In Cheeks v. Freeport Pancake House, Inc., the Second Circuit held that without the approval of a district court or the U.S. Department of Labor, parties cannot secure a stipulation of dismissal with prejudice of an FLSA claim under Federal Rule of Civil Procedure 41(a)(1)(A)(ii). In practice, this holding will prevent parties to an FLSA litigation – where there is a bona fide dispute as to liability – from reaching a privately negotiated settlement that includes a joint stipulation of dismissal of the case.
In Cheeks, the former employee sued Freeport Pancake House seeking to recover overtime wages, liquidated damages and attorneys’ fees and asserting a claim for retaliation for previously raising those claims under both the FLSA and the New York Labor Law. The parties reached a private settlement and filed a joint stipulation and order of dismissal with prejudice. The district court declined to accept the stipulation as submitted, directing the parties to file a copy of the settlement agreement on the public docket and to “show cause why the proposed settlement reflects a reasonable compromise of disputed issues rather than a mere waiver of statutory rights brought by an employer’s overreaching.” Rather than provide that information, the parties jointly sought certification of an appeal to the Second Circuit, seeking a decision on whether the parties may stipulate to the dismissal of the action without the involvement of the court.
While other circuits have addressed the issue of whether or not a private settlement can effectively bar future FLSA claims, there have been no decisions addressing the specific question of whether parties can obtain a Rule 41 stipulation of dismissal without court approval. Under Rule 41, actions can be voluntarily dismissed without court order, unless there is an applicable federal statute that provides otherwise. The Second Circuit reasoned that the “unique policy considerations underlying the FLSA, place the FLSA within Rule 41’s ‘applicable federal statute’ exception.” By placing the FLSA into this exception, parties in the Second Circuit now cannot stipulate to the dismissal of the action without first obtaining district court or Department of Labor approval of the settlement. The court left open the question of whether parties may settle an FLSA action without court or Department of Labor approval by entering into a stipulation of dismissal without prejudice, though a dismissal on that basis would not foreclose a future lawsuit.
Faced with FLSA actions in the Second Circuit, employers should brace themselves for a public filing of any settlement agreement and a vetting of that agreement by the district court. Employers might prefer to take their chances as to the enforceability of a private settlement agreement and look to resolve certain FLSA actions pre-litigation, rather than have a publicly filed settlement agreement.