Second Circuit Holds That Parties May Not Voluntarily Settle Claims Under the Fair Labor Standards Act With Prejudice Without Judicial or Department of Labor Approval

In Cheeks v. Freeport Pancake House, Inc. et als., the United States Court of Appeals for the Second Circuit held that parties may not privately settle claims arising under the Fair Labor Standards Act (“FLSA”) with prejudice (which forecloses a future lawsuit), without court approval or United States Department of Labor (“DOL”) supervision.  With this ruling, employers facing an FLSA suit in the Second Circuit must be prepared for a public filing and judicial approval of any settlement.

In Cheeks, Mr. Cheeks worked at the Freeport Pancake House as a server and manager.  In August 2012, he sued for unpaid overtime wages, liquidated damages and attorneys’ fees under both the FLSA and the New York Labor Law.  Mr. Cheeks also claimed damages for his demotion and ultimate termination.

The parties agreed to a private settlement of Mr. Cheeks’ action and attempted to file a Joint Stipulation and Order of Dismissal pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), which allows for a voluntary dismissal without court order, unless there is an “applicable federal statute” providing otherwise.  The District Court refused to accept the Stipulation, however, concluding that the parties could not agree to a private settlement of the FLSA claims without either District Court or DOL approval.  The parties certified the question to the United States Court of Appeals for the Second Circuit, which affirmed the District Court.

In deciding this issue, the Second Circuit settled a split among the District Courts.  In Cheeks, the Court was called upon to answer the open issue of whether parties could voluntarily dismiss an FLSA action, with prejudice, and without court approval.  In holding that the FLSA presents an exception to Rule 41, the Court cited the purpose and policy behind the FLSA, a “uniquely protective statute,” which seeks to prevent the “potential for abuse” in wage and hour settlements.  On balance, the court found the burdens of requiring judicial review of often small FLSA actions are outweighed by the remedial purpose of the FLSA.

Employers should now understand that they may not secure “with prejudice” dismissals of wage and hour disputes without court or DOL approval.  In order to secure a complete release of an employee’s claims filed in court under the FLSA, including liquidated damages and attorneys’ fees, as well as the dismissal of putative class or collective actions, the parties must submit the settlement to the court or DOL for approval.