Alvarez v. Schnipper Restaurants LLC

Background

Martin Alvarez, also identified as Eduardo Lopez, sued Schnipper Restaurants LLC, related entities, Andrew Schnipper, and Jonathan Schnipper. He brought claims for himself and other similarly situated workers under the Fair Labor Standards Act (FLSA) and New York Labor Law.

Alvarez alleged that he worked as a delivery person from May 2013 through May 2016 and was paid between $5.00 and $7.50 per hour. He alleged that Defendants did not give timely notice of a tip credit, required him to perform more than 20 percent non-tipped work, failed to reimburse him for using and maintaining his own bicycle, and failed to provide required wage notices and wage statements. He said other non-managerial tipped employees were subject to the same policies.

The court had previously conditionally certified the FLSA collective action, and fifteen people opted in as party plaintiffs. After mediation, the parties reached a proposed class settlement. Alvarez then filed an unopposed motion seeking preliminary approval of the settlement, conditional certification of a settlement class under Federal Rule of Civil Procedure 23 and the FLSA, approval of the proposed notice, a schedule and date for a final fairness hearing, and appointment of class counsel.

Proposed Settlement

The agreement required Defendants to pay up to $330,000. It also required payment of settlement administration costs, a possible $7,500 service award to Alvarez, and attorneys’ fees and costs from the settlement fund. Class members would receive notice and could submit claims, exclude themselves, or object. Those who did not opt out would release relevant wage-and-hour claims.

The agreement gave Alvarez a broader release covering essentially all known and unknown claims against Defendants, not just the wage-and-hour claims involved in the lawsuit. It also included non-disclosure and non-disparagement provisions. The agreement did not explain the possible recovery range for the plaintiffs. Finally, it stated that settlement checks would be allocated 25 percent to W-2 wage payments and 75 percent to non-wage payments for interest, liquidated damages, and statutory penalties.

Reasons for Denial of Preliminary Approval

Judge Ramos explained that preliminary approval is an initial review that allows notice to go to class members and gives them an opportunity to object or opt out before a full fairness hearing. The court found that the proposed agreement was not ready for that process for four reasons:

1. Overly broad release. The release for Alvarez went far beyond the FLSA and the claims in the case. The court said it could not approve an FLSA settlement containing a release that waived practically any possible claim, including unrelated or unknown claims.

2. Confidentiality and non-disparagement provisions. The agreement restricted Alvarez from publicizing or discussing the settlement and barred disparaging comments about Defendants. The court found the non-disclosure provision inconsistent with the FLSA’s purpose of helping workers learn about their rights. It also found the non-disparagement clause unacceptable because it lacked an exception allowing truthful statements about Alvarez’s experience litigating the case.

3. Insufficient information about possible recovery. The plaintiffs argued that the settlement was a good value given the risks of litigation, but the parties did not explain the range of possible recovery for any plaintiff. Without that information, the court said it could not determine whether the settlement was fair and reasonable.

4. Payment classification. The agreement’s 25-percent W-2 and 75-percent non-wage allocation did not comply with the court’s stated rule that, when a settlement is less than the alleged unpaid wages, payments to a claimant after attorneys’ fees and costs must be treated as wages on a W-2 basis.

Certification and Class Counsel

The court did not finally approve the settlement or enter all of the requested related orders. It said that, if the parties revised the agreement, the information then before the court would likely support conditional certification of the proposed Rule 23 settlement class. The court found approximately 225 class members, common issues and typical claims, adequate representation, and that a class action would be more efficient than individual lawsuits.

The court also said the plaintiffs were likely entitled to conditional certification of an FLSA collective action because they alleged that the workers were similarly situated and were not paid proper minimum wages because of an invalid tip-credit arrangement. The court further stated that appointment of C.K. Lee of Lee Litigation Group PLLC as class counsel was likely warranted based on counsel’s work and experience. These statements were not the court’s final approval of the settlement or a final order granting each requested form of relief.

Disposition

Judge Ramos denied Plaintiff’s request for approval of the proposed settlement without prejudice. Because the proposed notice and schedule for final settlement approval depended on preliminary approval, the court declined to consider those requests at that time. The parties could file a revised settlement agreement by November 21, 2019, or file a joint letter stating that they intended to abandon settlement and continue to trial. The Clerk was directed to terminate the motion.