Second Circuit Holds That Rule 68 Stipulated Judgments in FLSA Cases Do Not Require Judicial Fairness Review Before Being Entered

In a recent decision that will have a significant impact on employers litigating wage-and-hour disputes, the Second Circuit held in Yu v. Hasaki Restaurant, Inc., No. 17-3388-cv (2nd Cir. Dec. 6, 2019) that employers and employees do not need to obtain judicial or Department of Labor ("DOL") approval of settlement terms when resolving a Fair Labor Standards Act ("FLSA") claim if they settle through the "offer of judgment" process under Rule 68 of the Federal Rules of Civil Procedure. Under the Second Circuit's previous decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), employers and employees must obtain judicial or DOL approval of the settlement terms to enter stipulated dismissals in FLSA cases under Rule 41 of the Federal Rules of Civil Procedure. Now, the Yu decision presents a mechanism for resolving such cases without the need for a fairness review of the settlement terms. The prospect of an easier settlement option under Rule 68 for FLSA litigation is good news for employers and employees alike.

Background on Rule 68 and Mooting FLSA Collective Actions

Rule 68 "was intended to encourage settlements and avoid protracted litigation."1 Under Rule 68(a), a defendant may make an offer of judgment on specified terms to the plaintiff at least fourteen days before the date set for trial. If the plaintiff accepts the offer of judgment, Rule 68(a) provides that either party may file the offer and notice of acceptance with the court, and "[t]he clerk must then enter judgment" (emphasis added). The U.S. Supreme Court held in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1529 (2013) that in FLSA collective actions, in the absence of any opt-in plaintiffs, if the named plaintiffs' claims are mooted (which may occur, for example, by accepting Rule 68 offers of judgment), the collective allegations are likewise mooted. On the other hand, if the plaintiff refuses a Rule 68 offer and the final judgment entered in the litigation is equal to or less than the offer refused, then under Rule 68(d), the plaintiff must pay for the defendant's litigation costs incurred after the offer was made. The Supreme Court has held that an unaccepted offer of judgment does not moot a case even if the defendant offers full relief, effectively overruling the part of Genesis Healthcare that suggested that an unaccepted offer of judgment will moot putative class claims. See Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 670 (2016), as revised (Feb. 9, 2016).

In Campbell-Ewald, the Supreme Court left open the question of whether depositing full relief in an account payable to the plaintiff and having the court enter judgment in that amount would moot a case. See id. at 672. At least one New York federal district court has addressed this issue in a putative collective action under the FLSA: In Malancea v. MZL Home Care Agency LLC, 2019 WL 1027926, at *6-8 (E.D.N.Y. Feb. 1, 2019), report and recommendation adopted, 2019 WL 1025226 (E.D.N.Y. Mar. 4, 2019), the court denied the defendant's motion to deposit funds with the court pursuant to Rule 67 of the Federal Rules of Civil Procedure because the plaintiff had not yet had an opportunity to argue for certification of the collective action. However, the Second Circuit has not decided whether depositing full relief with the plaintiff and having a court enter judgment moots a putative FLSA collective action.2 Other courts outside the Second Circuit are split regarding the circumstances in which payment of full relief to the plaintiff moots an action.3

Historical Development of Restrictions on Settling FLSA Claims

The FLSA provides employees a private right of action for unpaid wages, including violations of the minimum wage and overtime pay rules, and allows employees to recover liquidated damages equal to unpaid wages in certain circumstances. See 29 U.S.C. § 216(b).

Early in the FLSA's history...