Category Archives: Litigation
Is Court or DOL Approval Required for Settlements of Claims under the FLSA?
Maybe not – two recent cases cast doubt on the longstanding assumption that settlements under the Fair Labor Standards Act (FLSA) require approval by either a court or the Department of Labor (DOL) to be enforceable.
The leading case holding that court or DOL approval is necessary for FLSA settlements is Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982). In that case, the Eleventh Circuit Court of Appeals explained that:
Recognizing that there are often great inequalities in bargaining power between employers and employees, Congress made the FLSA’s provisions mandatory; thus, the provisions are not subject to negotiation or bargaining between employers and employees.
The court further explained that:
FLSA rights cannot be abridged by contract or otherwise waived because this would “nullify the purposes” of the statute and thwart the legislative policies it was designed to effectuate.
Accordingly, the court in Lynn’s Food Stores, Inc. held that either court or DOL approval was required for an FLSA settlement to be enforceable. The court explained that when a court reviews a proposed settlement under the FLSA, it must ensure that the settlement is “a fair and reasonable resolution of a bona fide dispute over FLSA provisions.”
Two recent decisions have suggested that court approval is not always required for an FLSA settlement to be enforceable. First, the Fifth Circuit Court of Appeals held that a private settlement of FLSA claims may be enforceable without court or DOL approval when there exists a “bona fide dispute to liability” and the plaintiff-employees are represented by legal counsel. See Martin v. Spring Break ’83 Productions, L.L.C., 688 F.3d 247, 255–56 (5th Cir. 2012), cert. denied, 133 S.Ct. 795 (Dec. 10, 2012).
More recently, the Eastern District of New York held that court approval was not required for an FLSA settlement if the litigation had already commenced and the plaintiff-employees were represented by counsel. In that case, the judge explained that:
[A]lthough I have ruled to the contrary in the past, I have come around to the view that the procedure of a court requiring approval before it permits parties to voluntarily dismiss an FLSA action is incorrect. It runs afoul of Fed. R. Civ. P. 41, which gives the plaintiff, at the early stage of the case, or the parties jointly, at a later stage in the case, free reign to discontinue for any reason.
Picerni v. Bilingual SEIT & Preschool Inc., No. 12 Civ. 4938 (BMC) (E.D.N.Y., Feb. 22, 2013). The judge stated that “I believe the parties can voluntarily dismiss an FLSA case without judicial approval —if the defendant is willing to undertake the risk of doing so.”
Takeaways: The trend against a strict requirement for court or DOL approval of FLSA settlements is favorable for employers. However, the law in this area remains unsettled. Therefore, if certainty is desired, employers may still want to obtain court or DOL approval of a settlement under the FLSA out of an abundance of caution.
Considerations for Settlement of Employment Lawsuits
There are many potential factors that employers may need to consider when deciding whether or not to offer a settlement in an employment lawsuit. While every case is different, here are a few factors that employers should keep in mind:
- Strength of the Claims and Defenses: Whether or not an employer can win is one of the most important considerations. If the asserted claims are unsupported by evidence or contrary to law, the employer will have the upper hand in negotiations and can take a firmer position against settlement. If there is evidence of unlawful conduct, the plaintiff may have more leverage in negotiations.
- Cost: The cost of a settlement versus the cost of litigation is a fundamental consideration for employers. When a lawsuit can be settled for less than the cost of litigation, there may be a strong business justification for pursuing settlement. On the other hand, if the plaintiff’s demands greatly exceed the cost of litigation or the strength of the claims, this factor may weigh against settlement.
- Employee Morale: Many employment lawsuits involve challenges to the conduct or decisions of managers or employees who are still with the company. In some cases, demonstrating that the company supports the challenged conduct or decisions may be a factor that weighs against offering a settlement. In other cases, litigation may become so stressful and burdensome on the individuals involved that settlement is the best option for the company to move forward.
- Business Necessity: Some lawsuits may challenge policies or practices that are necessary for the business to be profitable. When this occurs, the company may be better served by prevailing in litigation to establish that its business model is legal. Alternatively, if there is a risk that a judicial decision will invalidate the company’s business model, a settlement may be preferable.
- “Me Too” Lawsuits: In certain cases, offering a settlement to one former employee may provoke other disgruntled employees to come forward with similar claims. If this is a likely outcome, an employer should carefully consider the risks of additional claimants when determining whether to offer a settlement.
- Public Relations: Public relations are a key consideration when a plaintiff makes inflammatory or unflattering allegations that could hurt the company’s image. In some cases, the best response to this kind of case may be to settle and avoid the bad PR. However, in other cases, protecting the company may require engaging in litigation to disprove the allegations.
- Principle: Sometimes it’s worth it to stick up for principle and not offer a settlement merely because it is expedient or less costly. Other times, it’s not. The primary downside to fighting for principle, of course, is that it may be costly and harm the company’s bottom line.
Takeaways: These are just some of the factors that employers may need to consider when determining whether to offer a settlement in an employment lawsuit. Because every case is unique, there is no one-size-fits-all rule for when a settlement should be offered. Each case needs to examined and considered on its own merits.
Ethical Issues for Defense Counsel in Employment Practices Liability Insurance (EPLI) Litigation
I recently wrote an article for the International Association of Defense Counsel committee newsletter on Ethical Issues for Defense Counsel in Employment Practices Liability Insurance Litigation. The article addresses: (1) identifying the client; (2) determining who controls the selection of defense counsel; (3) analyzing whether a reservation of rights changes who controls the selection of counsel; (4) complying with litigation management guidelines; (5) determining who manages the litigation; and (6) analyzing who controls the decision to settle. To read the full article, click here.
Does Accusing a Former Employee of Blackmail and Extortion Constitute Defamation?
Not necessarily. The U.S. District Court for the District of Minnesota recently dismissed a defamation claim that relied on accusations of blackmail and extortion in the widely publicized case of Michael Brodkorb v. State of Minnesota et al.
Michael Brodkorb formerly worked as the Communications Director for the Minnesota Senate Majority Caucus. In December of 2011, the Secretary of the Senate, Cal Ludeman, fired Brodkorb after an extramarital affair was revealed between Brodkorb and then-Senate Majority Leader Amy Koch. After his termination, Brodkorb threatened to sue the Minnesota Senate for gender discrimination and offered to engage in mediation of his claims. Following that threat, Cal Ludeman released a press release that suggested Brodkorb was trying “to extort a payment from the Senate” and stated to a newspaper reporter that Brodkorb was attempting to “blackmail” the Senate.
Brodkorb subsequently filed a lawsuit alleging a number of different claims. One of the claims was a claim for defamation based on the statements relating to alleged extortion and blackmail. On February 13, 2013, the court granted the defendants’ motion to dismiss the defamation claim.
The court rejected Brodkorb’s argument that the terms extortion and blackmail were defamation per se because they allege criminal conduct. The court explained that the terms extortion and blackmail have “broader non-legal” meanings and are often used colloquially. The court found that Ludeman used the terms in the “generalized sense, and not as a label for punishable criminal offenses.” In addition, the court held that because the statements were made in a “heated context,” they could not reasonably be interpreted to accuse Brodkorb of “engaging in the crimes of extortion and blackmail.”
The court also found that the statements could not be defamatory because they could not be proven true or false. Instead, the court characterized the statements as “simply subjective statements of rhetoric and hyperbole.” The court emphasized that a reasonable person would have understood the statements to be hyperbole given that they were made in the context of heated negotiations relating to Brodkorb’s threatened lawsuit. Accordingly, the court held that the statements could not give rise to an actionable defamation claim.
Takeaway: The Brodkorb case shows that, in the right context, referring to a former’s employee’s settlement demands as “extortion” or “blackmail” may not necessarily be defamation. On the other hand, the defendants in the Brodkorb case could have avoided the defamation claim (and some legal fees) by being more cautious about their language. For that reason, it is advisable for employers in most cases to avoid making statements about extortion and blackmail by their former employees – even if the statements may not result in actionable defamation.
Mandatory Arbitration Agreements May Waive FLSA Collective Action Claims
Mandatory arbitration agreements between employers and employees have been a point of controversy during the past couple of decades. While not all employers favor the potential benefits of arbitration, other companies have required their employees to enter into pre-dispute agreements to forego judicial litigation of claims and to commit to arbitration of any disputes.
The enforceability of those agreements have been regularly contested, particularly when the agreement has purported to eliminate any substantive or procedural employee rights. As early as 1997, the Equal Employment Opportunity Commission (EEOC) issued a policy statement opposing the use of mandatory arbitration agreements. To enhance enforceability, employers have drafted these agreements not to limit statutorily-provided remedial relief or procedural rights, such as statute of limitations periods, or an employee’s right to file a claim with the EEOC or other federal or state agencies.
A rather recent drafting twist has consisted of employees agreeing to not arbitrate claims as or on behalf of a class of employees. The enforceability of such a class waiver was contested before the United States Supreme Court in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), in which the Court upheld the class waiver in a consumer contract. To the contrary, in early 2012, the National Labor Relations Board issued a decision denying enforcement of a class waiver in a Fair Labor Standards Act (FLSA) matter. In re D.R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012).
Now, in a newly-issued opinion, the Eighth Circuit Court of Appeals distinguished the NLRB’s decision in D.R. Horton and has concluded that such class waivers are enforceable by an employer in an FLSA case. Owen v. Bristol Care, Inc., No. 12-1719 (Jan. 7, 2013). In doing so, the Eighth Circuit (which includes Minnesota) joined several other federal courts of appeal in reaching the same conclusion.
Takeaway: Employers who prefer to arbitrate rather than judicially litigate employment disputes should consider drafting their mandatory arbitration agreements to include a provision by which employees agree to waive their right to arbitrate as or on behalf of a class, including collective actions under the FLSA. Please let us know if we can assist you in drafting such language.
What is the Statute of Limitations under the Minnesota Human Rights Act?
The Minnesota Human Rights Act (“MHRA”) requires that employees (1) bring a civil action, (2) file a charge with a local commission, or (3) file a charge with the commissioner within one year after the discriminatory practice occurred. Minn. Stat. § 363A.28. The running of the one-year statute of limitations period is suspended while the parties engage in a dispute resolution process, such as arbitration or mediation.
If an employee chooses to first bring a charge of discrimination with the Minnesota Department of Human Rights (“MDHR”), the employee may subsequently bring a civil action. When doing so, the civil action must be brought:
- Within 45 days after receipt of notice that the commissioner has dismissed a charge;
- Within 45 days after receipt of notice that the commissioner has reaffirmed a determination of no probable cause or has decided not to reopen a dismissed case; or
- After 45 days from filing of charge, if a hearing has not been held or if the commissioner has not entered into a conciliation agreement that the charging employee signed. The charging party must also notify the commissioner of an intention to bring a civil action, which must be commenced within 90 days of giving the notice.
Takeaway: As soon as employers receive an employee’s charge of discrimination or civil action, which alleges discrimination in violation of the MHRA, they should make sure that the employee has met the applicable statute of limitations. If the employee failed to timely file a charge or initiate a civil action, the employer has a strong defense and may be able to get the claim dismissed.
What Is Respondeat Superior Liability?
Respondeat superior is a legal doctrine under which an employer may be held vicariously liable for the torts of an employee that are committed within the course and scope of employment. The employer’s liability stems not from the fault of the employer, but from the public policy notion that an employer should have to bear liability for acts committed by its employees within the scope of their employment as a cost of doing business.
There are two different tests for respondeat superior liability under Minnesota law – one for an employee’s intentional misconduct and one for an employee’s negligent misconduct.
Respondeat Superior Liability for Intentional Misconduct: An employer may be held liable for the intentional misconduct of its employees when: (1) the source of the harm is related to the duties of the employee; and (2) the harm occurs within work-related limits of time and place. The critical inquiry to determine if the source of the harm is related to the duties of the employee is whether the employee’s acts were foreseeable. Fahrendorff ex rel. Fahrendorff v. North Homes, Inc., 597 N.W.2d 905, 911–913 (Minn. 1999).
Respondeat Superior Liability for Negligent Misconduct: An employer may be held liable for negligent acts of an employee committed in the course and scope of employment when: (1) the conduct was to some degree in furtherance of the employer’s interests; (2) the employee was authorized to perform the type of conduct; (3) the conduct occurred substantially within the employer’s authorized time and space restrictions; and (4) the employer should reasonably have foreseen the conduct. Snilsberg v. Lake Washington Club, 614 N.W.2d 738, 745 (Minn. Ct. App. 2000).
Takeaways: Respondeat superior liability is one of the key reasons why employers should take care to make good hiring and retention decisions. Employers who hire or retain employees who are likely to engage in intentional misconduct or negligent acts may be subject to vicarious liability under the doctrine of respondeat superior.
Minnesota Legislature Raises Conciliation Court Limit
The Minnesota Legislature recently passed a law that will make it easier for employees to sue their employers without representation by an attorney. Conciliation court, also known as “small claims” court, allows parties to resolve disputes without representation by an attorney. The conciliation court process is shorter, easier, and less formal than litigation in state or federal district courts. Currently, only claims that are for $7,500.00 or less may be heard in conciliation court.
In the most recent legislative session, Senator Julianne Ortman introduced legislation that will raise the limit for conciliation court claims to $10,000.00, effective August 1, 2012. In August of 2014, the conciliation court limit will raise again to $15,000.00. The legislation was passed by both the Minnesota Senate and House of Representatives and was signed into law by Governor Mark Dayton.
Takeaways: The effect of the new conciliation court legislation for employers is that it will be easier and cheaper for employees to sue their employers over small claims in the coming years. The most common types of employment disputes that are resolved through conciliation court are claims that relate to disputes about payment of wages or commissions. The new rules for conciliation court provide a good opportunity for employers to review their payroll practices and commission policies. Clear communication about what will be paid and when it will be paid can help employers minimize the risk of misunderstandings and disputes later on.
A Tender Topic: Securing Insurance Coverage in Employment Litigation or Employee Theft Matters
Employment Practices Liability Insurance (“EPLI”) and “fidelity” bonds are often important riders to an employer’s standard insurance policies. EPLI provides coverage and defense for certain types of employment litigation and fidelity bonds cover certain employee theft losses. But even when EPLI and fidelity bond coverages have been purchased, an employer can complicate or even lose this protection if it fails to properly tender a claim to the insurer.
What is proper tender? It is taking the policy-prescribed steps to secure coverage. If you are sued or have a charge filed against the Company or if you have uncovered a suspected theft, the best next step is to work with your legal counsel to protect the Company’s rights while perfecting tender. That means not compromising the claim or letting it default or making assurances to the employee. It means immediately reviewing the notice and tender provisions of the policy and then making a timely, documented submission to the insurer that tenders the matter for coverage under the terms of the policy. Then, while waiting for a coverage determination, you need to defend a litigated claim or preserve evidence of a theft so that the insurer cannot take the position that you have compromised its ability to undertake defense or pursue a loss and, thereby, deny coverage based on the insured’s acts during this “tender” period. Specific situations can present real complexities during this “tender” time.
Once the coverage determination is made, you will receive a “reservation of rights” letter describing (often in complex terms) the scope and limitation of coverage. If there is coverage for a litigated matter, counsel will be assigned to represent the Company. Under Minnesota law, the insurer will have certain defense obligations and settlement obligations even when there are covered and uncovered claims. Uncovered claims may necessitate keeping your corporate counsel active in review and defense of the litigation. For an employee theft claim, a claims agent will be assigned to work with you as you file a “Proof of Loss.” If coverage is denied, the “reservation of rights” letter will provide the reasons in writing for review, analysis, and possible appeal under the terms of the policy.
Takeaway: Having EPLI or fidelity bond insurance coverage is one thing, preserving your rights to indemnification and defense of loss coverage through proper tender is another. Careful and quick work (and good legal counsel) is necessary to perfect a tender and obtain the protection you purchased.
Employee Indemnification Under Minnesota Law
In cases in which a plaintiff sues his or her employer and names supervisors, co-workers, or members of management individually, it is important for the employer to assess whether the individual defendants are entitled to indemnification. With respect to employees, Minnesota law requires an employer to defend and indemnify an employee for civil damages, penalties, or fines claimed or levied against the employee when the employee:
- Was acting in the performance of the duties of the employee’s position;
- Was not guilty of intentional misconduct, willful neglect of the duties of the employee’s position, or bad faith; and
- Has not been indemnified by another person for the same damages, penalties, or fines.
The statute contains several exceptions for:
- Employees of the state or a municipality;
- Employees who are subject to a contract or other agreement governing indemnification rights;
- Employees and employers who are governed under certain other indemnification statutes (e.g., directors, officers); or
- Indemnification rights for a particular liability specifically governed by other law.
Takeaways: Minnesota law requires indemnification of employees if the statutory requirements are satisfied. Even if an exception applies, it may be beneficial in certain circumstances for an employer to present a joint defense with individuals defendants. In other cases, separate representation may be necessary.
The Four Ways to End a Lawsuit
Litigation can be costly, time-consuming, and stressful. If you get sued (or if you sue someone else), the litigation will typically end in one of the following four ways:
- Motion to Dismiss: If a motion to dismiss is filed, it is usually brought shortly after a lawsuit is filed. On a motion to dismiss, the defendant argues that the plaintiff’s complaint does not set forth a sufficient factual basis to impose liability or that the claim is barred for some other reason (e.g., statute of limitations, failure to exhaust administrative remedies, etc…).
- Motion for Summary Judgment: A motion for summary judgment is usually brought at or near the close of discovery, but before trial. On a motion for summary judgment, the defendant argues that there is not enough evidence for the judge or jury to find in favor of the plaintiff. Alternatively, either the plaintiff or the defendant may argue that the evidence requires the court to rule in its favor.
- Trial: If a motion for summary judgment fails and no settlement is reached, the case will go to trial. After the trial and any post-trial motions, the judge or jury will decide who wins and how much damages, if any, will be awarded.
- Settlement: If the parties are able to reach a compromise at some point before trial, the case will settle. The vast majority of civil cases end this way. A common rule of thumb is that the settlement is good if no one is happy with it.
Even if litigation ends through one of the above methods, the losing party typically has a right of appeal. In the case of a settlement, disputes may arise regarding whether the parties have complied with the terms of the settlement agreement. Therefore, whenever a lawsuit is filed, there is always a possibility that the dispute will drag on for a long, long time.
Did Herman Cain Breach a Confidential Settlement Agreement?
Maybe. Over the past several days, the media reported that two female employees accused presidential candidate Herman Cain of sexual harassment while he was the head of the National Restaurant Association in the 1990s. Both of the incidents reportedly ended with settlement agreements that contained confidentiality provisions. After the reports surfaced, Cain denied the allegations against him and suggested that one of the reports was based on a comment he made about a woman’s height.
Because the settlement agreements have not been released, there is no definitive answer to whether Cain’s comments to the media resulted in a breach of the confidential settlement agreements. Whether a breach occurred depends on a number of factors, the most important of which is the language of the settlement agreements. Factors that may influence the answer include the following:
- Was Cain a party to the agreement? If the settlement agreements were only between the National Restaurant Association and the women who accused Cain, there may be an argument that Cain is not bound by the confidentiality provisions. On the other hand, the confidentiality provisions may apply to Cain as a representative of the Association.
- What was the scope of the confidentiality provisions? The confidentiality provisions may be broad enough to prohibit any discussion of the cases at all, or they may be narrowly drawn to only prohibit discussion of the amount of the settlement. Alternatively, a confidentiality provision may specify what each party can say about the case if asked.
- Who breached the confidentiality provisions first? If one of the women who accused Cain breached the confidentiality agreement by talking to the media first, Cain might be able to argue that he was justified in publicly discussing the case. If Cain was the first one to talk to the media, however, his accusers may be able to assert this argument against him.
Takeaway for Employers: Without seeing the agreements and knowing all of the facts, it is impossible to determine whether Herman Cain breached any confidentiality provisions in the settlement agreements. At the same time, it is certain that this is a situation that most employers (and presidential candidates) would prefer to avoid. Therefore, it is important for any employer who agrees to a confidential settlement to understand who is bound by the confidentiality provision and what information must be kept confidential. Employers should also make sure that employees and representatives of the company who are subject to a confidentiality agreement understand their obligations.
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