Wage and hour litigants often struggle with whether to seek
judicial or Department of Labor approval of their settlement
agreements. Plaintiffs and defendants alike often prefer private,
out-of-court settlements to maintain the confidentiality of their
settlement terms and to avoid further motion practice before the
court. A recent Second Circuit opinion resolved a conflict among
district courts regarding the enforceability of out-of-court
settlements for claims under the Fair Labor Standards Act (FLSA).
The opinion makes clear that defendants who settle wage and hour
claims out of court do so at their peril.
In Cheeks v. Freeport Pancake House, Inc., Case No.
14-299-cv, decided August 7, 2015, the Second Circuit held that
settlement agreements for FLSA claims are unenforceable without
prior approval from either a judge or the Department of Labor. The
court focused on whether the FLSA constituted an "applicable
federal statute" for purposes of Federal Rule of Civil
Procedure 41(a)(1)(A). That rule permits parties to voluntarily
dismiss a lawsuit by stipulation, subject to several other Federal
Rules of Civil Procedure (none of which applied to Cheeks)
or "any applicable federal statute."
Cheeks concluded that the FLSA meets Rule 41's
definition of an applicable federal statute "in light of the
unique policy considerations" for the law. The court cited a
1945 U.S. Supreme Court opinion holding that the FLSA was intended
"to extend the frontiers of social progress by insuring to all
our able-bodied working men and women a fair day's pay for a
fair day's work." It further cited its own precedent,
explaining that Congress designed the FLSA "to remedy the evil
of overwork by ensuring workers were adequately compensated for
long hours, as well as by applying financial pressure on employers
to reduce overtime." With these principles in mind, the court
determined that prior judicial or Department of Labor approval of
settlement agreements is mandatory for federal wage and hour
claims, because the FLSA qualifies as an "applicable federal
statute" under Rule 41.
The Cheeks opinion is notable for several reasons. First,
both the plaintiff and the defendants in Cheeks
sought a private out-of-court settlement agreement, yet the
district judge still demanded that the parties file their
settlement agreement on the court's public docket. Second, the
Second Circuit expressly voiced its disapproval of global releases
involving "unknown claims and claims that have no relationship
whatsoever to wage-and-hour issues." Third, the court offered
little guidance, beyond the remedial purpose of the FLSA, on why
the law met the definition of "an applicable federal
statute" under Rule 41, thereby leaving open the door for
applying the same approval requirement to settlement agreements
involving non-FLSA claims.
Time will tell whether Cheeks will pave the way for
mandatory judicial approval of settlements arising under other
federal employment laws, and, if so, whether global release
agreements will become a thing of the past. For now, when
negotiating settlements of FLSA claims, employers should begin to
take into account that their settlement agreement will likely be a
matter of public record, and they may be prohibited from obtaining
a global release of claims. Of course, the best course of action is
to avoid the FLSA claim in the first place. Accordingly,
Cheeks provides a strong reminder to employers to
routinely review their wage and hour practices and consult with
employment counsel.
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