Since the Eleventh Circuit decided Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), the prevailing view is that parties to individual suits under the Fair Labor Standards Act (FLSA) must seek judicial approval (or approval from the Department of Labor) to settle and release claims. Some judges have embraced this view so strongly that, on their own initiative, they have held fairness hearings even when the parties have requested a stipulated dismissal.
This Lynn’s Food would become so influential was not evident 40 years ago when the case was decided: Nothing in the text of the FLSA requires a court to approve a settlement between an individual plaintiff and an employer, and the federal rule of Civil Procedure 41 gives parties to individual suits the power to stipulate dismissal. Nevertheless, the central idea behind the approval requirement – that judges must protect individual plaintiffs by ensuring that a settlement is fair – prevailed. Although some courts, including the Fifth Circuit of Martin vs. Spring Break Productions, LLC668 F.3d 247 (5th Cir. 2012) and some district courts, have found that parties may privately settle and discharge individual FLSA claims if those claims include a good faith dispute as to liability, most courts to decide the matter have since followed the approval requirement set forth in Lynn’s Food.
In Landscaping Alcantara c. DuranCase #2: 21-cv-03947 (ED Pa. July 12, 2022), Judge Josh Wolson challenged this consensus, holding that “settlements do not need to be approved” and parties can stipulate the dismissal under Rule 41. Justice Wolson also observed that “there is [also] nothing prevents the Court from approving a settlement if the Parties so request. Accordingly, parties wishing to settle an individual FLSA claim may either “file[] a formal request for settlement approval [or] a stipulation of Rule 41 to dismiss the case.
Because Alcantara strays from the consensus that judicial or DOL approval is a prerequisite for settling individual FLSA claims, and may be a harbinger of things to come, it merits consideration.
In Alcantara, the plaintiffs requested a teleconference during which they would seek court approval of the parties’ settlement agreement in a case of non-payment of overtime under the FLSA and its Pennsylvania analogue, the Pennsylvania Minimum Wage Act (PMWA). Judge Wolson, on his own initiative, asked whether the court was bound to approve the settlement reached between the parties and requested information on this issue from the parties and the Ministry of Labour.
Justice Wolson, in concluding that the court was not required to approve the settlement, began by noting that while the approval requirement is intended to protect individual plaintiffs, it has unintended consequences. The court cited President Reagan’s maxim that “the nine most terrifying words in the English language are: ‘I come from the government and I am here to help you,'” and observed that the requirement for the approval in court for a settlement of individual FLSA claims increases court costs, delays payment of unpaid wages to plaintiffs, and often makes settlement more difficult, while adding little value to parties presenting settlements for approval.
The heart of the opinion, however, is its textualism. Judge Wolson held that the approval requirement is contrary to the wording of Rule 41 (affirming the principle favoring private settlements in civil litigation) and not supported by the text of the FLSA, because neither 29 USC §216 ( b)-(c) nor any other Part of the FLSA requires a court to approve a settlement between an individual plaintiff and an employer.1 These considerations, in Justice Wolson’s view, are determinative and mean that the parties do not need to seek approval of individual FLSA claims settlements. Although the notice does not deal in detail with the PMWA, it appears that the court also did not consider judicial approval as a prerequisite to settling the PMWA’s claims.
Alcantara is the opinion of a district judge. It does not bind any other judge. Nevertheless, we consider the notice to be significant, for three reasons.
First, this changes the risk analysis for employers. When settling an individual FLSA claim, employers face a dilemma: (1) they can negotiate a judicial approval requirement in the settlement, with the collateral damages Judge Wolson identifies in Alcantara, the more the amount of the settlement becomes a matter of public knowledge; or (2) they can negotiate a termination under Rule 41 and a confidential settlement agreement, with the risk that their release will one day be declared invalid. Alcantara does not eliminate this dilemma. But that makes the second option less risky.
Second, Judge Wolson’s textualist analysis is likely to appeal to other textualist judges. Given that there are a significant number of judges of this type, we expect that Alcantara analysis to follow in other cases.
Third, Alcantara may have implications for the FLSA class action settlement. The Alcantara the court noted that “[a] the class action could be different in some important respects and therefore may require court approval to protect opt-in plaintiffs who were not as involved in the case. But AlcantaraThe central principle of – that judicial or DOL approval is not required to settle an individual FLSA claim because nothing in the text of the FLSA or Rule 41 creates such a requirement for approval – applies arguably to FLSA class actions as well as individual FLSA claims. It is therefore possible for judges to apply the analysis in Alcantara to the FLSA class actions, concluding that the parties do not need to obtain judicial or DOL approval to settle these cases.
Footnotes
