Co-authored by Rob Whitman, Howard Wexler, and Noah Finkel

Unlike most other causes of action, FLSA claims require court or agency approval before a release can be deemed fully valid and enforceable.  Are there scenarios where it makes sense for employers to “roll the dice” and settle a pending litigation without asking the court to bless the terms of the deal?

The question, which rarely bedeviled litigators when FLSA claims were more of a rarity than they are today, now has enormous practical significance given how many wage-hour lawsuits are filed and the very real prospect that settling one case can lead to a multitude of “copycat” claims.  Outside the FLSA setting, of course, this is a non-issue; parties file a bare-bones Stipulation of Dismissal with the court stating that the claims are dismissed with prejudice, the settlement agreement remains fully confidential, and everyone (including the judge) goes on to the next case.  The defendant need not lose a moment’s sleep worrying that, if the same plaintiff returns with the same claim, the release will be held unenforceable simply because the court never approved its terms.

But under longstanding case law, a release of an FLSA claim requires court (or Department of Labor) approval, even if both sides are represented by sophisticated counsel advocating zealously and ably for their clients.  And obtaining court approval typically requires submitting the settlement agreement to the court on the public docket, with the court’s approval order similarly made public, and can cause weeks of delay in closure of the case.
This presents a host of concerns for defendants.  While potential plaintiffs don’t usually troll the PACER system to find defendants that they think will be easy marks, the same cannot always be said for plaintiffs’ lawyers, many of whom rely on a steady stream of new cases they believe can be quickly settled against defendants that are willing (however reluctantly) to indulge them.  In addition, where the employer is settling with a single individual before anyone else has opted in, it may fear that other potential plaintiffs are “waiting in the wings”—perhaps alerted by the current plaintiff or his/her counsel—to see the value of the settlement in order to decide whether to try their own claim.  And whether or not new cases are filed, an employer does not want adverse publicity associated with the settlement of a case.

Adding to the mix is a more recent trend:  courts are paying increasingly close attention to the terms of FLSA settlements and refusing to approve agreements where they are concerned by, for example, the amount of attorney fees as compared to money going to the plaintiffs, or clauses requiring confidentiality, non-disparagement and no-reemployment.  One federal judge in Tennessee rejected a confidential deal to settle a putative FLSA collective action because the proposed confidentiality clause “contravenes Congress’s intent both to advance employees’ awareness of their FLSA rights and to ensure pervasive implementation of the FLSA in the workplace.”  Earlier this week, a California judge refused to approve an agreement because it allowed the employer to keep up to 20 percent of the unclaimed settlement amount, reasoning that this could disincentivize the parties from seeking a high claim rate by class members, and because the attorney fees would remain the same even if few class members participated.

Given the uncertainty of whether a court, if tested, will honor a non-court-approved FLSA settlement, at what point does it make sense for an employer to decide not to seek court approval?

When an employer is particularly worried about bad publicity and “copycat” lawsuits, foregoing court approval and keeping the settlement terms confidential may outweigh the risk of an unenforceable settlement.  Copycat lawsuits typically arise because the plaintiff encourages current or former colleagues to bring their own claims (especially if the defendant settled early and the plaintiff thinks it was “easy money”); and/or because the same counsel wants to pursue the same claim (presumably emboldened by what he/she learned from the first case). Similarly, if the employer places an especially high value on ancillary settlement terms that the court may reject or question, such as no-reemployment and non-disparagement, the risks of seeking court approval may outweigh the benefits.

So what is a settling employer to do?  If it seeks court approval, it will be able to obtain an enforceable release of FLSA rights, but it likely will generate publicity about the settlement and possibly copycat lawsuits.  If an employer does not seek court approval of the settlement, it likely will not obtain a valid release of FLSA rights.

One alternative is to not seek a release.  Instead, an employer and the plaintiffs can agree that the plaintiffs (or all the parties together) will jointly move to dismiss the lawsuit with prejudice.  There likely won’t be a valid release of FLSA rights, but dismissal of prejudice of an FLSA case should mean that the plaintiffs will be barred from a subsequent FLSA suit by operation of claim preclusion principles.  If an employer’s goal is to no longer have to litigate an FLSA dispute with a group of current and/or former employees, then dismissal with prejudice is the “belt,” and a court-approved settlement containing release is merely the “suspenders.”  Only one of them is necessary to keep the pants from falling down.

Many judges, such as Brian Cogan in the Eastern District of New York, have held that court approval of a settlement is not required for dismissal of an FLSA case; lack of approval merely means that a waiver or release is likely void (discussed here).  But other courts have disagreed.  They have held that even if an employer is not seeking an effective release, a judge still must approve the settlement (and usually makes the terms of the settlement publicly available on the docket).  Earlier this year, a federal judge in Missouri observed, “There are good reasons for requiring judicial oversight of private settlements of FLSA claims. Private FLSA settlements are often negotiated with confidentiality provisions that aim to prevent other employees whose FLSA rights may have been violated from learning of the settlement and seeking the same relief.”  And one of Judge Cogan’s Eastern District colleagues, Sandra Townes, noted that “no reported opinion has endorsed Judge Cogan’s position.   To the contrary, one judge in this district has expressly rejected his position, while two others have continued to require court approval for settlements of FLSA actions.”  Some judges in federal courts in Florida have ruled similarly.

So is court approval a necessary evil or something that employers should seriously consider avoiding to reduce the risk of a watered down settlement agreement due to judges who doth protest too much?  As with many questions in the law, the answer is, “It depends.”  But the spate of recent court activity has changed the dynamic on this issue, and employers should no longer assume that every FLSA settlement should or must be submitted for public approval.  Sometimes staying under the radar will make the most sense.  In all cases, the employer must think carefully about its objectives in settling and to its own self be true.