Second Circuit Finds That Rule 68 Can Be Used To Settle FLSA Claims

Settling most cases is a difficult process, particularly when the parties dispute what exactly happened or when the underlying claim turns out to be smaller than anticipated. In Fair Labor Standards Act (“FLSA”) cases, the process can be even more difficult depending on the court’s interpretation of the FLSA’s enforcement provision, section 16, which permits the Department of Labor to supervise settlements.

Courts have reached differing interpretations regarding this statutory language and whether it requires DOL or judicial approval of all FLSA settlements. The parties to an FLSA case may wish to avoid having to submit a settlement agreement to the court to obtain approval before a case can be settled. Such reasons include a desire to keep the settlement terms confidential, the cost of obtaining judicial approval, and the time delay inherent in having to obtain judicial or DOL approval. The question that has long plagued litigants and attorneys alike is whether the parties can find a means of settling their matters without having to seek review, as they do with virtually every other kind of employment case.

In 2012, the Fifth Circuit when faced with the question in Martin v. Spring Break ’83 Productions, L.L.C. created a distinction between disputed and undisputed claims. In that case, the court held that the settlement of disputed claims did not require judicial or DOL review or approval. The court contrasted disputed claims with those where there was no dispute that the employer owed wages to employees (e.g. overtime or unpaid minimum wages) but in which the defendant attempted to use the litigation to coerce a lesser settlement. Other federal circuits have not universally adopted this holding, leaving litigants outside the Fifth Circuit still searching for a definitive answer.

Earlier this month, the Second Circuit in Yu v. Hasaki Restaurant, Inc., laid the groundwork for an alternative route for settling FLSA claims without DOL or judicial approval by utilizing Rule 68. In Yu, a sushi chef filed a collective action against his employer seeking certification of a class of employees of the restaurant where he worked. The restaurant made an offer of judgment under Rule 68 of $20,000 plus attorney’s fees. The chef accepted the offer, but the trial judge sua sponte ordered the parties to submit the settlement agreement for review or offer justification as to why such review was unnecessary. Ultimately, the district court determined review was necessary, but given the uncertainty of the issue, certified the matter for interlocutory appeal.

A majority of the Second Circuit panel found that settlement via Rule 68 trumped any requirement of judicial review. Thus a case settled through a Rule 68 offer of judgment did not require any approval of the settlement. In explaining the rationale for the holding, the majority carefully reviewed the meaning and purpose of both Rule 68 and the FLSA. From this, they concluded that, on balance, parties represented by counsel should be able to make their own decisions about a settlement through Rule 68. The lone dissenting judge on the panel also reviewed the same meaning and purpose but came to the opposite conclusion that judicial approval was needed, Rule 68 or not. The dissent asked the Supreme Court to review the issue and definitively settle the question.

The Court’s opinion is available here.

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