Second Circuit Rules Court Approval or USDOL Supervision of Settlements Required in FLSA Suits

On August 7, 2015, the Second Circuit ruled that suits brought under the Fair Labor Standards Act (“FLSA”) cannot be resolved privately and require approval of a federal court or supervision by the U.S. Department of Labor (“DOL”). In Cheeks v. Freeport Pancakes House, Inc., 2d Cir., No. 14-299, 8/7/15, the plaintiff sued his former employer seeking to recover unpaid overtime wages, liquidated damages and attorneys’ fees under the FLSA and New York labor laws.  After engaging in some discovery, the parties reached a private settlement to dismiss the employee’s claims with prejudice and, pursuant to Rule 41 of the Federal Rules of Civil Procedure (“Rule 41”), filed a joint stipulation and order to dismiss the lawsuit.  Under Rule 41, parties may voluntarily agree to dismiss an action without court order unless there is a federal statute prohibiting such agreement.  The District Court denied the parties’ application to dismiss the lawsuit. As part of its ruling, the District Court directed the parties to file a copy of the settlement agreement on the public docket and to “show cause why the proposed settlement reflects a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought by an employer’s overreaching.”  The parties jointly sought certification of an appeal to the Second Circuit instead, seeking a ruling on whether the parties could stipulate to dismissal of the action without court approval. In affirming the lower court’s decision to deny the stipulation of settlement, the Second Circuit decided, given the unique policy considerations underlying the FLSA, that the FLSA fell within Rule 41’s “applicable federal statute” exception, thus making district court or DOL approval a requirement to dismiss an FLSA cause of action with prejudice via private settlement.  The Court reasoned that “the FLSA is a uniquely protective statute … with a strong remedial purpose: to prevent abuses by unscrupulous employers and remedy the disparate bargaining power between employers and employees.”  Accordingly, the Second Circuit held that judicial or DOL approval will protect susceptible employees from feeling coerced into accepting unreasonable or discounted settlement offers quickly. The Cheeks ruling makes it clear that, at least in the Second Circuit, a privately negotiated settlement agreement requires court or DOL approval in order to extinguish FLSA claims in a lawsuit. This means the settlement agreement must be filed in open court.  Failure to do so in New York, Connecticut and Vermont puts the employer at risk that it will be sued again by the same claimants. For more information regarding this decision and best practices, please contact John Vreeland, Esq., Director of the Wage & Hour Compliance Practice Group, at jvreeland@genovaburns.com or 973-533-0777.