SYRACUSE, N.Y. — On August 7, 2015 the Second Circuit Court of Appeals held that parties cannot enter into private settlements of Fair Labor Standards Act (FLSA) claims without the approval of either a federal district court or the U.S. Department of Labor in Cheeks v. Freeport Pancake House, Inc., No. 14-299 (2nd Cir. 2015). Other federal appellate courts have ruled differently on the issue of whether pre-suit agreements to settle FLSA claims are enforceable. However, this is the first decision by a federal appeals court to address the issue of whether court or DOL approval is required to dismiss a FLSA suit after it has been filed.
Additional Scrutiny for FLSA Settlements
Unlike most federal wage lawsuits, which are easily dismissed after parties enter a settlement agreement, federal courts apply an extra level of scrutiny to FLSA settlements to prevent workers from waiving the protections of FLSA. In order to ensure workers maintain their rights under the FLSA, courts will only enforce these settlements if the settlement amount is for the full amount claimed, or if less, there is a bona fide dispute between the parties regarding the actual amount owed by the employer. The Second Circuit Court of Appeals rested its holding on the claim that judicial approval was necessary to ensure that private settlements furthered the policy goals underlying FLSA. The underlying public policy issue is that plaintiffs may agree to settlement amounts that do not achieve the goal of deterring employers from violating FLSA.
Settlements That Violate the Spirit of FLSA
According to the court, plaintiffs in need of immediate cash may value an immediate settlement at a discounted amount over the potential for a larger judgment at some future date even though it does not amount to a full and fair resolution of their claims. Although this settlement may be agreeable to both parties, it does not achieve the goal of preventing employers from deriving a competitive advantage by violating FLSA. In fact, the court stated that “to prevent abuses by unscrupulous employers, and remedy the disparate bargaining power between employers and employees,” settlement agreements must be scrutinized by courts to ensure “employee protections, even where the employees are represented by counsel.”
Settlements of FLSA claims should make employees whole and provide them with wages that were unjustly withheld from them. A proposed settlement agreement that does not fully compensate employees is not enforceable. You should call (855) 754-2795 or complete the Free Unpaid Overtime Case Review form on the top right of this page if you feel your employee wage rights have been violated and your employer’s proposed settlement does not adequately compensate you. Our top-rated team of wage lawyers will evaluate your situation to determine your best course of action. We will also determine if it is in your best interest to file a lawsuit against your employer. There are strict time limitations for filing, so it is important that you call our experienced attorneys today