FLSA Claims Can Be Resolved Without Judicial Approval

Litigators have traditionally understood that settlement of a claim brought under the Fair Labor Standards Act (FLSA) requires approval by courts or the Department of Labor. The U.S. Court of Appeals for the Second Circuit’s split decision in Mei Xing Yu v. Hasaki Restaurant, Inc. changed that understanding by requiring trial courts to honor the parties’ agreement to offers of judgment under Federal Rule of Civil Procedure 68. ABA Section of Litigation leaders say Yu correctly opens up channels for parties to resolve FLSA litigation without judicial supervision.

The Yu Decision

Mei Xing Yu v. Hasaki Restaurant, Inc. involved an overtime dispute under the FLSA. There, the employee accepted an employer’s offer of judgment under Rule 68. The district court then sought to conduct a fairness review of the parties’ agreement for judicial approval, which, despite the parties’ objection, the district court found to be necessary. The parties jointly filed a petition for an interlocutory appeal, which was granted. A third party appointed as amicus curiae, with support from the Secretary of Labor, defended the district court’s decision.

On appeal, a majority of the Second Circuit panel held that judicial approval was not required to resolve an FLSA dispute by Rule 68 offers of judgment. Examining the plain language of the FLSA, the majority found no clearly manifested congressional intent to exempt the FLSA from Rule 68 operation. One by one, the majority rejected the arguments relied on by the amici and the dissent: precedent, statutory history, and the unique features of the FLSA. The majority found the basis underlying such contentions inapplicable, unpersuasive, or incorrect in applying the canon of statutory interpretation.

Judge Guido Calabresi “strongly” dissented, believing that the majority “misreads the language, the history, and the design of the [FLSA]” and “also ignores the longstanding position of the Supreme Court of the United States, the Department of Labor, and seven Courts of Appeals.” According to Judge Calabresi, permitting unsupervised private FLSA settlement under Rule 68 “violates all rules of statutory interpretation, the decisions of all relevant courts, and common sense as well.”

A Non-Waivable Right (Still?)

The concept of a non-waivable employment right is categorically unique to the FLSA. “Generally speaking, the FLSA provides protection to workers who have the least ability to defend their rights: workers making minimum wage and workers who do not know or understand their rights,” says John S. Austin, cochair of the Section of Litigation’s Trial Practice Committee.

“For decades, courts have been concerned that employers could exert undue pressure on employees to waive their wage-and-hour rights given the unequal bargaining power that exists between an employer and employees,” explains David E. Gevertz, cochair of the Section’s Labor & Employment Committee.

In that sense, “the FLSA, as read by the Supreme Court, is a uniquely protective statute, which—unlike any number of other statutes, including Title VII and § 1983—requires supervision of settlement agreements,” Gevertz adds. For example, abuse can occur “where the employee is coerced to sign a release during his employment; the employee may not understand that he is waiving his liquidated damages,” Austin illustrates.

Yu has somewhat altered this concept; its holding necessitates the implication that FLSA rights are, in fact, waivable under certain circumstances. Following Yu, a trial court in the Second Circuit must honor the parties’ unsupervised agreement even when the offer of judgment is below the statutory amount provided by the FLSA, says Gevertz.

At least some Section leaders agree with the majority’s holding in Yu. “The Yu majority is correct that a settlement agreement and an offer of judgment are two different animals.” says Austin. “Typically, offers of judgment are not negotiated, but they typically include a good estimate of what the defendant believes a jury may award. Also, you have to consider that wage-and-hour claims are fairly mathematical cases. If you have records showing the hours worked, the damages are fairly simple to calculate. Consequently, the offers of judgment in such cases may be more calculated than arbitrary,” he adds.

“Because Rule 68(a) judgments are publicly filed on the court docket, this public filing amounts to judicial scrutiny and therefore does not raise public policy concerns,” notes Gevertz. He also agrees with the Yu majority’s textual analysis of the FLSA.

A Road to the Supreme Court?

Faced with the same issue, at least the courts in the Eleventh Circuit have come to a conclusion opposite to Yu’s, holding that Rule 68 offers of judgment are subject to judicial scrutiny, both Gevertz and Austin observe. Gevertz sees a possibility for the Supreme Court to get involved, as “the current circuit split will need resolution so that employees in all circuits are equally protected under the FLSA.”

In light of the circuit split, practitioners settling FLSA cases should “know whether your circuit follows the reasoning in Yu before making settlement offers,” Gevertz advises. “I would always seek approval from the court or the DOL. You certainly do not want to tell a client that the case is resolved, only to find out that plaintiffs can reinstitute the claims and case,” Austin recommends.