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April 14, 2020 Articles

A Difficult Hurdle: FLSA Supervision in the Second Circuit

The court’s Hasaki opinion may impact the decisions of other courts confronted with the issue of whether Rule 68 offers of judgment require court approval.

By Dustin Crawford
A circuit split over this issue is almost certain to result.

A circuit split over this issue is almost certain to result.

In 2019, In Mei Xing Yu v. Hasaki Restaurant, Inc., the Second Circuit Court of Appeals carved out a new exception to the generally applicable rule that Fair Labor Standards Act (FLSA) claims can only be settled under the supervision of the Department of Labor (DOL) or after a district-court judge determines that the settlement represents a reasonable compromise over a bona fide dispute, 944 F.3d 395 (2019).

In Hasaki, the Second Circuit held that when an FLSA plaintiff settles his or her claim by accepting an offer of judgment pursuant to F.R.C.P. 68, the court must enter the judgment and dismiss the case without first reviewing and approving the settlement agreement. Employment litigators prosecuting or defending FLSA claims should pay close attention to how the Hasaki court’s opinion may impact the decisions of other courts when determining whether offers of judgment under Rule 68 must be reviewed and approved by the court. 

The Hasaki holding represents a significant departure from the traditional approach taken by other federal courts. Indeed, most courts faced with the question of whether FLSA settlements require court approval to be enforceable have adopted the reasoning of the Eleventh Circuit Court of Appeals in Lynn’s Food Store, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982).

In Lynn’s Food, the Eleventh Circuit determined that the public policy underpinnings of the FLSA, along with the vast unequal bargaining power between low-wage workers and their employers, prohibited settlement of FLSA rights through private agreements. Instead, the court said that to be enforceable, FLSA settlements must either be supervised by the DOL or approved by a district court judge. Following Lynn’s Food, there was a clear trend among the district and appellate courts to adopt the holding in Lynn’s Food, See, e.g., Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 206–207 (2d Cir. 2015) (“Rule 41(a)(1)(A)(ii) stipulated dismissals settling FLSA claims with prejudice require the approval of the district court or the DOL to take effect.”); Taylor v. Progress Energy, Inc., 493 F.3d 454, 460 (4th Cir. 2007) (“[U]nder the FLSA, a labor standards law, there is a judicial prohibition against the unsupervised waiver or settlement of claims.”) (superseded by regulation on other grounds by Whiting v. Johns Hopkins Hosp., 416 Fed. Appx. 312 (4th Cir. 2011)); Walton v. United Consumers Club, Inc., 786 F.2d 303, 306 (7th Cir. 1986) (explaining that “[c]ourts therefore have refused to enforce wholly private [FLSA] settlements”); Copeland v. ABB, Inc., 521 F.3d 1010, 1014 (8th Cir. 2008) (supervision by the secretary of labor or a stipulated judgment by the district court are the “only two statutory exceptions to [the] general rule,” “that FLSA rights are statutory and cannot be waived.”); Prescott v. Prudential Ins. Co. of Am., No. 2:09-cv-00322-DBH, 2011 WL 6662288, at *1 (D. Me. Dec. 20, 2011) (“[I]n the FLSA context, for an employee's waiver of his rights to unpaid wages and liquidated damages to be binding, either the U.S. Secretary of Labor must supervise the settlement or a court must approve it.”)

Prior to Hasaki, no appellate court had directly addressed whether offers of judgment under Rule 68 are also subject to judicial review, several district courts determined that accepted offers under Rule 68 are “settlements,” and are thus subject to judicial review, See, e.g., Edwards v. Mattress Giant Corp., 2011 WL 13319725 at *1, (N.D. Ga. Dec. 13, 2011) (citing Lynn’s Food and stating “judicial review and approval of these offers of judgment [pursuant to Rule 68] are necessary to give them final and binding effect.”); Rumreich v. Good Shephard Day School of Charlotte, Inc., 2018 WL 4760795 at * 1 (M.D. Fla. July 31, 2018) (the fairness analysis mandated by the Eleventh Circuit’s seminal decision in Lynn’s Food applies to cases where there is an acceptance of a Rule 68 offer of judgment.); Brumley v. Camin Cargo Control, Inc., 2012 WL 1019337 at *2 (D.N.J. Mar. 26, 2012); Johnson v. Helion Technologies, Inc., 2019 WL 4931356 at * 1, No. 18-3276 (D. Md., October 7, 2019) (the FLSA modifies Rule 68(a) such that in claims filed under the FLSA, the court will enter judgment when presented with an offer and acceptance only after the court is satisfied that the settlement is a reasonable compromise); Almodova v. City and County of Honolulu, 2011 WL 4625692 (D. Haw. Sept. 30, 2011) (reviewing Rule 68 offer of judgment to determine if it represented a reasonable settlement).

The Hasaki court departed from these decisions, and distinguished Rule 68’s mandatory dismissal language—which mandates that the court “must” enter judgment and dismiss the case upon acceptance of the offer—from Rule 41(a), which contains an exception to the self-executing nature of the dismissal when a federal statute governing the claim requires court approval. In 2015, the Second Circuit expressly held that the FLSA is such a statute, and determined that dismissals pursuant to Rule 41(a) must be approved by the district court. Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 206 (2d Cir. 2015). Because Rule 68 mandates that the court “must” enter judgment upon the acceptance of the offer, the court determined that judicial review and approval of FLSA settlements is inappropriate in the context of Rule 68.

FLSA practitioners should pay close attention to the Hasaki decision and its potential impact on district and appellate courts confronted with the issue of whether Rule 68 offers of judgment require court approval. There is currently a split in the circuit courts over whether district courts must review and approve FLSA settlement agreements in the context of Rule 41(a) voluntary dismissals, The Eleventh and Second Circuits require judicial approval. Lynn’s Food Stores, Inc. v. United States, 679 F. 2d 1350 (11th Cir. 1982); Cheeks, 796 F. 3d 199 (2nd Cir. 2015). The Fifth Circuit does not. Martin v. Spring Break '83 Prods., L.L.C., 688 F.3d 247 (5th Cir. 2012).

While it is too early to determine what impact the Hasaki decision will have on FLSA settlements under Rule 68, a circuit split over this issue is almost certain to result. The Supreme Court may have to weigh in and resolve once and for all whether FLSA settlements—whether in the context of Rule 68 or Rule 41(a)—require judicial approval to be enforceable.

Dustin Crawford is with Parks Chesin & Walbert P.C. in Atlanta, Georgia.

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