‘Celebrity’ of employer no basis for entering confidential settlement of FLSA claims
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Tuesday, May 22, 2018

‘Celebrity’ of employer no basis for entering confidential settlement of FLSA claims

By Ronald Miller, J.D.

In a case characterized as raising an important question of whether defendants, solely due to their “notoriety or celebrity,” may enter confidential settlements of claims against them made under the FLSA, a federal magistrate in New York declined to recognize a “celebrity exception” to the general rule that FLSA settlements must be filed publicly. In this instance, the parties presented the novel argument of stipulating that the employee was an independent contractor for settlement purposes only so as to avoid the need for court approval. However, the magistrate concluded that allowing the parties to stipulate that the FLSA is no longer applicable for settlement purposes would re-open the door to the kind of employer abuses in FLSA settlement negotiations that drove the Second Circuit to clarify the need for settlement reviews in Cheeks v. Freeport Pancake House, Inc. Accordingly, the parties’ joint motion for settlement approval was denied (Jones v. Smith aka Busta Rhymes, May 14, 2018, Levy, R.).

The personal chauffeur for rapper Busta Rhymes brought this action alleging that while he was employed by the entertainer, Rhymes illegally failed to pay him required overtime compensation and subjected him to verbal harassment and discrimination based on his age. Further, the employee alleged that on the day his employment was terminated, Rhymes physically assaulted him. He asserted causes of action for unpaid overtime under the FLSA, unpaid wages under the New York Labor Law, damages for age discrimination under the NYCHRL, as well as damages for assault and battery.

The parties conducted nearly a year of discovery and settlement negotiations before arriving at a settlement in principle in November 2017. They were directed to file a motion for settlement approval. Thereafter, the parties filed a letter seeking the court’s guidance on how to submit their agreement for approval. Defendant’s counsel insisted that the settlement could not be filed publicly because four of the five claims were non-FLSA claims that did not require judicial approval, and the settlement agreement itself contained a confidentiality provision because the employer was “both a public figure (a well-known recording artist) and private individual.

Cheeks review. The Second Circuit held in Cheeks that court approval is required for all stipulated dismissals of FLSA actions with prejudice pursuant to FRCP 41(a)(1)(A)(ii). Since then wage and hour litigators have employed several approaches in attempting to avoid judicial review of their settlement agreements. In this instance, the parties presented the novel argument of stipulating that the plaintiff was an independent contractor for settlement purposes only so as to avoid the need for court approval.

The employee seemed to be relying on the idea that the FLSA is inapplicable to independent contractors. Their contention was that if they stipulate to independent contractor status for purposes of the settlement, the court may ignore the usual prohibition on confidentiality provisions in FLSA settlements. However, the court concluded that it was not empowered to permit the parties to make this sort of end-run around Cheeks.

The rights protected by the FLSA (and by judicial review of FLSA settlements) are not merely private ones. The Second Circuit has long held that “an employer’s self-serving label of workers as independent contractors is not controlling.” Consequently, the court found no basis to credit what the parties have simply decided to label their relationship in this context, particularly given the employee’s express reservation of his right to contest this issue if the settlement were not approved.

Here, the court pointed out that the potential for abuse by allowing an exception like this to Cheeks review extended far beyond the parties in this case. Disputes about the applicability of the FLSA to particular employees are central to scores of FLSA cases, and the independent contractor exemption has been one of the most fiercely contested issues in FLSA cases. Simply allowing the parties to stipulate that the statute is no longer applicable for settlement purposes would re-open the door to the kind of employer abuses in FLSA settlement negotiations that drove the Second Circuit to clarify the need for settlement reviews in Cheeks. Accordingly, the parties’ joint motion for settlement approval was denied without prejudice.

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