On December 6, 2019, the Second Circuit issued a decision that will have a strong impact on the settlement of wage and hour actions under the Fair Labor Standards Act (FLSA). In Yu v. Hasaki Restaurant, Inc., the U.S. Court of Appeals for the Second Circuit reversed a district court ruling and held that FLSA settlements pursuant to a Rule 68 offer of judgment do not require court approval. This decision departs from the conventional view that settlements of FLSA claims generally require formal approval from a court or the Department of Labor (DOL) in order to be enforceable.

In Yu, the plaintiff filed a complaint against his restaurant-employer, alleging FLSA overtime violations. Soon after the complaint was filed, the restaurant sent the plaintiff, and the plaintiff accepted, an offer of judgment pursuant to Rule 68 – which requires the Clerk of the Court to “enter judgment” when the offer and notice of acceptance have been filed with the court. Before the Clerk of the Court could enter the judgment, however, the district court ordered the parties to submit the settlement agreement to the court for a fairness review and judicial approval. The district court based its determination on the Second Circuit’s 2015 decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), which held that stipulated dismissals of FLSA claims under Rule 41(a) require judicial approval.

Both parties disputed the district court’s interpretation of the FLSA, Rule 68, and Cheeks, and filed an interlocutory appeal. The Second Circuit accepted the case and viewed the question before it as “whether acceptance of a Rule 68(a) offer of judgment that disposes of an FLSA claim in litigation needs to be reviewed by a district court or the DOL for fairness before the clerk of the court can enter the judgment.”

In a 2-1 decision, the Court of Appeals held that the decision in Cheeks does not extend to Rule 68 offers of judgment. The majority relied primarily on language in Rule 68 that, when an offer is accepted, the clerk must enter the parties’ stipulated judgment, and held that the FLSA does not contain “a clear expression of congressional intent” to exempt the FLSA from the rule’s coverage. The majority also distinguished Rule 68’s mandatory dismissal language from Rule 41(a), which contains an exception to the self-executing nature of a stipulated dismissal where a federal statute governing the claim requires judicial approval. Rule 68 does not contain any such exception.

With this decision, parties in the Second Circuit may agree to settle FLSA cases more easily because parties will not have to submit their settlement to a court or the DOL for approval if the case is settled pursuant to Rule 68. The Yu decision provides parties with a new way to resolve FLSA cases without the costs and delays of the judicial approval process. We will continue monitoring developments in this area and provide updates as new information becomes available.