FLSA Settlements Continue to Draw the Attention of Courts

By: Staci Ketay Rotman

January 19, 2016

Last month we wrote a post concerning the National Labor Relations Board’s (“NLRB”) rejection of a seemingly standard settlement agreement resolving, among other things, Fair Labor Standards (“FLSA”) claims. Since then, FLSA settlement agreements have come under more scrutiny from federal court judges, and some have even refused to grant a stipulated motion for dismissal without first reviewing the agreement.  Not only are courts focusing on the fairness of the settlement terms, but judges are also questioning whether parties to an FLSA claim can reach a private settlement out of court and have the case dismissed with prejudice, without the court’s approval. 

Two lawsuits in New York have brought these issues front and center. In Reyes et. al v. HIP at Murray Street LLC , the Southern District of New York rejected the parties’ proposed settlement of unpaid overtime claims because the agreement contained a provision banning the plaintiffs from ever applying for a position with the employer. The court determined that the provision was “highly restrictive” and “in strong tension with the remedial purposes” of the FLSA.

The second case, Cheeks v. Freeport Pancake House, Inc. et al., almost made it to the United States Supreme Court. After filing a claim for unpaid overtime, among other claims, the plaintiff agreed to settle the lawsuit against his former employer. The Second Circuit refused to enter the parties’ stipulated dismissal of the FLSA and state labor claims without first reviewing and approving the parties’ settlement agreement.  The Second Circuit reasoned that the FLSA fell within the exception to a Rule of Civil Procedure, thus requiring court or DOL approval of FLSA settlements and stipulated dismissals. The plaintiff petitioned the Supreme Court for certiorari, asking the Supreme Court to weigh in on whether the FLSA requires court approval of FLSA settlements and stipulated dismissals. Without providing a reason, the Supreme Court denied the plaintiff’s petition.

These cases demonstrate the growing interest in agreements purporting to settle or dismiss FLSA claims. As the plaintiff in Cheeks pointed out in his petition, there is potentially a high volume of cases that were dismissed with prejudice without court approval of the settlement agreements or stipulated dismissals. Employers should be aware that when dealing with FLSA lawsuits, even if there is a confidentiality provision, that may not preclude a court from requiring that it review and approve the settlement agreement reached by the parties’ before granting a dismissal.  As part of that review, the court will be looking more closely at whether the terms are fair, and will not hesitate to reject a proposed agreement. Employers should be aware of this trend among the courts when considering resolving wage and hour litigation.