July 2014

By: Walter J. Liskza, Esq.

Over the last five (5) years, there has been a drastic increase in the number of lawsuits filed alleging violation of the Fair Labor Standards Act (FLSA) in an attempt to procure back wages and liquidated damages for affected employees. A vast number of these lawsuits have turned into large class action litigations. Any employer who has been involved in this type of scenario is well aware that the “actual bottom line cost” of these cases is not just the alleged back wages and liquidated damages due to the affected employees, but by statute, will include substantial payments to Plaintiff’s counsel for “reasonable attorneys’ fees incurred by the successful Plaintiff in pursing their claim.”

It should be noted that the “reasonable attorneys’ fees” may have no relationship whatsoever to the recovery of “actual damages to the affected employees.” The writer is well aware of a case where the recovery of “actual Plaintiff’s damages” totaled $7,000.00 yet the demand for “reasonable attorneys’ fees” was in the range of $175,000.00. How should an employer faced with this type of litigation deal with this scenario? There are three (3) steps or courses of action which may help the employer:

• Make a reasonable and fair settlement offer. The Plaintiff’s counsel has clearly evaluated their case prior to institution of the lawsuit and they have evaluated the potential recovery both in actual damages and “reasonable attorneys’ fees.” The employer must make an honest and fair judgment in assessing the extent of its liability. The FLSA provides compensation for all minimum wage and overtime violations. The employer must assess its exposure to “actual damages” and, as well, make a fair assessment of what would be the potential of “reasonable attorneys’ fees” to which Plaintiff’s counsel may be entitled. Any “reasonable settlement offer” must take cognizance of both the actual damages and the potential of attorneys’ fees.
• Make an Offer of Judgment. If settlement talks are not successful, the Defendant employer should consider making an “Offer of Judgment.” The Federal Rules of Civil Procedure establish the fact that a Defendant may make a Rule 68 Offer of Judgment at least fourteen (14) days before the date set for trial. The Offer of Judgment must allow the judgment on specific terms with payment of costs that are then accrued. If the Offer of Judgment is rejected and the judgment obtained by the Plaintiff through litigation is not more than the Offer of Judgment, the Plaintiff must then pay to the Defendant all costs incurred after that offer was made. In essence, the Offer of Judgment defines the benchmark that the Plaintiff must meet at trial to avoid payment of costs. It is the hope that the Offer of Judgment may discourage the Plaintiff from unnecessarily prolonging the case and thereby freeing up the court’s calendar.
• Question the reasonableness of fees. It is extremely important for the Defendant employers to communicate to Plaintiff’s counsel that they will not pay a “hostage fee” to Plaintiff’s counsel to resolve a case. While the Defendant employer must fairly assess what are “reasonable attorneys’ fees,” the Defendant employer is not required to roll over and play dead. If the employer has honestly assessed the case, it can point to potentially unsuccessful portions of the claim or claims filed by the Plaintiff that will be defeated through litigation and may impact the attorneys’ fees. It should clearly be understood that the success of Plaintiff’s counsel in litigation is a direct correlation to attorneys’ fees – there are no rights to recover attorneys’ fees for unsuccessful portions of a claim.

Through the use of the above three (3) steps of assessment of a case, the Defendant employer may be in a much better position to avoid costly and prolonged litigation and, as well, paying not only its own fees for legal counsel, but the Plaintiff’s fees as well.

Questions? Contact Founder and Senior Shareholder Richard H. Wessels of Wessels Sherman’s St. Charles office at (630) 377-1554 or by email at rwessels@wesselssherman.com.