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Without Approval Parties Cannot Settle FLSA Claims in FRCP 41 Private Stipulated Dismissal With Prejudice: Second Circuit
Practical Law Legal Update 1-618-0674 (Approx. 6 pages)
Without Approval Parties Cannot Settle FLSA Claims in FRCP 41 Private Stipulated Dismissal With Prejudice: Second Circuit
by Practical Law Labor & Employment
| Published on 12 Aug 2015 • USA (National/Federal) |
In Cheeks v. Freeport Pancake House, Inc., the US Court of Appeals for the Second Circuit held that parties cannot enter into private settlement of claims under the Fair Labor Standards Act (FLSA) by filing a stipulation of dismissal with prejudice, unless the settlement is first approved by the district court or the US Department of Labor (DOL). The Second Circuit concluded that the FLSA is an exception to Federal Rule of Civil Procedure (FRCP) 41's general rule that parties may stipulate to the dismissal of an action without involving the court.
On August 7, 2015, in Cheeks v. Freeport Pancake House, Inc., the US Court of Appeals for the Second Circuit held that parties cannot enter into private settlement of claims under the FLSA by filing a stipulation of dismissal with prejudice, unless the settlement is first approved by the district court or the US DOL. The Second Circuit concluded that the FLSA is an exception to the general rule under FRCP 41(a)(1)(A)(ii) that parties may stipulate to the dismissal of an action without involving the court. The Second Circuit affirmed the district court's refusal to accept a private settlement of FLSA claims without involvement by the court or the DOL and instead required the parties to publicly file a copy of the settlement agreement and to establish that the settlement was fair and reasonable. (No. 14-cv-299, (2d Cir. Aug. 7, 2015).)
Background
Dorian Cheeks brought an FLSA overtime lawsuit against his former employer, the Freeport Pancake House. The parties reached a private settlement and filed a joint stipulation and order of dismissal with prejudice under FRCP 41(a)(1)(A)(ii).
The district court did not accept the stipulation, concluding that a private settlement of FLSA claims required either the court's approval or the DOL's supervision. The district court directed the parties to file the settlement agreement on the court's public docket and to show cause why the proposed settlement was fair and reasonable. Both parties argued against an FLSA exception to Rule 41(a)(1)(A)(ii).
The district court certified the issue for interlocutory appeal and at the Second Circuit's request, the DOL submitted a brief stating that the FLSA was an exception to Rule 41(a)(1)(A)(ii).
Outcome
The Second Circuit affirmed the district court, holding that
- FLSA claims cannot be settled privately with a stipulation of dismissal with prejudice, absent approval by the court or the DOL.
- The FLSA is an exception to FRCP 41(a)(1)(A)(ii).
The Second Circuit noted that:
- The FLSA is silent regarding application of FRCP 41.
- Neither the US Supreme Court nor any circuit courts have addressed this precise issue.
- District courts that have addressed the issue based their decisions on two older US Supreme Court cases, neither of which address whether a private settlement is enforceable when a bona fide dispute over liability (such as how much compensation is due) remains (Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945); D.A. Schulte, Inc. v. Gangi, 328 U.S. 108 (1946)).
- The Eleventh Circuit enforced the private settlement of an FLSA action, but conditioned enforceability on the DOL or a district court determining that the proposed settlement is fair and reasonable (Lynn's Food Stores, Inc. v. United States Dep't of Labor, 679 F.2d 1350, 1355 (11th Cir. 1982)).
- The Fifth Circuit upheld a private settlement without district court approval or DOL supervision in a case distinguishable because it involved a settlement agreement between the employer and a union, for example (Martin v. Spring Break ‘83 Prods., L.L.C., 688 F.3d 247, 253-57 (5th Cir. 2012)).
- One district court in the Second Circuit found that the FLSA is not an "applicable federal statute" under FRCP 41(a)(1)(A) and does not condition dismissal on court approval (Picerni v. Bilingual Seit 3 & Preschool Inc., 925 F. Supp. 2d 368, 375 (E.D.N.Y. 2013)).
- However, the majority of district courts in the circuit disagree with Picerni and require court approval of private FLSA settlements (see Socias v. Vornado Realty L.P., 297 F.R.D. 38, 40 (E.D.N.Y. 2014) and Armenta v. Dirty Bird Grp., 14 LLC, No. 13-cv-4603, (S.D.N.Y. June 27, 2014)).
The Second Circuit found that:
- Requiring judicial or DOL approval is consistent with:
- the FLSA's broad remedial purpose of ensuring employees are properly compensated for long hours; and
- the US Supreme Court's liberal interpretation of the FLSA.
- Judicial approval of an FLSA settlement is necessary to remedy the unequal bargaining position between employers and employees and to avoid:
- highly restrictive confidentiality provisions that contradict the FLSA's remedial purpose;
- overbroad releases in which employees waive all possible claims against employers, including claims that do not relate to wage and hour violations;
- premium settlements for individual plaintiffs that allow employers to avoid collective actions from employees whose rights are similarly violated; and
- excessive attorney's fees in a private settlement.
Practical Implications
The US Supreme Court and other federal circuit courts have yet to weigh in on this issue. Under the Second Circuit's reasoning, parties settling FLSA claims should:
- Submit the proposed settlement agreement to the district court for its review.
- Be prepared to explain to the court why the settlement is fair and reasonable.
- Avoid strict or blanket confidentiality provisions that prohibit employees from disclosing anything related to the agreement.
- Expect that the final approved settlement agreement will be a publicly accessible document on the court's docket.