages under the Fair Labor Standards Act (“FLSA”), it is common for parties to present a proposed settlement to the court for a determination of whether the settlement is fair and reasonable. Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1353 (11th Cir. 1982). Before approving a FLSA settlement, a court must find that: (1) the agreement is the result of a bona fide dispute; (2) the proposed settlement is fair and reasonable; and (3) the proposed settlement contains a reasonable award of attorneys’ fees and costs. Id. at 1355. 

In a recent Colorado district court, the Defendant was an oilfield services company. Faulkner v. Ensign United States Drilling Inc., Civil Action No. 16-cv-03137-PAB-KLM (D.C., Colorado, any unreported case has to have an exact date – day and month, 2019). The Plaintiffs alleged that the Defendant failed to pay the Plaintiffs for all regular and overtime hours worked over forty in a week. Id. The Defendant denied these allegations and asserted defenses, including that the Plaintiffs were exempt and therefore not entitled to overtime. The Court said that a bona fide dispute existed because the parties described the nature of the dispute; the parties described  the employer’s business and employees work; there were disputed issues between the parties; there were wage disputes; and there were issues related to the estimate number of hours worked. Dees v. Hydradry, Inc., 706 F. Supp. 2d 1227, 1241 (M.D. Fla. 2010). Considering that all the issues were present, the court found that a bona fide dispute existed.

A settlement must also be fair and reasonable in order to adequately compensate the employees, which includes conducting meaningful discovery. The Plaintiff contended that the settlement constituted a fair compromise of the claims, given the risks of protracted litigation, the uncertainty surrounding the nature and amount of recoverable damages, and defendant’s defenses to liability. Faulkner, Civil Action No. 16-cv-03137-PAB-KLM. The Court reasoned that based on this, the parties’ proposed settlement was fair and reasonable.

Lastly, the court considered what were reasonable attorney’s fees and costs. Specifically, courts look at the following factors:

  1. the time and labor required;
  2. the novelty and difficulty of the questions;
  3. the skill requisite to perform the legal service properly;
  4. the preclusion of employment by the attorney due to acceptance of the case;
  5. the customary fee;
  6. whether the fee is fixed or contingent;
  7. time limitations imposed by [the] client or the circumstances;
  8. the amount involved and the results obtained;
  9. the experience, reputation and ability of the attorneys;
  10. the undesirability of the case;
  11. the nature and length of the professional relationship with the client; and
  12. awards in similar cases. See Whittington v. Taco Bell of Am., Inc., No. 10-cv-01884-KMT-MEH, 2013 WL 6022972, at *2 (D. Colo. Nov. 13, 2013).

Here, counsel charged too high of an hourly rate, which would have given the attorney 44.75% of the award. The court held that “an award equaling thirty-three percent of the gross settlement amount represents a customary, and presumptively reasonable fee in this circuit.” Faulkner, Civil Action No. 16-cv-03137-PAB-KLM.

Under the terms of the settlement agreement, defendant agreed to pay $50,000, which consisted of (1) $25,121.34 in individual settlement payments; (2) a $2,500 service payment for Mr. Faulkner; and (3) a $22,378.65 fee and expense award to class counsel. Faulkner, Civil Action No. 16-cv-03137-PAB-KLM. Here, the court refused to approve the fees, denied the motion without prejudice as to fees, and said “The parties fail to address how the attorney’s fees were negotiated in relation to the class members’ settlement. Any future motion should therefore address this issue.”

Courts are required to serve as gatekeepers in class and collective actions involving overtime pay, and this case illustrates that Courts take this role seriously.  Are you an oilfield worker who has worked long hours, particularly over forty, and been denied overtime pay? If so, you may be entitled to overtime payments. Josh Borsellino is an experienced overtime attorney that fights for the rights of workers. He offers free consultations and works on a contingency basis, meaning that he doesn’t get paid unless you get paid. Call Josh today at 817.908.9861 or 432.242.7118.