Thursday, May 13, 2010

Federal Judge Disapproves Confidentiality and Non-Disparagement Clauses in Settlement Agreements

In a spate of orders in the past few weeks, Judge Steven Merryday has disapproved confidentiality and non-disparagement clauses in FLSA settlements presented to him for court-supervised approval in accordance with the statutory requirement that either the Secretary of Labor supervise the waiver of claims (29 U.S.C. § 216(c)) or the court supervise the waiver (29 U.S.C. § 216(b)). In Lynn’s Food Stores v. United States, 679 F.2d 1350, 1353 (11th Cir. 1982), the Eleventh Circuit held that claims for compensation under the FLSA may only be settled or compromised when the Department of Labor supervises the payment of back wages or when the district court enters a stipulated judgment “after scrutinizing the settlement for fairness.”

In Dees v. Hydradry, Inc., 2010 U.S. Dist. LEXIS 40900, 2010 WL 1539813 (M.D. Fla. Apr. 19, 2010), the court in an extensive opinion found that confidentiality clauses are “antithetical to the FLSA,” and declined to approve the settlement of FLSA claims. Shortly thereafter, on April 18th, the same judge in Valdez v. TASO Properties, Inc., 2010 WL 1730700 (M.D. Fla. Apr. 28, 2010), again declined to approve a confidentiality clause in an FLSA settlement. In Valdez, the court also held that a non-disparagement provision constituted a judicially imposed “prior restraint” in violation of the First Amendment, and rejected that provision also. Then, on April 29th, in McGowan v. CSPS Hotel, Inc., No. 8:09-cv-02311 (M.D. Fla. Apr. 29, 2010), the court yet again disapproved a confidentiality clause in an FLSA settlement as well as a non-disparagement clause. See also Head v. V&L Servs. III, Inc., 2009 U.S. Dist. LEXIS 99784 (M.D. Fla. Oct. 27, 2009) (approving magistrate’s report and recommendation, 2009 U.S. Dist. LEXIS 99764 (M.D. Fla. Oct. 2, 2009)). At least one other federal judge has adopted Judge Merryday’s reasoning. Judge Moon of the Western District of Virginia in Poulin v. General Dynamics Shared Resources, Inc., No. 3:09-cv-00058 (M.D. Fla. May 5, 2010) followed the reasoning of Valdez and Dees, and declined to approve an FLSA settlement that contained a confidentiality clause. See also Laurie Kratky Dore, Secrecy by Consent: The Use and Limits of Confidentiality in the Pursuit of Settlement, 74 Notre Dame L. Rev. 283 (1999).

It would appear that the reasoning of these cases only applies to settlements that must be approved by a court, and has no impact on the great bulk of settlements of employment disputes that never see the light of day.

Tip of the hat to the Overtime Law Blog for calling this to our attention.

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