By: Robert S. Whitman and Kyle D. Winnick

Seyfarth Synopsis: The Second Circuit held that dismissals without prejudice of FLSA claims are subject to the same judicial or agency scrutiny as dismissals with prejudice of FLSA claims.

Settling Fair Labor Standards Act claims in the Second Circuit just became harder.

In Cheeks v. Freeport Pancake House, the Second Circuit held that stipulated dismissals with prejudice of FLSA claims require approval of the district court.  The court reasoned that the requirement of judicial approval furthers the “remedial purpose” of the FLSA.  However, the court deferred, “for another day,” the issue of whether parties may settle such claims without court approval when the dismissal is without prejudice.

“Another day” has now arrived. In Samake v. Thunder Line, Inc., a split panel of the Second Circuit extended Cheeks and held that FLSA dismissals without prejudice require court approval.

The plaintiff in Samake sued for unpaid overtime wages under the FLSA and other statutes.  The employer moved to compel arbitration.  In response, the plaintiff filed a notice of voluntary dismissal without prejudice under Federal Rule of Civil Procedure 41(a)(1)(A), which provides that the plaintiff—without a court order—may dismiss an action without prejudice by filing a notice before the defendant answers or moves for summary judgment, or by filing a stipulation of dismissal signed by all parties who have appeared.

Instead of automatically dismissing the lawsuit, the district court entered an order inquiring whether the parties had entered into a settlement, adding that, if so, such an agreement was subject to judicial review under Cheeks.  The plaintiff subsequently withdrew his dismissal, and the district court granted the former employer’s motion to compel arbitration.

The plaintiff appealed and argued, among other things, that the district court lost jurisdiction the moment he filed his notice of voluntary dismissal, despite his subsequent change of heart.  In a 2-1 decision, the Second Circuit panel disagreed.  It held that the district court acted properly and that Cheeks applies to dismissals of FLSA claims with­out­ prejudice.

The two-judge majority reasoned that the holding of Cheeks did not depend on whether the dismissal was with or without prejudice.  Rather, it said that the holding of Cheeks was grounded in policy concerns—to remedy the disparate bargaining power between employer and employees—that apply regardless of whether a dismissal is with or without prejudice.  It supported its ruling with observations that litigants could circumvent Cheeks and mandatory court oversight merely by dismissing FLSA claims without prejudice.

In a separate opinion, Judge Steven Menashi concurred in the judgment (because he thought the district court’s order compelling arbitration was not appealable), but disagreed with the majority’s extension of Cheeks.  He offered two principal reasons: “[n]either the text of Rule 41 nor that of the FLSA provides any reason to take away a litigants’ usual right to dismiss his case without prejudice,” and there is a fundamental difference between dismissals with and without prejudice.  As to the latter, he noted that, while a dismissal with prejudice “is—literally—an agreement to waive the right to pursue a cause of action,” a dismissal without prejudice does not operate as an adjudication on the merits.  Thus, unlike the situation in Cheeks, the plaintiff in Samake would not have been foreclosed from re-asserting his FLSA claim.

Unless the majority’s decision in Samake is reversed on en banc review or by the Supreme Court, all dismissals of FLSA claims under Rule 41 will now be subject to judicial scrutiny in the Second Circuit.  It therefore appears that the only route to avoid court review of such settlements is a Rule 68 Offer of Judgment, which the court held does not require or permit judicial review.

The volume of FLSA case filings in the district courts of the Second Circuit remains extremely high.  Although the courts encourage prompt settlement of such claims, those settlements face a significant roadblock with the requirement of court review under Cheeks, which not only imposes a requirement of court approval but significantly restricts the provisions that parties may include in their settlements. With Samake now extending that rule to dismissals without prejudice, parties must be mindful of how they structure their agreements if they wish to resolve FLSA cases with finality.