As we have noted in previous posts (most recently, here), courts have been paying increasingly close attention to the terms of FLSA settlements and, on occasion, refusing to approve agreements. Some parties have responded to this trend by entering into private settlements and filing a simple stipulation of dismissal with prejudice.
At least within the Second Circuit, this is no longer permitted. Court or DOL approval is now definitively required to obtain a dismissal with prejudice of FLSA claims.
Cheeks v. Freeport Pancake House Inc. was an FLSA case not unlike many others. The claims appear to have been standard-issue, and the parties reached a settlement shortly after the Initial Conference. The parties then filed a joint Stipulation of Dismissal with Prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii). However, the District Judge, Joanna Seybert, refused to honor the stipulation. She ordered the parties to “file a copy of the settlement agreement on the public docket” and “show cause why the proposed settlement reflects a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought about by an employer’s overreaching.”
The parties instead asked the judge to certify the case for immediate review by the Second Circuit on the issue of whether FLSA actions are an exception to Rule 41(a)(1)(A)(ii)’s general rule that parties may stipulate to a dismissal with prejudice without the involvement of the court.
The Second Circuit heard oral argument on November 14, 2014, and because the two sides were in agreement that court approval should not be required, the court solicited the views of the DOL, which submitted a letter brief taking the position that the “FLSA falls within the ‘applicable federal statute’ exception to Rule 41(a)(1)(A), such that the parties may not stipulate to the dismissal of FLSA claims with prejudice without involvement of a court or the DOL.”
The court agreed with the DOL. It started its analysis by noting that this issue is a “blank slate” as “neither the Supreme Court nor our sister Circuits have addressed the precise issue before us.” It then explored the “differing results” reached by district courts within the Circuit, including Judge Brian Cogan’s 2013 decision holding that court approval is not required (see our post on that decision here) and Judge Dora Irizarry’s subsequent decision taking the opposite position.
Although the Second Circuit was “mindful of the concerns” articulated by Judge Cogan, it held that the FLSA is a “uniquely protective statute,” and as such, requiring judicial or DOL approval is consistent with its underlying purpose and helps eliminate potential abuse, such as exceedingly disproportionate attorney awards.
Given the importance of this issue to FLSA litigants, and the volume of FLSA lawsuits, Cheeks may not be the final word on this topic. Although there is no split among the Circuits (as the Second Circuit noted, it is the first to weigh in on this issue), the DOL’s participation in the case and the unsettled nature of the question suggest that the case may be ripe for en banc or Supreme Court review. For now, however, it is clear that within the Second Circuit, the parties must submit their privately negotiated settlement agreements to the court in order for the case to be dismissed with prejudice. This means, of course, that the agreement will be a public document, and the Cheeks opinion suggests (but does not discuss) that strict confidentiality provisions in FLSA settlements may not survive court scrutiny either.
The court did leave open the question of “whether parties may settle such cases without court approval or DOL supervision by entering into a Rule 41(a)(1)(A) stipulation without prejudice.” Since such a dismissal does not resolve claims or bar future lawsuits, there does not appear to be nearly the same (if any) judicial interest in monitoring them. But that is an issue the court may well take up sometime soon.
In the meantime, as we have advised before, litigants need to give very careful consideration to the challenging issues raised by settlements in even the simplest of FLSA cases. As tempting as it may be for both sides to resolve cases with a handshake, basic settlement agreement, and one-line Stipulation of Dismissal with Prejudice, the days of such an approach may be coming to an end.