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Second Circuit: No Attorney Fee Caps in FLSA Settlements

February 4, 2020 | Posted in : Contingency Fees / POF, Expenses / Costs, Fee Award, Fee Cap / Fee Limits, Fee Issues on Appeal, Fee Jurisprudence, Fee Reduction

A recent Law 360 story by Braden Campbell, “2nd Circ. Says There’s No Attorney Fee Can in FLSA Deals,” reports that district courts should not limit plaintiffs’ attorney fees to a third of the settlement amount in Fair Labor Standards Act cases, the Second Circuit said, reversing a Manhattan judge’s decision to give a tour group chaperone a bigger cut of the $25,000 settlement in his overtime suit.

Second Circuit courts “routinely apply” the one-third benchmark when evaluating whether such settlements are fair, as courts must do for deals resolving FLSA cases, a three-judge panel said.  But the use of a 33% cap hurts low-wage workers — like SD Protection Inc. chaperone Michael Fisher — whom Congress passed the FLSA to help, the panel said.

“By implementing a percentage cap on attorneys’ fees in FLSA actions, district courts impede Congress’s goals by discouraging plaintiffsʹ attorneys from taking on 'run of the mill' FLSA cases where the potential damages are low and the risk of protracted litigation high,” the panel said.

The panel likewise admonished the trial court for revising the settlement to give Fisher a larger share of the award, saying judges exceed their authority when they rewrite settlements. Instead, courts should reject unfair settlements and give the parties a do-over, the panel said.  The decision vacates a Southern District of New York order ending Fisher’s unpaid overtime suit against SD Protection.  Fisher, who was paid $10 an hour to supervise student tour groups, alleges he worked several hours of overtime at his regular wage each week for the 26 weeks he worked for SD Protection.

The parties agreed to a settlement worth $25,000, with $2,000 going to Fisher and the rest going to his counsel with Lee Litigation Group.  But U.S. District Judge Richard Berman said that split was unfair, boosting Fisher’s payout to about $15,000 and dropping his attorney’s share accordingly in an order approving the deal.  Lee Litigation appealed.

While workers bringing claims for violations of other federal employment laws can settle them privately, a judge or the U.S. Department of Labor must deem FLSA settlements fair before they take effect.  Courts in the Second Circuit analyze fairness by looking at several factors, including whether the amount of fees and costs paid to the plaintiff’s attorney are “reasonable.”  The panel noted that courts often use a “proportionality limit” that deems payouts that top 33% of the settlement fund to be unfair.  But “neither the text nor the purpose of the FLSA” supports that limit, the panel said.

The law itself only requires that deals be “reasonable,” the panel said, while a 33% benchmark is “inconsistent with the remedial goals of the FLSA.”  Because FLSA plaintiffs generally earn modest wages to begin with, a hard fee cap would leave “employees like Fisher … with little legal recourse,” the court reasoned.  “No rational attorney would take on these cases unless she were doing so essentially pro bono,” the panel said.