Shanley et al v. Evereve, Inc.
ORDER denying 37 Motion for Approval of Settlement. (Written Opinion) Signed by Chief Judge Patrick J. Schiltz on 11/18/2022. (CLG)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
LESLIE SHANLEY and ERIN
EIZELMAN, individually and on behalf
of all others similarly situated,
Case No. 22‐CV‐0319 (PJS/JFD)
Michael Palitz, SHAVITZ LAW GROUP, P.A.; Adam W. Hansen,
APOLLO LAW LLC, for plaintiffs.
Rodolfo Gomez, Charles A. Roach, and Steven Reardon,
FORDHARRISON LLP, for defendant.
This matter is before the Court on the parties’ renewed joint motion to approve
their settlement of this Fair Labor Standards Act (“FLSA”) collective action. At the
hearing on the parties’ initial motion, the Court asked the parties to file supplemental
briefing regarding recent Eighth Circuit case law on FLSA settlements. After reviewing
that briefing and conducting a significant amount of independent research, the Court
finds that (1) it has authority to determine whether the settlement of plaintiffs’ claim for
unpaid wages should be approved as fair and reasonable; (2) it does not have authority
to review the settlement of plaintiffs’ claim for attorney’s fees; and (3) it must reject the
settlement of plaintiffs’ claim for unpaid wages because the settlement of that claim was
not negotiated separately from the settlement of the attorney’s‐fees claim.
Plaintiffs Leslie Shanley and Erin Eizelman worked for defendant Evereve, Inc.
(“Evereve”) as assistant store managers. ECF No. 1 ¶ 8. Shanley and Eizelman allege
that they and other assistant store managers regularly worked more than 40 hours per
week but that Evereve did not pay them the full amount of their FLSA‐mandated
overtime pay. Id. ¶¶ 9–10, 21. Instead, Shanley and Eizelman contend, Evereve
improperly classified them and other assistant store managers as exempt from the
FLSA’s overtime‐pay requirements. ECF No. 27 ¶ 12.
Following two mediation sessions and extensive negotiations, the parties
executed a settlement agreement in January 2022. Id. ¶ 16. Conditioned on the Court’s
approval, the settlement agreement would create a common settlement fund of
$200,000, to be paid by Evereve. Id. ¶ 18; ECF No. 38‐1 at 5.1 From that common fund,
one‐third (approximately $66,667) would be paid to plaintiffs’ counsel as attorney’s
fees, and about $2,930 would be used to reimburse counsel’s out‐of‐pocket litigation
costs. ECF No. 27 ¶¶ 28, 32 ($2,527.50); ECF No. 28 ¶ 4 ($402). The fund’s administrator
When citing documents by ECF number, the Court cites the page numbers
generated by the Court’s electronic docketing system rather than the document’s
would receive $11,500 in fees, and the two named plaintiffs would each receive a $5,000
service payment. ECF No. 27 ¶¶ 24, 26. The remainder of the fund (about $108,903)
would then be apportioned among Shanley, Eizelman, and any other qualifying
assistant store managers who opted into the action according to a formula based on the
number of weeks that each assistant store manager worked during the time period at
issue. Id. ¶ 22. In exchange for these payments, the named and opt‐in plaintiffs would
release all claims against Evereve related to the alleged FLSA violations.2 ECF No. 38‐1
at 6, 13–15.
The Court held a hearing on the parties’ joint motion to approve the settlement
agreement. At the hearing, the Court expressed concern that the parties had not
discussed recent Eighth Circuit cases that directly addressed two issues implicated by
their motion: first, whether the Court has authority to review and approve FLSA
settlements, see Barbee v. Big River Steel, LLC, 927 F.3d 1024, 1026 (8th Cir. 2019), and
second, if that authority exists, whether the Court may approve an FLSA settlement in
which the parties agreed that the attorney’s‐fees claim would be settled by giving the
attorneys a percentage of the overall amount paid by the defendant to settle the case, see
Vines v. Welspun Pipes Inc., 9 F.4th 849, 853–55 (8th Cir. 2021). Pending briefing on these
The named plaintiffs also agreed to a general release of claims. ECF No. 38‐1
questions, the Court denied without prejudice the parties’ motion to approve the
settlement agreement. ECF No. 35.
The parties have now renewed their motion and filed a joint supplemental brief
addressing the two issues identified by the Court. ECF Nos. 37–38.3
A. Settlement of FSLA Actions Outside of the Eighth Circuit
The FLSA’s “principal congressional purpose” is “to protect all covered workers
from substandard wages and oppressive working hours, ‘labor conditions [that are]
detrimental to the maintenance of the minimum standard of living necessary for health,
efficiency and general well‐being of workers.’” Barrentine v. Ark.‐Best Freight Sys., Inc.,
450 U.S. 728, 739 (1981) (alteration in original) (quoting 29 U.S.C. § 202(a)). The statute
At the hearing, the Court also suggested that the parties clarify some aspects of
the proposed settlement agreement, including the allocation formula for dividing the
remaining amount of the common fund among plaintiffs, the scope of the claims
release, and the notice to be mailed to potential opt‐in plaintiffs. Although the parties
have revised the proposed agreement to address most of these concerns, ECF Nos. 38,
38‐1, at least one problem remains.
The new notice to potential opt‐in plaintiffs does not accurately describe the
allocation formula set forth in the settlement agreement. The notice states that “[t]he
number of points [an opt‐in plaintiff] receive[s] will be divided by the total number of
points received by everyone who opts in to the Collective Action . . . .” ECF No. 38‐1 at
23 (emphasis added). But the Settlement Agreement provides that the denominator is
the sum of “all points for all Potential Opt‐In Plaintiffs.” Id. at 11 (emphasis added). The
claim notice therefore misleadingly implies that opt‐in plaintiffs will split the entire
$108,903 that will remain in the settlement fund after fees and costs are deducted.
is “designed to give specific minimum protections to individual workers” and to ensure
that covered employees are neither overworked nor underpaid. Id. (emphasis omitted).
Employees can enforce their rights under the FLSA through an action for “their unpaid
minimum wages, or their unpaid overtime compensation, as the case may be,” and for
“an additional equal amount as liquidated damages.” 29 U.S.C. § 216(b).
Employees generally cannot waive their rights under the FLSA. The Supreme
Court has explained that allowing employees’ FLSA rights to be “abridged by contract
or otherwise waived . . . would ‘nullify the purposes’ of the statute and thwart the
legislative policies it was designed to effectuate.” Barrentine, 450 U.S. at 740 (quoting
Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945)).
In O’Neil, for example, William O’Neil worked for two years as a night
watchman for a building operated by Brooklyn Savings Bank. 324 U.S. at 699. He was
not paid overtime compensation, as the Bank determined that the (recently enacted)
FLSA did not apply to its operation of the building. Id. at 700. Almost two years after
O’Neil left his employment, the Supreme Court issued Kirschbaum v. Walling, 316 U.S.
517 (1942), which held that the FLSA did in fact apply to buildings such as the one
operated by the Bank. O’Neil, 324 U.S. at 702–03. It was undisputed that, under
Kirschbaum, the Bank owed O’Neil for unpaid overtime wages and for liquidated
damages. Id. at 703–04. The Bank and O’Neil entered into an agreement under which
the Bank paid O’Neil the full amount of unpaid overtime wages and, in return, O’Neil
waived his right to liquidated damages. Id. at 700. O’Neil later sued the Bank for those
liquidated damages. Id.
The Supreme Court held that the release signed by O’Neil was invalid. Id. at 707.
Critical to the Court’s decision was the fact that the release signed by O’Neil was not
“given in settlement of a bona fide dispute between the parties with respect to coverage
or amount due under the Act”—as noted, there was no dispute that O’Neil was owed
the liquidated damages—but was instead “a mere waiver of his right to liquidated
damages.” Id. at 703. According to the Court, enforcing such a waiver would frustrate
the purposes of the FLSA:
The legislative history of the Fair Labor Standards Act
shows an intent on the part of Congress to protect certain
groups of the population from substandard wages and
excessive hours which endangered the national health and
well‐being and the free flow of goods in interstate
commerce. The statute was a recognition of the fact that due
to the unequal bargaining power as between employer and
employee, certain segments of the population required
federal compulsory legislation to prevent private contracts
on their part which endangered national health and
efficiency and as a result the free movement of goods in
interstate commerce. To accomplish this purpose standards
of minimum wages and maximum hours were provided.
Neither petitioner nor respondent suggests that the right to
the basic statutory minimum wage could be waived by any
employee subject to the Act. No one can doubt but that to
allow waiver of statutory wages by agreement would nullify
the purposes of the Act. We are of the opinion that the same
policy considerations which forbid waiver of basic minimum
and overtime wages under the Act also prohibit waiver of
the employee’s right to liquidated damages.
Id. at 706–07 (footnotes omitted). The Court stressed that “the liquidated damage
provision is not penal in its nature but constitutes compensation for the retention of a
workman’s pay which might result in damages too obscure and difficult of proof for
estimate other than by liquidated damages.” Id. at 707 (citing Overnight Motor Transp.
Co. v. Missel, 316 U.S. 572 (1942)).
O’Neil explicitly left open the question “of what limitation, if any, Section 16(b) of
the Act places on the validity of agreements between an employer and employee to
settle claims arising under the Act if the settlement is made as the result of a bona fide
dispute between the two parties, in consideration of a bona fide compromise and
settlement.” Id. at 714. Just one year later, the Supreme Court addressed that open
question in D.A. Schulte, Inc., v. Gangi, 328 U.S. 108 (1946). The facts of D.A. Schulte
were similar in many respects to the facts of O’Neil. A group of employees worked in a
building operated by D.A. Schulte. Id. at 111. D.A. Schulte did not pay overtime wages,
as it had concluded that the FLSA did not apply to its operation of the building. Id.
After the Kirschbaum decision was announced, the employees claimed that they were
owed overtime wages and liquidated damages. Id. D.A. Schulte disagreed, arguing
that, even under Kirschbaum, its operation of the building was not covered by the FLSA.
Id. The employees threatened to sue. Id. The parties negotiated a settlement of those
threatened legal claims, under which D.A. Schulte agreed to pay the full amount of
overtime wages, and the employees agreed to waive their right to liquidated damages.
Id. at 111–12 & n.5. The employees then sued D.A. Schulte for liquidated damages. Id.
Even though the D.A. Schulte settlement, unlike the O’Neil settlement, was “a
bona fide settlement of a bona fide dispute over the coverage of the Act,” id. at 110, the
result was the same: The Supreme Court found that the release was invalid because
allowing employees to waive their potential right to liquidated damages would frustrate
the purposes of the FLSA, id. at 114–16. The Court essentially relied on its analysis in
O’Neil: “The reasons which lead us to conclude that compromises of real disputes over
coverage which do not require the payment in full of unpaid wages and liquidated
damages do not differ greatly from those which led us to condemn the waivers of
liquidated damages in the O’Neil case.” Id. at 115. After acknowledging that its holding
could create harsh results for employers, the Court concluded:
We think the purpose of the Act, which we repeat from the
O’Neil case was to secure for the lowest paid segment of the
nation’s workers a subsistence wage, leads to the conclusion
that neither wages nor the damages for withholding them
are capable of reduction by compromise of controversies
over coverage. Such a compromise thwarts the public policy
of minimum wages, promptly paid, embodied in the Wage‐
Hour Act, by reducing the sum selected by Congress as
proper compensation for withholding wages.
Id. at 116 (footnotes omitted).4
In the wake of D.A. Schulte, courts disagreed about whether it was possible for an
FLSA claim to be settled by an employee agreeing to accept some (but not all) of what
the employee claimed was due to him under the FLSA.5 Justice Robert Jackson (among
others) believed that D.A. Schulte had made settlement of FLSA actions a practical
This Court has foreclosed every means by which any claim,
however dubious, under this statute or under the Court’s
elastic and somewhat unpredictable interpretations of it, can
safely or finally be settled, except by litigation to final
judgment. We have held the individual employee
The Supreme Court noted that it was deciding only whether “the remedy of
liquidated damages [can] be bargained away by bona fide settlements of disputes over
coverage” and was not considering “compromises in other situations which may arise,
such as a dispute over the number of hours worked or the regular rate of employment.”
Id. at 114–15. But nothing in the Court’s rationale provides a reason to believe that the
Court would find that, although an employee cannot waive his right to wages or
liquidated damages due under the FLSA to resolve a dispute over whether his
employer was covered by the FLSA, he could waive his right to wages or liquidated
damages to resolve a dispute over how many hours he worked.
All courts agree that 29 U.S.C. § 216(c) provides one way to settle an FLSA
action. Under that provision, the employer agrees to pay all of “the unpaid minimum
wages or the unpaid overtime compensation owing” to the employee under the
supervision of the Secretary of Labor and, in return, “the agreement of any employee to
accept such payment shall upon payment in full constitute a waiver by such employee
of any right he may have under [§ 216(b)] to such unpaid minimum wages or unpaid
overtime compensation and an additional equal amount as liquidated damages.”
incompetent to compromise or release any part of whatever
claim he may have. Brooklyn Savings Bank v. O’Neil, 324 U.S.
697; cf. D.A. Schulte, Inc., v. Gangi, 328 U.S. 108. . . . No kind
of agreement between the parties in interest settling
borderline cases in a way satisfactory to themselves,
however fairly arrived at, is today worth the paper it is
written on. Interminable litigation, stimulated by a
contingent reward to attorneys, is necessitated by the
present state of the Court’s decisions.
Walling v. Portland Terminal Co., 330 U.S. 148, 155 (1947) (Jackson, J., concurring).
Over the years, however, most federal courts have concluded that an employee
may waive her FLSA rights as part of a settlement of an FLSA action. To a significant
extent, these courts rely (directly or indirectly) on a crucial footnote in D.A. Schulte. In
that case, D.A. Schulte had pointed out to the Supreme Court that, in negotiating
settlements of FLSA lawsuits with federal contractors, the Administrator of the Wage
and Hour Division of the United States Department of Labor always insisted on full
payment of back wages, “but the claim for liquidated damages is the subject of
bargaining, and almost invariably the employee’s counsel is willing to accept
considerably less than the total amount of liquidated damages. After payment of the
amount agreed on, a judgment is entered dismissing the suit with prejudice, thereby
preventing the employee from seeking to recover more on the same claim.” D.A.
Schulte, 328 U.S. at 113 n.8. In essence, D.A. Schulte suggested to the Supreme Court
that, if it did not enforce the employees’ waiver, then neither the federal government
nor any other litigator would be able to settle FLSA lawsuits.
The Supreme Court rejected D.A. Schulte’s suggestion in a footnote:
Petitioner draws the inference that bona fide stipulated
judgments on alleged Wage‐Hour violations for less than the
amounts actually due stand in no better position than bona
fide settlements. Even though stipulated judgments may be
obtained, where settlements are proposed in controversies
between employers and employees over violations of the
Act, by the simple device of filing suits and entering agreed
judgments, we think the requirement of pleading the issues
and submitting the judgment to judicial scrutiny may
differentiate stipulated judgments from compromises by the
parties. At any rate the suggestion of petitioner is
argumentative only as no judgment was entered in this case.
Many courts—led by the Eleventh Circuit—have relied on this footnote in
holding that “[w]hen employees bring a private action for back wages under the FLSA,
and present to the district court a proposed settlement, the district court may enter a
stipulated judgment after scrutinizing the settlement for fairness.” Lynn’s Food Stores,
Inc. v. U.S. ex rel. U.S. Dep’t of Lab., 679 F.2d 1350, 1353 (11th Cir. 1982).
That stipulated judgment, in turn, bars the employees from later pursuing the claims
that they have waived.
In the Eleventh Circuit, then, any settlement of an FLSA claim must be approved
by a judge (or by the Secretary of Labor under 29 U.S.C. § 216(c)). See, e.g., Walker v.
Kirkman Mgmt., LLC, No. 6:20‐cv‐1149‐ACC‐EJK, 2022 WL 1028679, at *1 (M.D. Fla.
Apr. 6, 2022). Other circuits take different approaches. The Fifth Circuit holds that, in
an FLSA case, the parties can enter an enforceable settlement of a “‘bona fide dispute as
to the amount of hours worked or compensation due’” without the approval of a court
or the Secretary of Labor. Martin v. Spring Break ‘83 Prods., L.L.C., 688 F.3d 247, 255
(5th Cir. 2012) (quoting Martinez v. Bohls Bearing Equip. Co., 361 F. Supp. 2d 608, 631
(W.D. Tex. 2005)). In the Second Circuit, the need for judicial approval of an FLSA
settlement depends on whether the parties seek entry of judgment under Rule
41(a)(1)(A)(ii) (judicial approval required) or under Rule 68(a) (judicial approval not
required).6 Other circuits—including the Sixth Circuit—have not yet decided whether
or under what circumstances an FLSA claim can be settled. See Askew v. Inter‐Cont’l
Hotels Corp., No. 19‐cv‐24, 2022 WL 3161927, at *4, *7 (W.D. Ky. Aug. 8, 2022) (stating
that “the Sixth Circuit hasn’t reached this issue” and finding no authority to condition
voluntary dismissal on the court’s review); contra Steele v. Staffmark Invs., LLC,
172 F. Supp. 3d 1024, 1025 (W.D. Tenn. 2016) (noting that the court had previously
Compare Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 206 (2d Cir. 2015)
(“Rule 41(a)(1)(A)(ii) stipulated dismissals settling FLSA claims with prejudice require
the approval of the district court or the [Department of Labor] to take effect.”), with Mei
Xing Yu v. Hasaki Restaurant, Inc., 944 F.3d 395, 398 (2d Cir. 2019) (“[J]udicial approval is
not required of Rule 68(a) offers of judgment settling FLSA claims.”).
rejected a stipulation of dismissal “because the parties had failed to submit the terms of
the settlement or any argument on the fairness and reasonableness of the settlement”).
That brings us to the Eighth Circuit.
B. Settlement of FSLA Actions in the Eighth Circuit
In Melgar v. OK Foods, 902 F.3d 775 (8th Cir. 2018), the Eighth Circuit reviewed
the settlement of an FLSA action that had been brought by employees who alleged that
their employer had underpaid them in violation of the FLSA. The parties settled the
lawsuit; under the settlement, the employer agreed to pay a confidential amount to
settle the wage claim and $87,500 to settle the attorney’s‐fee claim. Id. at 777. The
district court approved the settlement of the wage claim, but did not approve the
settlement of the attorney’s‐fees claim, reducing the fees award to $22,500.00. Id. The
employees appealed. Id. at 778.
Even though the matter had been placed in considerable doubt by O’Neil and
D.A. Schulte (as described above), the Eighth Circuit gave no indication that it had any
doubts about whether employees could waive their FLSA rights as part of a settlement
of an FLSA action. As far as the Eighth Circuit was concerned, the question was not
whether FLSA actions could be settled, but whether and to what extent those
settlements had to be approved by courts. Id. at 779. After identifying the question, the
Eighth Circuit ducked it:
[W]e recognize an apparent circuit split as to whether
private settlements relating to FLSA claims require district
court review. . . . Since neither party discusses whether
district court approval is required, we need not address this
issue. Instead, we will assume without deciding that the
district court has a duty to exercise some level of review of
the Agreement and the attorneys’ fee award.
After declining to decide whether district courts have authority to review
settlements of FLSA actions, the Eighth Circuit went on to describe what that review
would entail if that review were authorized. According to the Eighth Circuit,
where the parties have already agreed upon the fees to be
paid, any required review need not be a line‐by‐line, hour‐
by‐hour review of the attorneys’ fees. Even assuming the
district court had a duty to review the Agreement, at some
level, for fairness and reasonableness, review of attorneys’
fees included in a settlement agreement requires a certain
level of deference by the district court to the parties’
Id. The Eighth Circuit went on to conclude that “the parties’ agreed‐upon attorneys’
fees are fair and reasonable.” Id.
The Eighth Circuit next reviewed an FLSA settlement in Barbee v. Big River Steel,
LLC, 927 F.3d 1024 (8th Cir. 2019). In Barbee, as in Melgar, the parties settled an FLSA
action. Id. at 1026. In Barbee, as in Melgar, the agreement included one amount to settle
the wage claim and another amount to settle the attorney’s‐fees claim. Id. And in
Barbee, as in Melgar, the district court approved the settlement of the wage claim, but
refused to approve the settlement of the attorney’s‐fees claim. Id.
Although the two cases were very similar, Barbee sharply deviated from Melgar.
In Melgar, the Eighth Circuit reviewed the settlement of the attorney’s‐fees claim to
determine whether it was fair and reasonable. Melgar, 902 F.3d at 779–80. In Barbee,
however, the Eighth Circuit held that it did not have authority to do what it had done in
Melgar. Barbee, 927 F.3d at 1027. The Eighth Circuit acknowledged that it had reviewed
the agreement on attorney’s fees in Melgar, but said that in Melgar it had merely
assumed, but not decided, that courts had authority to conduct such reviews. Id. at
1026. According to the Eighth Circuit, Melgar left open the question “whether the
authority to review FLSA settlements, or at least review settled attorney fees, exists at
Once again, the Eighth Circuit expressed no doubts about whether plaintiffs in
FLSA actions could waive their rights under the FLSA pursuant to settlements. To the
contrary, the Eighth Circuit described O’Neil and D.A. Schulte—which, again, were
widely understood as prohibiting any release of FLSA rights—as cases that merely
“require[d] judicial approval for some releases of FLSA claims.” Id. The Eighth Circuit
noted a circuit split over whether O’Neil and D.A. Schulte should be “extend[ed] . . . to
require judicial approval of all FLSA settlements.” Id. After explaining that “[w]e have
never taken a side on this issue,” id. at 1027, the Eighth Circuit ducked the question
again—at least in part. The Eighth Circuit held, in essence, that since it was being asked
only to review the settlement of an attorney’s‐fees claim, and since it believed that “any
authority for judicial approval of FLSA settlements in 29 U.S.C. § 216 does not extend to
review of settled attorney fees, [it] need not decide [its] view on the circuit split . . . .”
Id. After explaining the rationale for its holding that, in an FLSA action, “the district
court lack[s] authority to review . . . settled attorney fees,” id. at 1026, the Eighth Circuit
concluded with one caveat: “if FLSA settlements are subject to judicial
review”—which, again, the Eighth Circuit was unwilling to decide—”the court would
retain the authority to ensure the attorney fees were in fact negotiated separately and
without regard to the plaintiff’s FLSA claim, and there was no conflict of interest
between the attorney and his or her client.” Id. at 1027 n.1.
The latest word from the Eighth Circuit on judicial review of FLSA settlements
came in Vines v. Welspun Pipes Inc., 9 F.4th 849 (8th Cir. 2021). The parties to an FLSA
action negotiated a settlement that covered both the wage claim and the attorney’s‐fees
claim. Id. at 852. The district court declined to approve the parties’ agreement after
finding that the settlement of the wage claim had not been negotiated separately from
the settlement of the attorney’s‐fees claim. Id. at 853. The parties went back to the
drawing board. After further negotiations, the parties were able to settle the wage
claim—and that settlement was later approved by the district court—but they were
unable to settle the attorney’s‐fees claim. Id. The plaintiffs simply moved for an award
of attorney’s fees and costs. Id. The district court granted the motion in (very small)
part and awarded one dollar in fees. Id. The plaintiffs appealed both the district court’s
finding that the original settlement of the wage claim had not been negotiated
separately from the settlement of the attorney’s‐fees claim and the district court’s
finding that plaintiffs’ counsel were entitled to only one dollar in fees. Id. at 853.
The Eighth Circuit began its analysis by reviewing its recent decisions regarding
the review of FLSA settlements:
We have acknowledged a split among the circuits
over whether judicial approval is required for all FLSA
settlements. Barbee, 927 F.3d at 1026. In Barbee, we declined
to take a side on the issue and instead provided a narrow
holding about the settlement of FLSA attorneys’ fees:
“[A]ny authority for judicial approval of FLSA settlements
. . . does not extend to review of settled attorney fees.” Id. at
1027. But, assuming that judicial approval was required for
the FLSA claim, we left to district courts “the authority to
ensure [(1)] the attorney fees were in fact negotiated
separately and without regard to the plaintiff’s FLSA claim,
and [(2)] there was no conflict of interest between the
attorney and his or her client.” Id. at 1027 n.1.
Id. at 853‐54. Yet again, the Eighth Circuit “[left] . . . for another day” the question
“whether judicial approval is required for all FLSA settlements,” noting that “[n]either
the plaintiffs nor the defendants ha[ve] asked us to take a side in the circuit split
regarding judicial approval of FLSA settlements.” Id. at 854 n.1. And yet again, the
Eighth Circuit gave no indication that it had any doubt that employees could waive
their FLSA rights when settling FLSA actions. The Eighth Circuit went on to uphold the
district court’s finding that the wage claim and the attorney’s‐fees claim had not been
separately negotiated and to find that the district court abused its discretion in
awarding attorney’s fees without first calculating a lodestar. Id. at 854–58.
With the Eighth Circuit’s recent case law in mind, the Court now turns to the
proposed settlement of this action.
C. The Evereve Settlement
1. Necessity of Judicial Approval of FLSA Settlements
In the past, this Court has assumed that the parties to an FLSA action may enter a
valid and binding settlement under which the plaintiff employees waive any rights they
may have under the FLSA in return for a payment from the defendant employer. See
Johnson v. Thomson Reuters, No. 18‐CV‐0070 (PJS/HB), 2019 WL 1254565, at *2 (D. Minn.
Mar. 19, 2019). The Court is not inclined to question that assumption. Notwithstanding
the doubts created by O’Neil and D.A. Schulte, it is difficult to find a federal court that
has recently expressed any reservations about whether employees may waive FLSA
rights in settling FLSA lawsuits. The Eighth Circuit has certainly not expressed such
reservations; to the contrary, in Barbee the Eighth Circuit expressed doubt only about
whether parties could be required to seek judicial approval of FLSA settlements, given
that the decision whether to settle a lawsuit is normally “‘solely in the hands of the
parties’” and given that the right to dismiss a lawsuit is normally “unconditional.” 927
F.3d at 1027 (quoting Gardiner v. A.H. Robins Co., 747 F.2d 1180, 1189 (8th Cir. 1984)).
In the past, this Court has also assumed that judicial approval of an FLSA
settlement was necessary. See Johnson, 2019 WL 1254565, at *2 & n.1. Admittedly, the
Court has not previously given the matter much thought, as no party before the Court
ever questioned the assumption. The additional research conducted by the Court in
this case reveals that the matter is more complicated than the Court understood. (Judge
Xavier Rodriguez’s order in Martinez v. Bohls Bearing Equipment Co., 361 F. Supp. 2d 608
(W.D. Tex. 2005), was particularly instructive.) But the Court is not inclined to revisit its
assumption for at least three reasons:
First, the Court continues to believe that judicial approval of all FLSA settlements
is necessary. The widespread assumption by courts that employees may waive FLSA
rights when settling lawsuits traces back to the crucial footnote in D.A. Schulte. That
footnote “differentiate[d] stipulated judgments from compromises by the parties” and
suggested that employees could waive FLSA rights in connection with the former, but
not in connection with the latter. 328 U.S. at 113 n.8. The Supreme Court’s rationale for
the distinction was that stipulated judgments, unlike private settlements, required
“submitting the judgment to judicial scrutiny.” Id. Without “judicial scrutiny” of an
FLSA settlement, that settlement would be indistinguishable from the settlement that
was found invalid in D.A. Schulte.
Second, neither Shanley or Eizelman, on the one hand, nor Evereve, on the other,
is arguing that this Court does not have authority to approve their settlement, or that
approval of their settlement is not required. The Court is loathe to address such
complicated issues without receiving briefing from both “sides” of the issues. The
Court will follow the lead of the Eighth Circuit, which has declined to determine
whether judicial approval is required for all FLSA settlements when “[n]either the
plaintiffs nor the defendants ha[ve] asked us to [do so].” Vines, 9 F.4th at 854 n.1.
And finally, it does not matter whether this Court has authority to approve an
FLSA settlement because, even if it does, the Court could not approve the settlement
reached by the parties to this lawsuit. It is to that issue that the Court now turns.
2. Failure to Negotiate Separately
In settling this action, the parties agreed that plaintiffs’ claim for attorney’s fees
would be paid by giving the attorneys a percentage of the common settlement fund of
$200,000. Under Barbee, this Court does not have authority to review the settlement of
the attorney’s‐fees claim except “ to ensure the attorney fees were in fact negotiated
separately and without regard to the plaintiff’s FLSA claim, and  there was no
conflict of interest between the attorney and his or her client.” Barbee, 927 F.3d at 1027
n.1; see also Vines, 9 F.4th at 853–54.
As the parties concede, “the [attorney’s] fees were not negotiated separately from
Plaintiffs’ FLSA claim. Instead, Plaintiffs’ attorneys’ fees are based on a percentage of
the fund created by the common fund settlement.” ECF No. 37 at 3. And because the
settlement of the attorney’s‐fees claim was intertwined with the settlement of the wage
claim, a conflict of interests arose between plaintiffs and their attorneys. As Judge
Steven Colloton explained in Vines:
The basic problem is this: When a lawyer
representing employees who sue for unpaid wages
simultaneously engages in settlement negotiations over the
merits of the claim and his own fee, “a significant conflict of
interest between client and attorney is created.” Staton v.
Boeing Co., 327 F.3d 938, 964 (9th Cir. 2003) (quoting Court
Awarded Attorney Fees, Report of the Third Circuit Task Force,
108 F.R.D. 237, 266 (1985)). In combined negotiations,
plaintiffs’ counsel negotiates “a fee ultimately destined for
his pocket” when “all thoughts ought to be singlemindedly
focused on” the interests of his clients. Obin v. Dist. No. 9 of
Int’l Ass’n of Machinists & Aerospace Workers, 651 F.2d 574,
582 (8th Cir. 1981). The defendant employer, for its part, is
interested “only in disposing of the total claim,” and is
therefore indifferent to the allocation of a settlement between
plaintiffs’ counsel and the plaintiffs. Staton, 327 F.3d at 964
(internal quotation omitted). With no resistance from the
defendant, there is little to deter plaintiffs’ counsel from
urging “settlement at a low figure or on a less‐than‐optimal
basis in exchange for red‐carpet treatment on fees.”
Weinberger v. Great N. Nekoosa Corp., 925 F.2d 518, 524 (1st
Vines, 9 F.4th at 858–59 (Colloton, J., dissenting).
The parties argue that the percentage‐of‐the‐fund approach does not, in fact,
create conflicts of interest, but instead “keeps Plaintiffs and their counsel’s interests in
line to work to achieve the largest common fund they can for the Plaintiffs and the class
with attorneys’ fees awarded as a percentage of that fund.” ECF No. 37 at 13. The
parties are mistaken. The parties not only ignore the conflict described by Judge
Colloton, but they ignore other potential conflicts.
To begin with, the percentage‐of‐the‐fund approach provides no incentive for
plaintiffs’ counsel to push for an easy claims process that maximizes the ability of
potential opt‐in plaintiffs to submit claims and be paid. See Pearson v. NBTY, Inc., 772
F.3d 778, 782–83 (7th Cir. 2014) (describing the many barriers to claim submission in a
class‐action case and noting that class counsel “lack[ed] any incentive to push back
against the defendant’s creating a burdensome claims process in order to minimize the
number of claims”).7 Likewise, there is no incentive for class counsel to strive to reduce
the costs of fund administration. Regardless of how much of the settlement fund is
eaten up by administrative fees and regardless of how many plaintiffs actually benefit
from the settlement, counsel will receive the same payment: one‐third of $200,000.
In this case, in fact, the Court has already pointed out multiple instances of
ambiguous, overbroad, or erroneous language in the settlement agreement and
notice—all errors that would have negatively affected plaintiffs.
Indeed, there is the potential for collusion between plaintiffs’ counsel and Evereve. (To
be clear, there is no evidence of actual collusion.) Any unclaimed amount in the
settlement fund returns to Evereve. ECF No. 38‐1 at 8. Plaintiffs’ counsel could ask
Evereve to accept a higher settlement fund amount; in exchange, counsel would agree
to a more defendant‐friendly notice and claims process. Then counsel would get 33% of
a larger pot, and Evereve would stand to ultimately pay less overall if fewer potential
opt‐in plaintiffs submit claims. Everyone wins—except the employees.
Far better would be a contingency agreement in which the plaintiffs and counsel
agree that counsel gets a set percent of what the plaintiffs actually recover. See Samuel
Issacharoff, Class Action Conflicts, 30 U.C. Davis L. Rev. 805, 829–30 (1997) (“[T]o the
extent the attorneys hope to prosper in the representation, that reward should be a
direct product of what they return to the class.”). Unlike the percentage‐of‐the‐fund
method, such an arrangement would be akin to a true contingency fee and would
provide incentives for counsel to press for all plaintiffs’ benefit.
In sum, the Eighth Circuit has held that if this Court has authority to approve an
FLSA settlement, it may not approve such a settlement without first ensuring that “the
attorney fees were in fact negotiated separately and without regard to the plaintiff’s
FLSA claim” and that “there was no conflict of interest between the attorney and his or
her client.” Barbee, 927 F.3d at 1027 n.1; see also Vines, 9 F.4th at 853–54. Neither
condition is true here. For that reason, the Court denies the parties’ joint motion for
approval of their proposed settlement.
Based on the foregoing, and on all of the files, records, and proceedings herein,
IT IS HEREBY ORDERED that the parties’ renewed joint motion to approve the
settlement agreement [ECF No. 37] is DENIED.
Dated: November 18, 2022
s/Patrick J. Schiltz
Patrick J. Schiltz, Chief Judge
United States District Court
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