Chavez v. The Fifth Labor, LLC

Background

Juanita Paulina Chavez brought claims against The Fifth Labor, LLC and Anthony Rhodes alleging, among other things, that they failed to pay her overtime wages in violation of the Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL). The motion before the court concerned approval of a settlement of Chavez’s individual claims.

Under Second Circuit law, parties generally cannot privately settle FLSA claims with prejudice without approval from the district court or the Department of Labor. The court therefore had to determine whether the proposed agreement was fair and reasonable.

Proposed Settlement

The agreement provided for a total payment of $25,000, including attorneys’ fees. Counsel would receive $8,330, described as one-third of the settlement, and Chavez would receive $16,670. Chavez’s counsel agreed to waive costs. In exchange, Chavez would release claims connected to her alleged employment, including wage-and-hour claims under the FLSA, the NYLL, the Wage Theft Prevention Act, and the Spread of Hours Wage Order.

Court’s Analysis

The court held that the parties had not supplied enough information to determine whether the settlement amount was fair and reasonable. They did not estimate the number of hours Chavez worked or identify her wage, leaving the court unable to evaluate how counsel arrived at the settlement amount. They also did not submit declarations, affidavits, or exhibits explaining the calculations and factual basis for the proposed recovery.

The parties likewise did not estimate Chavez’s total possible recovery if she prevailed on all claims. The settlement materials referred to her contention that she was owed $20,925 in unpaid overtime but did not include an estimate covering her other claims, including alleged violations of New York wage-notice and wage-statement requirements.

Finally, the parties did not submit billing records supporting the requested $8,330 in attorneys’ fees. The court explained that even when fees are calculated as a percentage of the settlement, the court must independently assess whether the fees are reasonable, ordinarily by reviewing billing records and comparing the percentage calculation with a calculation based on attorneys’ time and hourly rates.

Disposition

Judge Edgardo Ramos denied without prejudice the request for settlement approval. The parties were instructed to either submit a revised approval motion by April 18, 2023, with estimates of Chavez’s hours and wage, a clear estimate of her total recovery and its components, and billing documentation for the attorneys’ fees, or stipulate to dismissal of the case without prejudice. The court stated that it did not need to approve such a dismissal under the cited Second Circuit authority. The Clerk of Court was directed to terminate the settlement motion.