The parties’ settlement of plaintiff’s Fair Labor Standards Act case was approved by the court, except for the confidentiality agreement and plaintiff’s general release, which the court held could be severed from the rest of the agreement.
Frustration of FLSA
The confidentiality clause and release clause frustrate the FLSA’s purpose. The central purpose of the FLSA was to provide a remedy for the consequences resulting from “the unequal bargaining power as between employer and employee.” Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 706 (1945). One of the main consequences of unequal bargaining power was substandard wages, thus the FLSA sought “to secure for the lowest paid segment of the nation's workers a subsistence wage.” Kraus v. PA Fit II, LLC, 155 F. Supp. 3d 516, 525 (E.D. Pa. 2016) (citing D.A. Schulte v. Gangi, 328 U.S. 108, 114 (1946)). In accordance with this central purpose, the general releases and confidentiality clauses in FLSA settlement agreements will be rejected.
Confidentiality clause
Generally, confidentiality clauses in FLSA settlement agreements frustrate the purpose of the FLSA by facilitating information asymmetry that hinders FLSA enforcement.
The defendant’s employees, as well as the public at large, have an interest in ensuring fair wages and thus an interest in information about the defendant’s settlement of claims alleging a failure to provide fair wages. . . And by preventing plaintiffs from discussing their cases with other potentially harmed employees, approval of “confidentiality clauses would create new imbalances of information between Defendants and their employees.” . . . In creating this information asymmetry, confidentiality clauses stifle the robustness of FLSA enforcement by creating an obstacle to detecting FLSA violations and to vindicating FLSA rights.
Under certain circumstances, a confidentiality clause may be approved if it is limited to prevent its undermining the purpose of the FLSA. In certain cases, the purpose of the FLSA may not be frustrated by a confidentiality clause that does not create information asymmetry between the defendant and his employees, namely by allowing the plaintiff to discuss the case and settlement with other employees, but not the media. The purpose of the FLSA is frustrated when alleged FLSA violations by an employer are concealed from its employees and the public. Therefore, contractually binding Plaintiff to make reasonable efforts to maintain confidentiality regarding this settlement will be disapproved.
General release
The broad release of claims that includes unrelated claims and claims unknown to the plaintiff frustrates the purpose of the FLSA by allowing employers to use their superior bargaining power to disadvantage FLSA claimants. Overbroad release provisions in FLSA settlement agreements subvert the goal of remedying the consequences of unequal bargaining power.
Because, unlike the confidentiality provision, the release provision is explicitly not severable, the Court will not approve the settlement agreement.
