Over the past several decades, the fees and costs associated with litigating FLSA cases has dramatically increased. A recent court decision may begin to change that landscape. Set out below is an excellent article regarding that decision and the potential implications:
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Since the Eleventh Circuit decided Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), the prevailing view has been that parties to individual lawsuits 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 hewed so strongly to this view that, on their own initiative, they have held fairness hearings even when parties sought a stipulated dismissal.
That Lynn’s Food would become so influential was not obvious 40 years ago when the case was decided: nothing in the FLSA’s text requires a court to approve a settlement between an individual plaintiff and an employer, and Federal Rule of Civil Procedure 41 gives parties to individual lawsuits the power to stipulate to dismissal. Nevertheless, the core idea behind the approval requirement – that judges should protect individual plaintiffs by ensuring a settlement is fair – has held sway. Although some courts, including the Fifth Circuit in Martin v. Spring Break Productions, LLC, 668 F.3d 247 (5th Cir. 2012) and some district courts, have found parties may privately settle and release individual FLSA claims if such claims include a bona fide dispute as to liability, most courts to reach the issue have since followed the approval requirement articulated in Lynn’s Food.
In Alcantara v. Duran Landscaping, Case No. 2:21-cv-03947 (E.D. Pa. July 12, 2022), Judge Josh Wolson challenged that consensus, holding that “settlements do not need to be approved,” and parties may stipulate to dismissal under Rule 41. Judge Wolson also observed that “there is [also] nothing that prevents the Court from approving a settlement if the Parties request it.” Therefore, parties wishing to settle an individual FLSA claim may either “file a formal motion for settlement approval [or] a Rule 41 stipulation to dismiss the case.”
Because Alcantara departs from the consensus that judicial or DOL approval is a prerequisite to settling individual FLSA claims, and may be a harbinger of things to come, it warrants examination.
In Alcantara, the plaintiffs requested a teleconference during which they would seek the court’s approval of the parties’ settlement agreement in a case for failure to pay 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 required to approve the settlement reached between the parties, and requested briefing on that issue from the parties and the Department of Labor.
Judge Wolson, in holding that the court was not required to approve the settlement, began by remarking that, although the approval requirement is meant to protect individual plaintiffs, it has unintended consequences. The court quoted President Reagan’s maxim that “the nine most terrifying words in the English language are: ‘I’m from the Government, and I’m here to help,’” and observed that requiring court approval of a settlement of individual FLSA claims drives up litigation costs, delays disbursements of unpaid wages to plaintiffs, and often makes settlement more difficult, while adding little value to the parties presenting the agreements for approval.
The heart of the opinion, however, is its textualism. Judge Wolson reasoned the approval requirement is contrary to the language of Rule 41 (upholding the principle favoring private settlements in civil litigation) and unsupported by the text of the FLSA, as neither 29 U.S.C. §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 Those considerations, in Judge Wolson’s view, are dispositive, and mean that parties need not seek approval of individual settlements of FLSA claims. Although the opinion does not discuss the PMWA in detail, it appears the court also did not regard judicial approval as a prerequisite to settling PMWA claims either.
Alcantara is the opinion of one district judge. It is not binding on any other judge. We nonetheless regard the opinion as significant, for three reasons.
First, it changes the risk analysis for employers. When settling an individual FLSA claim, employers face a dilemma: (1) they may negotiate for a judicial-approval requirement in the settlement, with the incidental harms Judge Wolson identifies in Alcantara, plus the settlement amount becoming a matter of public knowledge; or (2) they may negotiate for a Rule 41 dismissal and confidential settlement agreement, with the risk that their release may one day be held invalid. Alcantara does not eliminate that dilemma. But it makes the second option less risky.
Second, Judge Wolson’s textualist analysis is likely to appeal to other textualist judges. Because there is a significant contingent of such judges, we expect the Alcantara analysis to be followed in other cases.
Third, Alcantara may have implications for the settlement of FLSA collective actions. The Alcantara court noted that “[a] collective action might be different in important respects and so might require court approval to protect opt-in plaintiffs who have not been as involved in the case.” But Alcantara’s central principle – that judicial or DOL approval is not required to settle an individual FLSA claim because nothing in the FLSA’s or Rule 41’s text creates such an approval requirement – arguably applies to FLSA collective actions as much as it applies to individual FLSA claims. It is possible, therefore, that judges may apply the analysis in Alcantara to FLSA collective actions, concluding that parties need not obtain judicial or DOL approve to settle those cases.