Courts not required to review FLSA settlements under Rule 68

In 2015, the Second Circuit held that all private settlements in cases brought under the Fair Labor Standards Act must be approved by the federal judge presiding over the case. Since wage-and-hour cases are common in the SDNY and EDNY, this was a major ruling for parties, their lawyers, and the judges who now have to review the case to ensure the settlement properly compensates the plaintiff. That case left unresolved an open question: what about Rule 68 offers of judgment? Must federal judges review Rule 68 settlements also? The answer is no.

The case is Yu v. Hasaki Restaurant, Inc., issued on December 6. The 2015 ruling was Cheeks v. Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015). That case governs FLSA claims that the parties settle on their own through the usual settlement process: plaintiff makes a demand, defendant makes a counter-offer, plaintiff revises her demand, and so on until they reach an agreement. Rule 68 offers of judgment are different: defendant serves the offer on plaintiff, who has 14 days to take it or leave it. If plaintiff accepts the Rule 68 offer, the case is resolved and the court enters a judgment against the defendant. There is no such judgment in the more traditional settlements, as they always include language stating the defendant denies any liability.

Does Cheeks apply to Rule 68 offers of judgment? It's easy to answer that question in the affirmative. We usually see Rule 68 offers as a form of settlement, and if the courts are supposed to ask whether the plaintiff in a traditional settlement is getting his fair shake, why wouldn't that apply under Rule 68? The Second Circuit (Walker, Hall and Calabresi [dissenting]) recognizes the similarities between settlements under Cheeks and those under Rule 68, but it applies a traditional statutory construction analysis in holding that Rule 68's mandatory language that the clerk of court must enter judgment once the plaintiff accepts a Rule 68 offer means there is no judicial fairness review of the settlement. The FLSA does not address this precise issue, and "the holding in Cheeks was limited to . . . dismissals with prejudice" that do not involve Rule 68 offers.

Judge Calabresi issues a long and "emphatic[]" dissent, stating the only reasonable interpretation of the Rule 68/FLSA dynamic is to have the courts review all resolutions, including those under Rule 68. The majority rejects it, interpreting it to mean that the Court of Appeals "should insert a paternalistic judicial fairness proceeding into Rule 68(a) settlements of FLSA claims that Congress does not require and the parties, represented by counsel, do not want." The majority continues:  

we find no indication by Congress or the Supreme Court that the FLSA requires judicial approval of stipulated judgments concerning FLSA claims in the context of ongoing litigation, we decline to pull such a requirement out of thin air with respect to Rule 68(a) offers of judgment settling FLSA claims. Neither amici nor the Dissent has identified a reliable source in the statutory history that demonstrates “the necessary clear expression of congressional intent required to exempt the statute from the operation of Rule 68."

It is here where Judge Walker gets creative:

Our holding to the contrary, and our reasoning supporting it, is dismissed as “simplistic” by the Dissent, to which our answer is that there are frequently times when “less is more,”107 and this is one of them. Congress knows how to require judicial approval of settlements and dismissals when it wants to.108 Appeals to the broad remedial goals and uniquely protective qualities of the FLSA do not authorize us to write a judicial approval requirement into the FLSA, and thereby into Rule 68(a), when the text of both provisions is silent as to such a requirement.

The footnote quotes from Phillip C. Johnson, Miles van der Rohe 49 (1947) (ascribing the phrase “less is more” to the minimalist architect, Miles van der Rohe).

One issue not addressed here is whether this ruling will encourage parties to forego the time-consuming Cheeks review by simply resolving their FLSA claims under Rule 68. That would be an obvious end-run around the Cheeks procedure and defeat its purpose. What the majority would probably say about this is that Congress can deal with that problem on its own, and that the courts do not exist to deal with any consequences flowing from their statutory rulings.