Melendez v. Cosan Construction Corp.

Background

Hector Melendez filed this action against Cosan Construction Corp., Cosan New York Inc., and Terence Ferguson to recover overtime wages and related relief under the Fair Labor Standards Act (FLSA) and the New York Labor Law. The defendants moved to compel arbitration based on an arbitration agreement that Melendez signed in exchange for “an opportunity to continue his employment.” The court granted that motion and stayed the case pending arbitration.

The parties settled their dispute before the scheduled arbitration hearing. They later filed a joint stipulation to voluntarily discontinue the action. The court directed them to submit their settlement agreement and a joint letter explaining why the settlement was fair and reasonable under the standards governing FLSA settlements. Instead, the parties jointly moved for relief from that requirement.

The Parties’ Arguments

The parties argued that the court did not retain authority to review the settlement after compelling arbitration. They also argued that the arbitration agreement’s confidentiality provision would be undermined if they had to submit the settlement terms for public review. Finally, they contended that requiring review could discourage parties from settling shortly before an arbitration hearing.

Court’s Analysis

The court held that the settlement remained subject to review under the Second Circuit’s decisions requiring judicial approval of negotiated FLSA settlements. That requirement applies to settlements tied to dismissals both with and without prejudice. The court explained that the case had been stayed, rather than dismissed, when arbitration was ordered, so the court was not deprived of jurisdiction. Although the arbitrator would address the underlying dispute, the court retained authority over other matters involving the case.

The court also rejected the confidentiality argument. It explained that confidentiality provisions in FLSA settlements may undermine the statute’s remedial purposes and that the parties could not contract around the requirement of judicial fairness review. The court further found that the possibility that review might discourage settlements did not justify an exception for settlements reached while a case was stayed for arbitration.

Disposition

The court denied the parties’ joint motion for relief from the obligation to submit their settlement agreement for review. It ordered them to submit the agreement and a compliant joint letter by May 24, 2023. The order addressed whether review was required; it did not decide whether the settlement was fair or approve the settlement.