‘Cheeks': Restricting Private Settlements Under Fair Labor Standards Act

Many litigants are understandably reluctant to publicly disclose the terms of their settlement agreements. An August 2015 decision by the U.S. Court of Appeals for the Second Circuit, Cheeks v. Freeport Pancake House, 796 F.3d 199, 2015 U.S. App. LEXIS 13815 (2d Cir. 2015), nonetheless prevents parties from voluntarily entering into private settlements of claims under the Fair Labor Standards Act (FLSA) in New York's federal district courts.1 This article discusses certain district court decisions construing Cheeks and strategies employers have utilized in response to it.

Until Cheeks, if a wage-and-hour case was settled at a conference before one of the district courts within the Second Circuit, the parties could finalize a written settlement agreement and simply submit a stipulation of dismissal for the court's endorsement, or agree to place the material terms of their settlement on the record, which would often include, inter alia, a requirement that the parties keep their settlement confidential, and that the employee provide the employer with a broad, general release. Only in limited circumstances would parties typically choose to submit a settlement agreement for judicial approval in an individual wage-and-hour case, whereas collective or class action settlement of FLSA claims have always required court approval. Souza v. 65 St. Marks Bistro, No. 15-cv-327, 2015 U.S. Dist. LEXIS 151144, at **4-5 (SDNY, Nov. 16, 2015; internal citations omitted).

In Cheeks, the Second Circuit affirmed the Eastern District of New York holding that parties cannot enter into settlements of individual FLSA claims without either the approval of the district court or the Department of Labor. Cheeks, 796 F.3d at 200, 2015 U.S. App. LEXIS 13815, at *1.

The Cheeks case involved a restaurant server and manager who sued his employer to recover overtime wages, liquidated damages and attorney fees under both the FLSA and the New York Labor Law. See Id. at 200. After engaging in a period of discovery, the parties agreed to privately settle plaintiff's claims, and filed a joint stipulation and order of dismissal with prejudice pursuant to Rule 41(a)(1)(A)(ii) of the Federal Rules of Civil Procedure. The district court declined to accept the stipulation as submitted, concluding that the parties could not agree to a settlement of Cheeks' FLSA claims without either the approval of the district court or the supervision of the Department of Labor, and required the parties to file a copy of the proposed settlement on the public docket. See Id.

The pivotal question on appeal was whether an FLSA action serves as an exception to Rule 41(a)(1)(A)(ii)'s general rule that parties may stipulate to the dismissal of an action without the involvement of the court. The Second Circuit held that it does.

Discussing the FLSA's legislative history...

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