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Offers of Judgment: A Tool for Minimizing Liability in Overtime Cases

As many employers have learned, the biggest liability in many overtime cases brought under the Fair Labor Standards Act (“FLSA”) is often not the unpaid overtime or liquidated damages but the attorneys’ fees that the plaintiff’s attorney is entitled to recover if he prevails on behalf of his client. While a misclassified employee who occasionally worked overtime may only recover a couple of thousand dollars, his lawyer could well end up with a six-figure award.

Of course, one way to limit a company’s exposure to an excessive fee award for a small case is to resolve the case early before the plaintiff’s lawyer has done much work. Unfortunately, individual plaintiffs often have unreasonable expectations for their cases and may even reject an offer that exceeds what they are likely to recover at the end of the day. The statute’s inclusion of an attorneys’ fees provision fails to incentivize plaintiffs’ lawyers to persuade their clients to accept early settlement offers.

Making an Offer of Judgment under Federal Rule of Civil Procedure 68 is one way to encourage early settlement by increasing the plaintiff’s incentive to settle. Unfortunately, attorneys’ fees are not considered costs under the FLSA, so while a plaintiff’s already small award might be further reduced by a defendant’s taxable costs (e.g., deposition transcripts), his lawyer could still seek his full attorneys’ fees.

Fortunately, the Fifth Circuit recently joined other federal courts of appeals in finding that courts should consider a prevailing party’s rejection of a Rule 68 offer that was more favorable than the judgment obtained when awarding attorneys’ fees. The Court affirmed the trial court’s decision to reduce the $130,000 fee award requested by the plaintiff’s attorney to only $25,000, based in large part on the plaintiff’s rejection of several Rule 68 offers, all of which exceeded the amount she was awarded by the jury.

While discussing strategy with their attorneys, employers should be aware of the Offer of Judgment concept and understand that, when it is deployed correctly, it can increase their settlement leverage, effectively minimizing an employer’s exposure in many FLSA cases.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.