Alt v. Social Impact 360, Inc.

Background

Allison Alt brought claims against Social Impact 360, Inc. and Thomas Raffa under the Fair Labor Standards Act (FLSA), the New York Labor Law, and an employment contract. The parties submitted a settlement agreement for the court’s approval.

The court explained that, in this federal circuit, parties generally cannot privately settle FLSA claims with prejudice without approval from the court or the Department of Labor. The court therefore had to determine whether the agreement was fair and reasonable based on the circumstances, including the possible recovery, litigation costs and risks, the parties’ negotiations, and the possibility of fraud or collusion. Because the agreement also resolved state-law claims, the court also had to consider those claims.

Reasons for rejecting the agreement

The court identified three problems that prevented approval.

First, the release was too broad. The agreement released Social Impact 360, Raffa, and their current and former employees or affiliates from any claims arising from or related to the lawsuit or Alt’s employment. It applied broadly to claims under federal, state, and local law. The court held that an FLSA settlement may release wage-and-hour claims at issue, or that could have been at issue, in the litigation, but that this agreement did not explain that the broader release was consideration for resolving Alt’s non-wage-and-hour claims.

Second, the non-disparagement provision was impermissible. It required the parties not to make statements that would cast another party in a negative light regarding that party’s reputation, character, or integrity. The court found that the provision could prevent Alt from making truthful statements about her wage-and-hour claims and lacked an exception allowing such statements.

Third, the agreement did not provide enough information for the court to evaluate the settlement or attorney’s fees. The parties’ accompanying letter stated that Social Impact 360 had paid $35,038.54 directly to Alt for her FLSA claims and that an additional $15,000 concerned Alt’s other claims. But the agreement itself did not state the first figure or explain how either amount was allocated between Alt’s recovery and attorney’s fees. The agreement also lacked the factual information needed for the court to independently assess whether the requested attorney’s fees were reasonable.

Ruling

Judge Edgardo Ramos denied without prejudice the parties’ request for approval of the settlement agreement. The parties could file a revised letter and revised signed settlement agreement addressing the court’s concerns by November 23, 2020. Alternatively, they could file a joint letter by that date stating that they intended to abandon settlement and continue to trial, after which the court would set a date for a pretrial conference.