Although district courts in the Second Circuit have "routinely appl[ied] a proportionality limit on attorney's fees in FLSA actions," in Fisher v. SD Protection, Inc., No. 18-2504-CV, 2020 WL 550470 (2d Cir. 2020), the Second Circuit recently rejected this approach, holding "in light of the text and purpose of the FLSA, as well as longstanding case law interpreting other similar fee-shifting statutes in the civil rights context, we conclude that the district court erred in imposing a proportionality limit on [plaintiff's attorney's] recoverable attorney's fees." In Fisher, the plaintiff settled his FLSA action for $25,000, allocating $2,000 to his damages and $23,000 in attorney's fees. The district court rejected the settlement, and decided to reduce attorney's fees to $8,250 (and the remainder to Fisher), the equivalent of 33% of the total settlement, finding that "[a]s a matter of policy, 33% of the total settlement amount -- or less -- is generally the maximum fee percentage which is typical and approved in FLSA cases." The Second Circuit reversed.

To understand the decision, the context over the dispute arises out of the fact that the Fair Labor Standards Act ("FLSA"), among other federal statutes, provides for fee-shifting of attorney's fees and costs. 29 U.S.C. § 216(b). And FLSA settlement agreements must be approved by the court as fair and reasonable. Cheeks v. Freeport Pancake House, Inc., 796 F.3d199 (2d Cir. 2015).

In such a fairness review, the Second Circuit found in Fisher that "[n]either the text nor the purpose of the FLSA, however, supports imposing a proportionality limit on recoverable attorneys's fees." The court stated that "[a] proportionality rule would also be inconsistent with the remedial goals of the FLSA, which we have deemed a 'uniquely protective statute.'" In the FLSA context, the Second Circuit wrote that "[i]n most FLSA cases, it doe not make sense to limit fees to to 33% of the total settlement," because such cases often "often involve ordinary, everyday works who are paid hourly wages and favorable outcome frequently result in limited recoveries." It added, "[t]he whole purpose of fee-shifting statutes is to generate attorneys' fees that are disproportionate to the plaintiff's recover."

The Second Circuit adopted a pragmatically remedial approach, that in "'run of the mill' FLSA actions," "no rational attorney would take on these cases unless she were doing so essentially pro bono," and that "[f]ee awards in wage and hour cases should 'encourage members of the bar to provide legal services to those whose wage claims might otherwise be too small to justify the retention of able, legal counsel." While the Second Circuit did not completely reject proportionality as a consideration, it refused to allow it to be used as a determinative factor.

Fisher is a significant for several reasons. First, it will substantially increase enforcement efforts, significantly motivating attorneys who were otherwise content to sit out and not bother with low recovery FLSA cases. Second, it materially alters an employers' settlement calculus given the prospect that prolonging settlement will only increase attorney's fees, either in settlement or in an ultimate award after a determination of liability. The incentive to hold out for a a determination of a lower damages award is dramatically dwarfed by the corresponding increase in attorney's fees, when those fees are unmoored to proportionality. Third, Fisher made clear that this principle of non-proportionality is not limited to the FLSA, but all fee-shifting statutes, a principle that may begin to take hold for example, in similar state law wage payment statutes.

Employers should heed Fisher as a much-needed compliance directive (verifying wage and hour procedures are consistent with the law), and as a recalibration of settlement analyses when facing threats or actual litigation.

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