The Fair Labor Standards Act (FLSA) is unique among employment -related laws, because it requires judicial approval of settlement agreements. The parties in a recent Second Circuit case, Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), tried to get around this requirement by reaching a confidential settlement and tendering a joint stipulation and order of dismissal with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii). The district court didn't go for it, and, somewhat surprisingly, the parties appealed.
The Second Circuit affirmed, essentially on the grounds that the remedial purposes of the FLSA could be undermined without either judicial approval or Department of Labor supervision of overtime settlements. The Second Circuit also noted some recent cases that illustrated "why judicial approval in the FLSA setting is necessary":
- a proposed settlement agreement had been rejected where it included a battery of highly restrictive confidentiality provisions, and overbroad release that would waive "practically any possible claim against the defendants, including unknown claims and claims that have no relationship whatsoever to wage and hour issues" and appeared to set an excessive fee for the plaintiff's attorney.
- A proposed settlement agreement contained a pledge by the plaintiff's attorney not to represent any person bringing similar claims against the defendants.
- A settlement agreement was rejected where the employee testified that she felt pressured to accept the employer's out-of-court settlement offer because "she trusted [the employer] and she was homeless at the time and needed money"
- a proposed settlement agreement was rejected where 22 plaintiffs had accepted offers of judgment – many for $100 – because "they are unemployed and desperate for any money they can find."
Cheeks is in overtime case that both plaintiff and defense attorneys should pay attention to when they are crafting settlement agreements and FLSA overtime cases.