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Duane Morris Takeaways: In Lundeen v. 10 West Ferry Street Operations, LLC, No. 24-3375 (3d Cir. Oct. 16, 2025), the U.S. Court of Appeals for the Third Circuit held that the opt-in requirement set forth in Section 216(b) of the federal Fair Labor Standards Act ("FLSA") does not prohibit plaintiffs in a class action from settling prospective class members' unasserted FLSA claims as part of an opt-out class settlement. In a precedential and unanimous opinion, the Third Circuit concluded that Section 216(b) establishes only the mechanism by which FLSA claims may be litigated, not the conditions under which they may be released. The decision is welcome news for both plaintiffs and defendants, as the case makes it easier for parties to settle "hybrid" cases asserting claims under both federal and state wage-and-hour laws.
Background
Plaintiff Graham Lundeen alleged that Defendant – his former employer, and the owner of a restaurant and bar – violated the FLSA and the Pennsylvania Minimum Wage Act ("PMWA") in connection with its tip-pooling practices. Plaintiff styled his case as a "hybrid" class/collective action, asserting that his FLSA claim should proceed as a collective action under Section 216(b) and that his PMWA claim should proceed as a class action under Federal Rule of Civil Procedure 23(b)(3).
The parties reached a settlement under which class members would agree to release their claims, including those arising under the FLSA, even if class members did not submit claim forms, submit opt-in consent forms, or receive settlement payouts.
The U.S. District Court for the Eastern District of Pennsylvania denied preliminary approval of the proposed settlement, ruling that the settlement "was 'neither fair nor reasonable' because it 'require[d] class members who did not opt in to the FLSA collective to release their FLSA claims.'" Id. at 6.
The Third Circuit's Decision
After accepting the parties' interlocutory appeal, the Third Circuit vacated the District Court's ruling and held that Section 216(b) does not bar approval of a Rule 23 settlement that includes the release of "unasserted FLSA claims." Id. at 10-11. In reaching its conclusion, the Third Circuit began with the text of Section 216(b):
An action to recover the liability prescribed in the preceding sentences [for failure to pay statutorily required overtime or minimum wages under the FLSA] may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.
Id. at 8-9 (emphasis in original) (quoting 29 U.S.C. § 216(b)).
Acknowledging that no other federal circuit has resolved the split among district courts regarding the propriety of "hybrid" settlements, the Third Circuit ultimately sided "with those courts that have held that § 216(b) of the FLSA provides only a mechanism for opting into collective litigation." Id. at 10 (emphasis added). In other words, Section 216(b) "requires written consent to litigate FLSA claims, but it does not forbid the release of unasserted claims through a Rule 23(b)(3) opt-out settlement." Id. at 16 (emphases added).
The Third Circuit concluded with an important caveat, however, emphasizing that while the FLSA does not prohibit settlements through which Rule 23 class members release unasserted FLSA claims, that does not mean such settlements are always permissible: "[W]hether judges can approve opt-out settlements that release FLSA claims is a different inquiry from whether judges should do so. The former question is an issue of statutory interpretation; the latter turns on whether the settlement is 'fair, reasonable, and adequate,' subject to the District Court's considerable discretion." Id. at 16-17 (internal citation omitted). Thus, "while § 216(b) does not forbid the release of unasserted FLSA claims in opt-out settlements, such releases remain relevant to the court's overall Rule 23(e)(2) analysis." Id. at 18.
Implications Of The Decision
The Lundeen decision provides clarity on the proper scope of "hybrid" settlements involving the simultaneous release of FLSA claims and Rule 23 class claims premised on state wage-and-hour laws. Moving forward, defendants settling such claims will likely rely on Lundeen to broaden their settlements to cover the FLSA claims of all individuals within the Rule 23 settlement class, even if such individuals do not affirmatively opt into the case. This will give defendant-employers closure and alleviate potential risks as to whether settlement class members who did not opt into the case retain their rights to bring FLSA claims.
Parties should take heed of the caveat noted by the Third Circuit, however – namely, that a class settlement involving the release of unasserted FLSA claims will not automatically pass muster. Rather, district courts must still consider whether a class settlement is "fair, reasonable, and adequate." To increase the likelihood that courts will approve "hybrid" class settlements, parties should ensure their proposed settlements satisfy the Rule 23(e)(2) "fairness" factors, including by: providing clear notice to class members of the scope of the release and a meaningful opportunity to opt out; and ensuring that the relief provided to the class is adequate when accounting for the costs and risks of litigation, the method of distributing relief to the class, and the terms of any proposed award of attorney's fees.
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