May Parties to Wage Claims Settle Without Court Approval?

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By Christine Pulfrey

“After the conference we had with the court, I'm glad we both agree that we can reach a settlement on my pay claims,” said Todd, a former restaurant server.

“I don't think we should prolong this,” said Janice, the payroll manager. “Although you filed a lawsuit, let's agree privately to terms of a deal. Then the court can dismiss the case.”

FACTS: A former server and manager who had worked for several years at a New York pancake restaurant brought a lawsuit against the eatery.

The former worker claimed that the restaurant failed to pay him and others the required overtime wage. He also claimed that he was demoted and fired after he complained about the restaurant’s failure to pay overtime.

The worker sought to recover overtime wages, damages and attorneys’ fees under the Fair Labor Standards Act and New York labor laws, as well as back pay, compensation in lieu of reinstatement and damages for unlawful retaliation.

The restaurant denied the former worker’s claims.

After an initial conference with the district court and a pre-trial period of discovery, the former worker and the restaurant agreed to a private settlement on the former worker’s claims and filed with the district court a Rule 41 joint stipulation and order of dismissal with prejudice.

The federal district court declined to accept the Rule 41 joint stipulation, concluding that the former worker could not agree to a private settlement of his FLSA claims without the approval of a district court or the supervision of the Labor Department.

The district court ordered the parties to file a copy of the settlement on the public docket and show cause why the settlement reflects a reasonable and fair compromise of disputed issues.

The parties asked, and the district court agreed, to stay further proceedings and certify for appeal the question of whether FLSA actions are an exception to Rule 41(a)(1)(A)(ii)’s general rule that parties may stipulate to the dismissal of an action without court involvement. 

Rule 41(a)(1)(A) of the Federal Rules of Civil Procedures states in part: “Subject to … any applicable federal statute, the plaintiff may dismiss an action without a court order by filing … (ii) a stipulation of dismissal signed by all parties who have appeared.”

An appeals court heard oral arguments, but given that both parties advocated in favor of reversal, the appeals court also sought and received the Labor Department’s views on the relevant issues.

ISSUE: May the worker and restaurant settle FLSA claims without court approval or Labor Department supervision?

DECISION: The former employee and the employer cannot privately stipulate the dismissal of FLSA overtime and retaliation claims with prejudice without the approval of a federal court or the Labor Department, a federal appeals court said.

The FLSA is silent on Rule 41, the appeals court said. The Labor Department took the position that the FLSA falls within the applicable federal statute exception to Rule 41(a)(1)(A), such that the parties may not stipulate to dismiss FLSA claims with prejudice without involving a court or the Labor Department.

Neither the Supreme Court nor circuit courts have addressed the precise question presented by the case, but federal district courts within the Second Circuit “have grappled with the issue to differing results,” the appeals court said, noting it would start with a blank slate and review the question anew.

Many of the circuit's district courts have found that the FLSA falls within the scope of an exception to Rule 41(a) regarding “applicable federal statutes” that do not allow parties to stipulate the dismissal of private FLSA settlements without court involvement, given the law’s “primary remedial purpose” to “prevent abuses by unscrupulous employers, and remedy the disparate bargaining power between employers and employees,” the appeals court said.

The district courts concluded that judicial approval furthers the employee-protection purposes of the FLSA because, absent oversight, low-wage employees “often face extenuating economic and social circumstances and lack equal bargaining power,” making them “more susceptible to coercion or more likely to accept unreasonable, discounted settlement offers quickly,” the appeals court said, affirming the district court’s denial of a joint stipulation of settlement under Rule 41 of the Federal Rules of Civil Procedure (Cheeks v. Freeport Pancake House, Inc., 2015 BL 254006, 2d Cir., No. 14-299, 8/7/15).

POINTERS: The Labor Department secretary is authorized to supervise an employer's payment of any unpaid minimum wages or overtime compensation owed to employees under FLSA.

Moreover, to protect employees, any proposed settlement also is subject to the scrutiny of the department's Wage-Hour Division.

For more information, see Payroll Administration Guide's “FLSA: Enforcement and Penalties” chapter.

This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.

To contact the editor on this story: Allison M. Gatrone at