Monday, April 25, 2016

All FLSA settlements require judicial approval

I totally overlooked this case when it came down in August 2015, but it's worth revisiting now because it affects everyone who handles wage and hour cases under the Fair Labor Standards Act.

The case is Cheeks v. Freeport Pancake House, 796 F.3d 199, decided on August 7, 2015. The FLSA guarantees you a minimum wage and overtime if you work more than 40 hours a week. There are exceptions to these rules, but it applies to most working people. Sometimes, these cases are worth a fortune, i.e., if the employer denies minimum wage or overtime to large numbers of employees who can bring a collective action. Single-plaintiff cases are not as lucrative, and they most often settle, usually when it seems clear the plaintiff's rights were violated or the case simply does not have great value.

When cases settle in federal court, the lawyers so advise the court, which will allow the parties to dismiss the case on their own, subject only to the judge's signature. The judge does not second-guess most settlements. If the parties think the settlement is fair, then that's good enough for the judge. But there are exceptions to this rule. The question in this case is whether the court has to independently approve FLSA settlements, even if the parties want to settle the case for a certain amount.

This issue has not arisen before in the Supreme Court or the Second Circuit, which takes up the issue now for the first time. The parties settled the case, but the district court would not agree to the settlement without additional information in the form of affidavits and other documents to show the settlement was a fair deal for the plaintiffs. The parties appealed from that order. Complicating things is that plaintiff and defendant challenged the district court's ruling, so the Court of Appeals had to ask the U.S. Department of Labor for input on the appeal to ensure that the pros and cons of this issue were sufficiently provided to the Second Circuit.

The Court of Appeals (Pooler, Parker and Wesley) now says that Fed. R. Civ. P. 41 requires judicial approval of all FLSA settlements, including the small ones. The rationale is that employees who bring these cases, even if they have lawyers, "often face extenuating economic and social circumstances and lack equal bargaining power; therefore, they are more susceptible to coercion or more likely to accept unreasonable, discounted settlement offers quickly." In addition, "without judicial oversight, employers may be more inclined to offer, and employees, even when represented by counsel, may be more inclined to accept, private settlements that ultimately are cheaper to the employer than compliance with the [FLSA]."

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