Zekanovic v. Augies Prime Cut of Westchester, Inc.

Background

Matthew Zekanovic sued Augies Prime Cut of Westchester, Inc., Audrey Hochroth, and Salvatore Barone under the Fair Labor Standards Act (FLSA), New York Labor Law, and related New York regulations. According to the complaint, Zekanovic worked as a bartender and server and alleged that the defendants failed to keep accurate payroll and time records, pay the required tipped minimum wage and overtime premium, provide accurate paystubs and written wage-rate notices, and refrain from unlawful paycheck deductions.

Zekanovic asked the court to approve a proposed settlement. The total settlement amount was $35,000. Zekanovic would receive $22,933.33, and his counsel requested $12,066.67 for attorneys’ fees and expenses.

Court’s Analysis

Under the court’s interpretation of Federal Rule of Civil Procedure 41 and Second Circuit precedent, an FLSA settlement requiring dismissal must receive approval from the court or the Department of Labor. The parties therefore had to give the court enough information to determine whether the agreement was fair and reasonable.

The court was satisfied that the agreement had been negotiated in good faith and at arm’s length, without fraud or collusion. It also accepted the parties’ representation that settlement would help them avoid the burdens and risks of litigation, including the risk of not collecting a future judgment because the defendants’ restaurant had closed during the COVID-19 pandemic.

The court nevertheless concluded that it lacked sufficient information to evaluate the settlement amount. The parties identified Zekanovic’s maximum unpaid-overtime damages as $19,292.54, including actual and liquidated damages, but did not explain the calculation method or provide the underlying data. The court required a more detailed explanation of Zekanovic’s possible recovery and the basis for the settlement amount.

The proposed agreement contained separate releases for FLSA claims and other New York claims. The court found the FLSA release overbroad because it could release FLSA claims unrelated to the wage-and-hour conduct at issue. The court also questioned the broad New York-law release, which covered claims that were not alleged or could have been alleged in the lawsuit, including retaliation claims. The court directed the parties to address conflicting authority concerning separate releases in one agreement or, alternatively, explain why two separate settlement agreements would be permissible.

The court rejected the proposed no-reemployment clause, which barred Zekanovic from applying for work with entities owned or operated by the defendants or their affiliates and waived claims concerning denial of such employment. The court stated that courts in the circuit consistently reject such provisions in FLSA settlements and that Zekanovic had provided no explanation or supporting cases for including it.

The court also found the requested attorneys’ fees excessive. Counsel sought $12,066.67, including a $400 filing fee. Based on counsel’s stated rate of $350 per hour and 15.10 hours of work, the records supported a lodestar amount of $5,285. The court concluded that an award of 20 percent of the settlement, or $7,000, was appropriate. That amount exceeded the lodestar by about one-third and was intended to compensate counsel for contingency risk and work revising the settlement.

Disposition

Judge Kenneth M. Karas denied without prejudice the motion for approval of the proposed settlement. The parties may reapply for approval of a settlement that complies with the order’s requirements.