A restaurant manager has petitioned the United States Supreme Court to determine whether parties may stipulate to the dismissal with prejudice of a lawsuit alleging violations of the Fair Labor Standards Act (“FLSA”), or whether judicial or Department of Labor (“DOL”) approval is a prerequisite to such a dismissal, as the Second Circuit held in his case, Cheeks v. Freeport Pancake House, Inc. Unless the Supreme Court accepts certiorari and reverses the Second Circuit, FLSA lawsuits will be much more difficult to resolve for employers in New York, Connecticut and Vermont.
For years, employers and employees alike have sought to sidestep judicial or DOL approval of FLSA settlements—and the risk that such settlements be made public or would be rejected—by agreeing to stipulate to dismiss FLSA lawsuits with prejudice. Some district courts have allowed this practice, but others have pushed back by requiring parties that did not seek judicial approval to nonetheless provide a basis for the settlement terms.
While numerous circuits have addressed whether a private settlement can bar future FLSA claims, Cheeks is the first appellate decision to address whether judicial approval is required to terminate an FLSA lawsuit once it has been filed—a question the Second Circuit answered affirmatively. Specifically, the Second Circuit held in its decision that parties cannot dismiss wage and hour claims brought under the FLSA by stipulation with prejudice under Federal Rule of Civil Procedure 41(a). Instead, before an FLSA case may be dismissed in the Second Circuit, parties must submit the settlement agreement to the district court or the DOL to review and determine whether the proposed settlement is fair and equitable.
In reaching its decision, the Second Circuit emphasized what it considered to be the FLSA’s primary remedial purpose—“to prevent abuses by unscrupulous employers, and remedy the disparate bargaining power between employers and employees”—and found that the “unique policy considerations” underlying the FLSA weighed in favor of upholding the district court’s decision. The Second Circuit also expressed concern over “abuses” in prior, unapproved FLSA settlement agreements, such as the inclusion of overly broad releases that go beyond wage and hour matters.
Unless the Supreme Court accepts certiorari and reverses the Second Circuit, FLSA settlement agreements in cases filed in New York, Connecticut and Vermont will no longer fly under the radar. Instead, parties will have to submit such agreements for review by the DOL or a district court, in which case employers and employees’ alike will run the risk that their agreements will be closely scrutinized and potentially be made public—even where a settlement is reached before a defendant has even responded to the complaint.