Second Circuit Requires Court Approval Of All FLSA Settlements

Settlement of wage and hour actions just got harder in New York, Connecticut, and Vermont. On Aug. 7, 2015, in Cheeks v. Freeport Pancake House, the U.S. Court of Appeals for the Second Circuit, which covers New York, Connecticut, and Vermont, issued a decision that prevents parties from stipulating to the dismissal of a case in which there are claims alleging violations of the Fair Labor Standards Act (FLSA).

Generally, when parties settle a federal court action, they simply file a stipulation pursuant to Rule 41(a)(1)(A) of the Federal Rules of Civil Procedure that dismisses the case with prejudice. By filing such a stipulation, the parties do not have to provide the court with a copy of their settlement agreement and the terms of any such agreement can remain private and confidential. In Cheeks, the Second Circuit held that parties cannot use Rule 41(a)(1)(A) to dismiss FLSA cases with prejudice and instead the parties must submit their settlement agreement to the District Court for review so that the District Court can determine whether the settlement is fair and equitable.

Case Background

In Cheeks, the plaintiff, Dorian Cheeks, had worked for the defendant, Freeport Pancake House, Inc., as a restaurant server and manager. In August 2012, she filed a complaint in the U.S. District Court for the Eastern District of New York alleging that Freeport Pancake House did not properly pay her overtime in violation of the FLSA and New York Labor Law. Plaintiff sought to recover overtime wages, liquidated damages, attorney fees, and costs. The complaint was filed as a single-plaintiff action; it was not filed as a class or collective action.

During discovery, the parties privately settled the matter. As part of their settlement, they submitted to the District Court a stipulation of dismissal with prejudice pursuant to Rule 41(a)(1)(A). The District Court rejected the stipulation holding that the parties could not agree to a private settlement of an FLSA claim absent court or U.S. Department of Labor approval. As such, the District Court directed the parties to file a copy of the settlement agreement on the public docket and explain to the court why the settlement was fair and reasonable.

The parties refused and requested that the District Court stay the proceedings and certify the action for interlocutory appeal to address whether FLSA claims could be dismissed by stipulation under Rule 41(a) (1(A). The District Court did so, and the appeal followed.

Decision Rationale

The...