EDNY.bmpCo-authored by Noah Finkel and Giselle Donado

Parties might be able to privately settle their FLSA disputes without court approval — and without disclosing the amount — provided they don’t care if they obtain a valid release.

Finally a court has untangled the web of case law that often mistook the fact that a release of FLSA claims in a purely private settlement of FLSA claims may be void with an outright ban on private settlements.  In Picerni v. Bilingual SEIT & Preschool Inc., Judge Cogan of the federal district court for the Eastern District of New York issued an opinion clarifying that just because a release might be void doesn’t mean parties are not free to privately settle their FLSA claims.  It simply means that such settlements are more risky.  A settlement without a (court-approved) valid release is still a settlement of a lawsuit, and still means that the lawsuit should be dismissed.

What’s changed?  Not much.  Parties often have settled FLSA cases without court approval, and courts frequently have dismissed those cases without much mention.  Some courts, however, have refused to dismiss cases pursuant to settlement unless the parties submit the settlement agreement for review.  That frequently admits that the settlement agreement is no longer confidential.  The Picerni decision is significant because it explains why settlements without court approval are in fact permissible.  Joining the Fifth Circuit, the Picerni Court speaks out against the body of case law stating that plaintiffs cannot accept offers of judgment and that parties cannot even voluntarily dismiss a FLSA case without the court’s approval.  See Martin v. Spring Break ’83 Prods., 688 F.3d 274 (5th Cir. 2012), discussed here.  It expressly recognizes that private settlements are not forbidden simply because they may not be as enforceable as court-approved settlements.  The court used simple logic here:  while a court-approved FLSA settlement includes a valid release of claims and results in dismissal, it does not mean that an unapproved settlement should not result in dismissal.  Private settlements thus are allowed, they just may not be enforceable as to future claims.  But if the parties don’t care, then, according the Picerni court, there’s nothing stopping them.  In other words, the Picerni court is in effect saying, “settle without me if you want, but when the plaintiff sues you again, don’t say I didn’t warn you.”

The Facts:

The Picerni case involved garden variety FLSA claims.  The plaintiff, a teacher, filed suit against her employer, a private education institution, alleging that she (and those similarly situated) was not paid for hours she worked, bringing her below the minimum wage level.  Before the defendant even appeared or filed an answer, the plaintiff filed notice that she accepted defendant’s offer of judgment settling her individual claims.  The court refused to enter judgment, and explained that FLSA settlements must be approved by the court — the acceptance of an offer of judgment simply won’t do.  Plaintiff filed a motion explaining the settlement, and the court changed its mind.  Unprompted by the parties, the court considered whether, under Federal Rule 41, parties can dismiss an FLSA action without the oversight or approval of the court.  The answer, this time, was yes.  The court accepted the parties’ Rule 68 offer of judgment and allowed the parties to dismiss the case. 

The Opinion:

The court reasoned that, unlike other statutes, the FLSA does not expressly require court approval to dismiss FLSA claims.  Of the body of case law to the contrary, the court stated that those cases should be confined to their facts and suggest only “that the courts will not recognize an unreasonable settlement.”  Those cases did not “expressly preclude private settlements; they simply refused to  recognize releases in subsequent litigation where the settlement was unreasonable or not the result of a bona fide dispute.”  The court admitted that allowing private FLSA settlements is not without its downsides: putative class members may never learn of their potential claims, settlements will be kept confidential, and a plaintiff’s recovery likely will be smaller.  But if this what the parties want, and the employer is willing to risk that the settlement may not be enforceable in the future, then let them have at it.

What are the risks?  The Picerni court emphasized that private FLSA settlements require the employer to roll the dice, and cautioned that such settlements may not be enforceable as to later claims.  This largely will depend on whether there was an actual dispute (probably), and whether the settlement reached reasonably resolved that dispute (that depends).  More practically, it will really just depend on the employee and his or her lawyer — is the settlement amount enough to cause the employee to not be interested in filing another suit to obtain more money? 

But the Picerni decision provides employers more security than it gives itself credit for.  Indeed, allowing the parties privately settle and dismiss an action with prejudice arms employers with claims preclusion or res judicata defenses to later claims. 

A risk worth taking?  It depends.  An early settlement will save employers the time and cost of prolonged litigation.  And, perhaps even more appealing, private settlements are private.  Unlike the court-approved settlements, these private settlements can remain confidential.  The case can be dismissed without all other employees learning of the plaintiff’s claims and recovery.  An ounce of prevention is a pound of cure here.  Keeping the settlement terms confidential likely will reduce the risk of copycat claims from other employees looking for the same remedial treatment.  The risk, however, is that an employer may pay a plaintiff to dismiss an FLSA case, and then have to face further FLSA litigation from that plaintiff.

This decision makes clear that employers have options other than win, lose, or settle with court approval.  Employers may pursue a confidential settlement with plaintiffs and voluntarily dismiss a case with prejudice without the court’s approval.