Olibares v. MK Cuisine Global LLC

Background

Rosa Olibares and Adam Russell sued MK Cuisine Global LLC and other defendants on behalf of themselves and other similarly situated workers. They sought unpaid wages and overtime under the Fair Labor Standards Act (FLSA), a federal wage law, and the New York Labor Law. They also asserted claims under the New York State Human Rights Law and the New York City Human Rights Law. The complaint alleged that defendants failed to pay the required minimum wage because of an invalid tip credit, unlawfully retained gratuities, improperly deducted meal credits, and failed to provide required wage statements and notices.

The parties reached a settlement in principle during mediation. Plaintiffs then filed an unopposed motion seeking preliminary approval of the settlement, conditional certification of a proposed class and class counsel for settlement purposes, approval of a proposed settlement notice, appointment of a claims administrator, and approval of a schedule for final settlement approval and a fairness hearing.

Legal Framework

The proposed case was a hybrid action: plaintiffs sought to resolve New York claims through a Rule 23 class action and FLSA claims through a collective action under 29 U.S.C. § 216(b). In a Rule 23 class action, class members generally may opt out. In an FLSA collective action, workers must instead opt in by giving written consent and filing that consent with the court.

The court explained that an FLSA settlement requires court or Department of Labor approval. Without Department of Labor approval, the court must determine whether the settlement is fair and reasonable. Relevant considerations include the possible recovery, the burdens and expenses avoided through settlement, litigation risks, whether the negotiations were conducted at arm’s length by experienced counsel, and the possibility of fraud or collusion. Attorney fees and costs also require adequate supporting documentation.

Deficiencies in the Proposed Settlement

The court denied preliminary approval because the settlement materials did not satisfy the FLSA or Rule 23. First, plaintiffs did not propose separate FLSA and New York-law classes. Second, the materials did not ask the court to provide potential FLSA plaintiffs with notice and an opportunity to opt into the collective action. The proposed notice told workers only that they could opt out and stated that workers who did nothing would automatically participate in and be bound by the settlement. The settlement agreement and supporting memorandum did not address the FLSA’s written-consent and filing requirements.

The court also stated that it would not approve the settlement’s terms based on the information provided. The agreement allocated one-third of the settlement amount to attorney fees but supplied no basis, time records, billing records, or other factual support for that request. The release was overbroad because it was not limited by time or date and appeared to require a broad waiver of federal wage-and-hour claims, including claims unrelated to this case or that could arise in the future. In addition, depositing a settlement check could not substitute for the written consent required to join an FLSA collective action.

Finally, the settlement agreement said each named plaintiff would receive $5,000, while the proposed notice said each named plaintiff would receive $10,000. The court directed that the settlement agreement, notice, and any proposed order be consistent.

Disposition

Judge Vernon S. Broderick denied Plaintiffs’ motion for preliminary approval without prejudice. He also denied without prejudice Plaintiffs’ requests for conditional certification of the proposed class, appointment of class counsel and a claims administrator, approval of the proposed class notice, and approval of the proposed schedule for final settlement approval and a fairness hearing.

The court did not approve or rewrite the settlement. It allowed the parties either to file a revised settlement agreement within 30 days that addressed the identified deficiencies or to file a joint letter stating that they intended to abandon settlement. If they submitted a revised agreement, the court required them to explain why it was fair and reasonable under the FLSA and to address the applicable certification standard and the other deficiencies identified in the opinion. The Clerk of Court was directed to terminate the motion at docket entry 58.