About Us  |  About Cheetah®  |  Contact Us

Parties can’t enter private settlement of FLSA claims without approval of district court or DOL

By Ronald Miller, J.D.

Addressing the open question of whether judicial approval of, and public access to, FLSA settlements are required, the Second Circuit ruled that parties to an FLSA suit cannot enter into private settlements of FLSA claims without either the approval of the district court or the Department of Labor. Noting that the FLSA is a uniquely protective statute, and mindful of the potential for abuse in such settlements, the appeals court concluded that any burdens to an employer must be balanced against the FLSA’s primary remedial purpose—to prevent abuses by unscrupulous employers and remedy the disparate bargaining power between employers and employees (Cheeks v. Freeport Pancake House, Inc., August 7, 2015, Pooler, R.).

During the course of his employment at a restaurant, the employee worked as both a server and a manager. In August 2012, he sued the restaurant seeking to recover overtime wages, liquidated damages, and attorneys’ fees under both the FLSA and New York Labor Law. The employee also alleged that he was demoted, and ultimately fired, for complaining about the employer’s failure to pay him and other employees the required overtime wage. He sought back pay, front pay in lieu of reinstatement, and damages for unlawful retaliation.

Private settlement. After engaging in a period of discovery, the parties agreed to a private settlement of the employee’s claims. They filed a joint stipulation and order of dismissal with prejudice under Rule 41(a)(1)(A)(ii). The district court declined to accept the stipulation as submitted, concluding that the employee could not agree to a private settlement of his FLSA claims without either the approval of the district court or the supervision of the DOL. It directed the parties to “file a copy of the settlement agreement on the public docket,” and to “show cause why the proposed settlement reflected a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought about by an employer’s overreaching.”

Rather than disclose the terms of their settlement, the parties instead asked the district court to stay further proceedings and to certify the question of whether FLSA actions are an exception to Rule 41(a)(1)(A)(ii)’s general rule that parties may stipulate to the dismissal of an action without the involvement of the court.

Open question. This appeal raised the issue of determining whether parties may settle FLSA claims with prejudice, without court approval or DOL supervision. The Second Circuit noted that the question of whether judicial approval of, and public access to, FLSA settlements are required is an open one in the circuit.

Rule 41(a)(1)(A)(ii) provides, in relevant part, that, “subject to any applicable federal statute, the plaintiff may dismiss an action without a court order by filing a stipulation of dismissal signed by all parties.” The FLSA is silent as to Rule 41. Thus, the appeals court had to determine if the FLSA is an “applicable federal statute” within the meaning of the rule. If it is not, then the employee’s case was dismissed by operation of Rule 41(a)(1)(A)(ii), and the parties did not need approval from the district court for the dismissal to be effective.

Court approval. As an initial matter, the Second Circuit observed that neither the Supreme Court nor any sister circuits have addressed this precise issue. District courts in the Second Circuit have grappled with this issue with differing results. Those requiring court approval of private FLSA settlements regularly base their analysis on a pair of Supreme Court cases: Brooklyn Savings Bank v. O’Neil and D.A. Schulte, Inc. v. Gangi.

Brooklyn Savings and Gangi establish that (1) employees may not waive the right to recover liquidated damages due under the FLSA; and (2) that employees may not privately settle the issue of whether an employer is covered under the FLSA. These cases leave open the question of whether employees can enforce private settlements of FLSA claims where there is a bona fide dispute as to liability. In considering that question, the Eleventh Circuit, in Lynn’s Food Stores, Inc. v. United States Dep’t of Labor, answered “yes,” but only if the DOL or a district court first determined that the proposed settlement “is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.”

However, in Martin v. Spring Break ‘83 Prods., L.L.C., the Fifth Circuit concluded that a private settlement agreement containing a release of FLSA claims entered into between a union and an employer waived employees’ FLSA claims, even without district court approval or DOL supervision.

Enforcement. The Second Circuit noted that those cases arose in the context of whether a private FLSA settlement was enforceable. However, the question before it asked whether the parties can enter into a private stipulated dismissal of FLSA claims with prejudice, without the involvement of the district court or DOL that may later be enforceable. No cases speak directly to the issue: whether the FLSA is an “applicable federal statute” within the meaning of Rule 41(a)(1)(A).

The trend among district courts is to continue subjecting FLSA settlements to judicial scrutiny. The appeals court concluded that these cases, read in light of the unique policy considerations underlying the FLSA, place the FLSA within Rule 41’s “applicable federal statute” exception. Thus, Rule 41(a)(1)(A)(ii)’s stipulated dismissals settling FLSA claims with prejudice require the approval of the district court or the DOL to take effect. Requiring judicial or DOL approval of such settlements is consistent with both the Supreme Court’s and the Second Circuit’s long recognition of the FLSA’s underlying purpose: “These provisions were designed to remedy the evil of overwork by ensuring workers were adequately compensated for long hours, as well as by applying financial pressure on employers to reduce overtime.”