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Do Pre-Litigation FLSA Settlements Require Court Approval? A New York Court Says No.

Published by and on October 17, 2017

Employers may not need court approval for settlement agreements concerning FLSA claims that are executed prior to litigation.

Employers may not need court approval for settlement agreements concerning FLSA claims that are executed prior to litigation.

The U.S. District Court for the Southern District of New York recently held that a settlement agreement entered into before a lawsuit was filed concerning alleged Fair Labor Standards Act (FLSA) violations did not require court or Department of Labor (DOL) approval. Gaughan v. Rubenstein, No. 1:16-cv-08062, 2017 WL 2964818 (S.D.N.Y. July 11, 2017). Plaintiff in that case had alleged FLSA violations against her former employer and after several months of negotiations (during which plaintiff was represented by counsel), plaintiff and her former employer entered into an agreement to settle these claims. About nine months after this settlement agreement was executed, plaintiff filed a lawsuit against her former employer alleging violations of the FLSA and New York Labor Law.

Plaintiff relied on the Second Circuit’s decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2nd Cir. 2015) to support her argument her argument that the settlement agreement was not binding as it was not approved by a court or the DOL. In Cheeks, the Second Circuit held that stipulated dismissals settling FLSA claims with prejudice require the approval of a court or the DOL. The Southern District of New York reasoned that Cheeks applies only to settlement agreements entered into during litigation as Federal Rule of Civil Procedure 41, which requires court or DOL approval for stipulated dismissals settling FLSA claims, does not apply to settlement agreements that are entered into outside the litigation context.

Therefore, Rule 41 did not apply to the agreement between plaintiff and her former employer as it was executed long before litigation was initiated. Consequently, the agreement did not require court or DOL approval. The district court noted that its decision was consistent with a Fifth Circuit holding a few years ago that an FLSA settlement agreement executed before any court action was commenced (and executed with the assistance of plaintiffs’ union representatives) was binding and precluded later FLSA claims. The district court also distinguished a contrary holding in an Eleventh Circuit case on the differences in the facts of each case. In the Eleventh Circuit case, the employer had abused its bargaining power in negotiating the settlement and plaintiffs were mostly unaware of their FLSA rights (and the outcome of a DOL investigation into the employer) when they entered the agreement.

Because plaintiff in the New York case was represented by counsel when the settlement agreement was entered into and because the plaintiff knew her FLSA rights, the New York district court found the case to be more analogous to the facts of the Fifth Circuit case. Therefore, her pre-litigation settlement agreement did not require court or DOL approval and precluded her from bringing FLSA claims in court.

Welter Insight

Proceed with caution before attempting to settle an FLSA claim outside of litigation! While one New York Court has decided pre-litigation agreements that settle FLSA claims do not require court or DOL approval, the issue remains largely unresolved in the courts. Additionally, contrary outcomes from the Fifth and Eleventh Circuits only add to the uncertainty. If an employer does enter into pre-litigation agreements, it should inform the employee of his or her FLSA rights and make documented efforts to encourage the employee to obtain legal counsel.

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