N.Y. Federal Court Holds that Fairness Hearing is Not Essential for Voluntary Dismissal

In late February, the U.S. District Court in Brooklyn held that parties to a Fair Labor Standards Act (FLSA) action may agree to dismiss voluntarily under Rule 41 of the Federal Rules of Civil Procedure, without court approval. This is a major departure from the procedural requirements imposed by many courts for settlement of an FLSA suit. Judge Cogan’s decision offers more flexibility to employers defending an FLSA claim, but not necessarily less risk. Donna Picerni v. Bilingual SEIT Preschool Inc, U.S. District Court, Eastern District of New York, No. 12-cv-04938. Withdrawing or settling an FLSA court action can be anything but straightforward.  Most courts have held, or at least suggested in dictum, that a private FLSA settlement will not be enforceable without Court or Department of Labor (DOL) approval. Therefore, an employer that settles an FLSA claim without either DOL or Court approval is at risk of a subsequent suit by the same employee, even if the employer receives a release of FLSA claims as a part of the settlement agreement.  Because of the special circumstances surrounding enforceability of FLSA settlements, most courts require that the court approve any settlement. In what is often called a “fairness hearing” the Court evaluates the settlement terms the parties have agreed to and decides whether the Court will approve or disapprove the settlement. If the Court disapproves the settlement, the Court will often force the parties to continue negotiating until the Court approves the terms. This can be costly and inefficient. Judge Cogan essentially questioned why an FLSA settlement for unpaid wages should be treated differently from any other early dispute resolution. Rule 41 allows the parties to agree voluntarily to dismiss an action once the litigation has begun.  Judge Cogan, in reversing himself, held that FLSA actions are not exempt from Rule 41 and parties may agree to withdraw privately, without input from the Court. In this case, the defendant employer made the employee a Rule 68 Offer of Judgment, which the plaintiff accepted and filed with the Court.  The Court initially determined that before dismissal could be entered to end the case, Court approval was necessary.  The Court then did an about-face and determined that the parties were free to withdraw without a fairness hearing. This case underscores the business prudence in attempting to resolve an FLSA action before it becomes a lawsuit. In many instances, after suit is filed, private resolution may no longer be an option. If an employer is forced to settle with court approval, the settlement cannot contain a confidentiality provision and the terms will be available to the public and to all other employees. Judge Cogan’s decision is a departure from what many Courts require to settle an FLSA action. As a practical matter, some other courts allow settlements to be entered privately without publishing the settlement terms, but do not address whether the withdrawal is appropriate under the Federal Rules. This decision is notable because Judge Cogan directly considered the weight of authority in favor of fairness hearings and reconsidered his previous position that a hearing is always required. The decision is not binding on other Federal Courts, but may persuade other Courts to allow the parties to settle FLSA actions privately without Court oversight. A Defendant employer that settles an FLSA action without court approval still takes a gamble, but in some instances, the benefits of a private settlement will outweigh the risks that a fairness hearing and its attendant publicity produce. If you have any questions regarding this issue or any other wage and hour issue or labor law, contact Patrick McGovern (PMcGovern@GenovaBurns.com) in our Labor Law Practice Group.