Low-value claims by employees against their former employers under the Fair Labor Standards Act (“FLSA”) are sometimes more about the attorney’s fees for the employee’s lawyer and less about compensating the employee for the alleged injury. Consider, for example, an FLSA claim asserted by a former employee seeking unpaid wages or overtime compensation in an amount less than $1,000. If there is a significant risk that the employer may be found liable for that amount at trial, and little risk of similar suits in the future, the employer may prefer to simply settle the claim rather than litigate the matter. However, the employer will likely discover that the employee is not willing to settle for anywhere near the value of the claim. Instead, the employee is likely to demand at least three times the amount at issue, and possibly much more, based on liquidated damages, costs, and attorney’s fees available under the FLSA, thus vastly increasing the cost of settlement and possibly sinking any deal to resolve the lawsuit.
What Should an Employer Do?
In the right circumstances, the employer may be able to extinguish the employee’s right to obtain an award of attorney’s fees and effectively settle the case for the true value of the claim. However, to do so the employer must tread carefully to avoid the possibility that the employee may be deemed a prevailing party entitled to an award of attorney’s fees under the FLSA. Rather than engaging in typical settlement discussions, which typically involve payment of fees to the employee’s attorney, the employer should consider the whether to simply tender payment of the wages that the employee claims to be owed, plus an equal amount in liquidated damages, all the while denying liability. By doing so, the employer may be able to undercut the employee’s right to an award of attorney’s fees.
This strategy was recently tested and upheld in the Eleventh Circuit Court of Appeals in the case of Dionne v. Floormasters Enterprises, No. 09-15405 (07/28/2011). There, the employer obtained dismissal of the employee’s FLSA claim after rendering the action moot by denying liability in its pleadings but simultaneously tendering a check to the employee for $3,000.00, which was double the amount of unpaid wages claimed to be owed. Once the action was dismissed, the employee sought an award of thousands more in attorney’s fees, arguing that he was a prevailing party because the employer tendered all of the damages sought in the complaint. The federal district court disagreed and was affirmed by the federal court of appeals. The court of appeals reasoned that only a court order altering the legal relationship between the parties could render an employee a prevailing party under the FLSA and create an entitlement to attorney’s fees. For example, a dismissal that incorporates the terms of a settlement agreement between the employer and employee would alter the legal relationship of the parties and entitle the employee to attorney’s fees. But since the employer simply tendered payment without otherwise altering the parties’ legal rights, the employee was not a prevailing party and thus not entitled to attorney’s fees.
Under the right circumstances, tendering payment in an attempt to moot an employee’s FLSA action may be an effective way of minimizing potential liability and reducing litigation costs; however, the strategy may not be effective in all circumstances. To determine whether the strategy is appropriate in any particular case, you should contact a skilled labor law attorney.