Labor & Employment Law Daily Do courts have authority under FLSA to review settled attorneys’ fees?
Friday, June 21, 2019

Do courts have authority under FLSA to review settled attorneys’ fees?

By Lisa Milam, J.D.

No, the Eighth Circuit held. A court’s authority to review wage settlements under FLSA Section 216(b) does not extend to reviewing the parties’ settled attorney fees. The district court erred in reducing the fee award.

Picking up where it left off in its 2018 decision in Melgar v. OK Foods, which addressed the standard for reviewing attorney fees in negotiated wage-hour settlements “under the assumption that district courts have authority to review them,” the Eighth Circuit has now held that courts have no authority to review settled attorney fees under FLSA Section 216(b). This conclusion is consistent with the remedial purpose of the FLSA and the intent underlying judicial approval of FLSA settlements, the appeals court reasoned. While there may be sound policy reasons for judicial oversight of the amount employees stand to recover, “the amount the employer pays to the employees’ counsel has no bearing on whether the employer has adequately paid its employees in a settlement,” said the appeals court. Therefore, it vacated that portion of the district court’s judgment reducing the parties’ agreed-to fee amount. But it denied a request to remand for entry of a judgment on the full fee amount—given that it had just held the court lacks authority to take any action in that regard (Barbee v. Big River Steel, LLC, June 20, 2019, Grasz, L.).

Settlement of FLSA claims. An employee filed a proposed overtime collective action under the FLSA (and class claims under the Arkansas Minimum Wage Act). The parties reached a settlement resolving the employee’s claims and submitted their settlement agreement to the court for its approval.

The court rejected both the wage settlement and, independently, the settled amount of attorney fees. The parties returned with a revised settlement addressing the court’s concerns as to the terms of the wage settlement, but with the rejected attorney fee provision intact. The court approved the new wage settlement and again disapproved of the attorney fee amount. Consequently, it entered a judgment with the full amount of the wage settlement, but a reduced attorney fee award. The employee filed an appeal challenging the court’s modification of the fee provision (which the employer did not contest).

Judicial review of settlements. In Melgar v. OK Foods, the Eighth Circuit assumed, but left unanswered, the questions whether the authority to review FLSA settlements, or at least review settled attorney fees, exists at all. Here, the appeals court noted, first, the circuit split as to whether judicial approval of FLSA settlements is required. The Fifth Circuit has held courts need not sign off, while the Second and Eleventh Circuits have found the FLSA requires it. The Eighth Circuit has yet to take sides—and it didn’t need to do so in this case because it could resolve the instant dispute with the narrower holding: “any authority for judicial approval of FLSA settlements in 29 U.S.C. § 216 does not extend to review of settled attorney fees.”

No judicial review of negotiated fees. The FLSA provides that attorneys’ fees are allowed “in addition to any judgment awarded.” Thus, the statutes treats attorney fees as distinct from the merits of an FLSA claim. “As a result, any court judgment on the settled merits would necessarily be separate from any court review of the settled attorney fees,” the appeals court concluded. Which makes sense, it noted, given that approval of FLSA settlements is meant to further the statutory intent of protecting workers’ rights. However, when the parties negotiate an attorney fee amount separately, “and without regard to the plaintiff’s FLSA claim, the amount the employer pays to the employees’ counsel has no bearing on whether the employer has adequately paid its employees in a settlement.”

In a footnote, however, the appeals court pointed out that a court might retain authority to ensure that the fees were in fact negotiated separately—and without regard to the plaintiff’s payout—to ensure there was no conflict of interest at hand.

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