Second Circuit: No Court Review Needed For FLSA Settlements By Offer Of Judgment

Author:Mr Robert Whitman, Howard M. Wexler and Thomas F. Howley
Profession:Seyfarth Shaw LLP

Seyfarth Synopsis: The Second Circuit held that FLSA settlements pursuant to Rule 68 Offers of Judgment do not require judicial approval. The Court distinguished such settlements from Rule 41 stipulated dismissals, which still require approval under Cheeks v. Freeport Pancake House.

Wage and hour practitioners have long understood that settlements of FLSA claims require formal approval from a court or the Department of Labor. The Second Circuit has been especially firm in applying this rule, holding in Cheeks v. Freeport Pancake House that the statute imposes a host of significant restrictions on otherwise-standard settlement provisions like general releases and confidentiality clauses.

In a decision issued on December 6, 2019, however, a divided Second Circuit panel approved a potentially important carve-out. It held that FLSA settlements pursuant to a Rule 68 Offer of Judgment do not require court approval. Instead, based on the language of the rule, the court said that when a Rule 68 offer is accepted, the case must be dismissed with prejudice, with no role for the court other than the ministerial act of entering the dismissal and closing the case.

As soon as the appeal in the case was filed, it promised to delight wage and hour geeks, and the decision does not disappoint. It was a battle of statutory interpretation between the panel's two-judge majority, which held that the text of Rule 68 requires dismissal when an offer is accepted, with no court review of the settlement terms, and the "emphatically" dissenting judge, who wrote that the rule does not overcome the FLSA's longstanding requirement of judicial oversight of settlements to ensure fairness and procedural regularity.

The decision, Yu v. Hasaki, involved a claim by a sushi chef for unpaid overtime under the FLSA. Soon after the complaint was filed, the restaurant sent a Rule 68 Offer of Judgment for $20,000 plus attorneys' fees. Yu accepted the offer, and the parties filed a notice with court. But before the Clerk could enter judgment, the District Judge ordered the parties to submit the settlement agreement to the court for a fairness review and judicial approval, which he believed to be required by Cheeks.

Both parties disputed the District Court's interpretation of the FLSA, Rule 68, and Cheeks, and filed an interlocutory appeal. The Second Circuit accepted the case to address what it described as a "straightforward" question: "whether acceptance of a Rule 68(a) offer of...

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