Court Approves FLSA Settlement that Extinguishes Related State Law Claims

When an employer settles a collective action lawsuit under the Fair Labor Standards Act (FLSA), may the settlement agreement also include a release of any rights to overtime pay which the plaintiffs may have under state law? In Wells Fargo Wage and Hour Employment Practices Litigation, MDL No. H-11-2266 (S.D. Tex. May 12, 2014), the court answered that question with a clear “yes.”

Wells Fargo was sued in five separate unpaid overtime lawsuits by plaintiffs who had worked as home mortgage consultants, mortgage consultants, loan originations, loan consultants, or in similar positions throughout the country. Two of these suits – Richardson v. Wells Fargo and Chaplin v. Wells Fargo – purported to represent nationwide collectives under the FLSA. Another of these lawsuits, Chan v. Wells Fargo Home Mortgage, Inc., brought claims only under Washington state law. The lawsuits were consolidated for proceedings in the Southern District of Texas. The parties successfully mediated the Richardson and Chaplin suits, and the plaintiffs agreed to release any claims they may have had based on unpaid overtime, which would include state law claims as well. Over 4,000 employees opted into that settlement. The named plaintiffs in the Chan action did not; instead, they filed objections.

The court denied the objections and a later motion for reconsideration. It began by holding that the Chan plaintiffs lacked standing to object since they were not opt-in members of the Richardson or Chaplin collectives. Since they lacked any personal stake in the settlement, those plaintiffs had no grounds to object. The Chan plaintiffs attempted to claim standing based on their “fiduciary duty” to the settling employees, but the Court correctly held that no such duty existed because the settling employees had, by opting in, expressly consented to representation by the attorneys prosecuting the Richardson and Chaplin suits. The court then went on to hold that, even if the Chan plaintiffs did have standing, they had failed to show that the settlement was substantively unfair or unreasonable. The court recognized that, in settling the state law claims along with the FLSA claims, the plaintiffs were giving up potentially valuable legal rights; however, “compromise is part of a settlement,” and the plaintiffs were entitled to accept an immediate sum certain in lieu of a potential, uncertain recovery at some possible future date. The court thus granted final approval to the settlement.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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