Does Judgment Offer in Wage Case Need Court OK? 2nd Cir. to Say

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By Patrick Dorrian

The U.S. Court of Appeals for the Second Circuit agreed to consider whether accepted “offers of judgment” in Fair Labor Standards Act cases need court approval to be binding.

At issue is whether judgments in FLSA cases agreed to under Rule 68 of the Federal Rules of Civil Procedure are covered by the same court-approval requirement as more-common settlement agreements in FLSA cases ( Mei Xing Yu v. Hasaki Rest., Inc. , 2017 BL 378717, 2d Cir., No. 17-1067, interlocutory review granted 10/23/17 ). The Second Circuit’s answer carries potentially significant consequences for employers, employees, and their attorneys, a lawyer in the case told Bloomberg Law Oct. 23.

Rule 68 is a procedural device that allows a defendant in federal court to attempt to avoid potentially costly litigation by making a formal offer of judgment to the plaintiff for a specified amount of money and “the costs then accrued.” If the plaintiff rejects or fails to timely accept the offer and later wins a smaller judgment at trial, the plaintiff is liable for the litigation costs incurred by the defendant after the Rule 68 offer was made.

“Rule 68 provides an avenue for prompt resolution of disputes and avoids the costs of unnecessary litigation in FLSA cases, as with other civil litigation in federal court,” Louis Pechman said in an email. “The availability of Rule 68 in FLSA cases, without the need for Court intervention, is a matter of importance to parties on both sides of the ‘v,’” he said.

The question arises in an FLSA case brought against Hasaki Restaurant Inc. and others by sushi chef Mei Xing Yu alleging the company failed to properly pay him and other workers required overtime. The Labor Department submitted an amicus brief with the lower court, arguing that accepted Rule 68 offers of judgment need to be approved, and the lower court agreed. Hasaki may challenge that ruling on appeal, the Second Circuit said.

Pechman of Pechman Law Group PLLC in New York represents Hasaki. He said his firm has handled more than 250 FLSA cases, and has represented both employers and employees. Pechman is also the founder of waiterpay.com, a website that focuses on wage and hour issues in the New York restaurant industry.

He said his firm sees “this issue from both sides.”

“We do not have a comment beyond the contents of our amicus brief,” Michael Trupo of the Labor Department’s Office of Public Affairs told Bloomberg Law in an Oct. 23 email. “The opinion speaks for itself.”

Yu didn’t oppose Hasaki’s petition seeking review by the Second Circuit.

Does Cheeks Apply to Rule 68?

The Second Circuit held in Cheeks v. Freeport Pancake House, Inc. in 2015 that stipulated dismissals settling FLSA claims with prejudice require approval of the district court overseeing the case or the Department of Labor. That decision came under Rule 41 of the Federal Rules of Civil Procedure, which covers the dismissal of lawsuits.

But whether that 2015 holding applies to Rule 68 is an issue that has divided the federal trial courts in the Second Circuit, Pechman told Bloomberg Law.

In briefing the issue for the lower court, Hasaki argued that federal trial courts lack the authority to review accepted Rule 68 offers. Entry of judgment on accepted Rule 68 offers is instead mandatory, the company urged.

“Nothing in Rule 68 exempts FLSA cases from” that requirement, Hasaki said. Rule 68, unlike Rule 41, doesn’t contain anything that limits its mandatory nature, Hasaki said.

Moreover, the policy considerations that led the Second Circuit to require judicial approval under Rule 41 of settlements in wage-and-hour cases don’t apply under Rule 68, the company said. Those policy concerns included the use of “highly restrictive confidentiality provisions” in FLSA settlements that conflict with the law’s remedial purposes; inclusion of overbroad claim release language in such agreements that would waive even claims bearing no relationship to wage-and-hour issues; and language in such agreements setting attorneys’ fees payments that may not be supported with adequate documentation.

None of those concerns is implicated in the offer of judgment made by Hasaki and accepted by Yu, the company said. The offer of judgment will be filed with the trial court and thus won’t remain confidential, it is limited to just those claims alleged in Yu’s lawsuit, and the fees to be awarded to Yu’s attorneys are separate from the $20,000 payable to Yu under the offer of judgment and may be determined by the trial court, according to Hasaki.

Judge Jon O. Newman wrote the opinion, which was joined by Judges John M. Walker Jr. and Rosemary S. Pooler.

Lillian M. Marquez and Laura Rodriguez of Pechman Law Group also represented Hasaki. Hang & Associates PLLC in Flushing, N.Y., represented Yu.

To contact the reporter on this story: Patrick Dorrian in Washington at pdorrian@bna.com

To contact the editor responsible for this story: Terence Hyland at thyland@bna.com

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