In Picerni v. Bilingual SEIT & Preschool Inc., the plaintiff filed a claim in the US District Court for the Eastern District of New York against the defendant under the FLSA and New York State and City statutes, alleging that the defendant did not comply with the minimum wage requirements of these laws. The plaintiff brought the FLSA claim as a collective action, on behalf of herself and all similarly situated parties.

On October 19, 2012, prior to an initial status conference and prior to defendant's answer or appearance, plaintiff filed a notice of acceptance of an offer of judgment that defendant had made under Rule 68 of the Federal Rules of Civil Procedure (FRCP). Under the offer of judgment, the case would be settled on an individual basis, not as a collective or class action, for $5,000 payable to plaintiff and attorney's fees of $4,590.

On the same day, the court issued an order providing that the case could not be resolved by acceptance of a Rule 68 offer, because it is an FLSA case and therefore any settlement is subject to court approval. The order required the plaintiff to file a motion to approve the settlement, and the plaintiff complied with this requirement.

But on February 22, 2013, the court issued an opinion that vacated the order. Reversing its prior position, the court held that parties to an FLSA claim can privately settle the claim without court approval.

Customarily, the plaintiff in a pre-answer, pre-summary judgment motion FLSA case (or both parties, after an answer or a motion for summary judgment has been filed) is prohibited from discontinuing the case unless the court has found that a bona fide dispute exists and the proposed resolution is reasonable. The court in Picerni held that this process violates FRCP 41(a).

FRCP 41(a) allows a plaintiff at an early stage of a case, or both parties at a later stage, to dismiss an action without the oversight or approval of the court, subject to certain statutes. The court held that the FLSA is not one of the statutes that circumscribe FRCP 41(a). There is no indication in significant FLSA case law that the FLSA is exempt from FRCP 41. The one case that addresses the impact of FRCP 41 on FLSA settlements, Dees v. Hydradry Inc., held that FRCP 41 does not apply to FLSA claims, and therefore settlements require judicial approval.

The court disagreed with Dees, because it relies on Lynn's Food Stores, Inc. v. United States, in which the US Court of Appeals for the Eleventh Circuit held that FLSA claims may be settled only with court approval. Lynn's Food Stores, however, has "atypical facts," because an employer settled FLSA claims with the unsophisticated plaintiffs for a low amount and circumvented a DOL investigation. The employer then tried to get court approval of its tactics by bringing a a declaratory judgment action against the DOL for a determination that it had no liability to the DOL or the employees under the FLSA because of the settlement.

The court concluded that the holding in Lynn's Food Stores should be confined to similarly egregious situations, and that there is no reason why a court should not give legal effect to an "eminently reasonable" settlement of an FLSA dispute. The Eleventh Circuit, for example, recently held that a fairness hearing is unnecessary where an employer tenders all of the unpaid wages claimed by the employee plus liquidated damages (Dionne v. Floormasters Enterprises, Inc.). And in Martin v. Spring Break '83 Productions, L.L.C., the Fifth Circuit upheld a private settlement of FLSA claims (see Legal Update, Employer and Union May Negotiate Binding Settlement that Releases Employees' FLSA Claims: Fifth Circuit). In December 2012, the US Supreme Court denied a petition for a writ of certiorari in Martin.

Additionally, Lynn's Food Stores does not prohibit parties from voluntarily dismissing an FLSA case and settling without court approval. Rather, it only says that a court will not recognize unreasonable settlements.

Furthermore, the court observed that: