In Cheeks v. Freeport Pancakes House, Inc., a server/manager sued his former employer for unpaid overtime wages, liquidated damages and attorneys’ fees under the Fair Labor Standards Act and New York labor laws. After engaging in some discovery, the parties agreed on a private settlement and jointly filed a stipulation to dismiss the case with prejudice. The district court did not accept the stipulation, stating that plaintiff could not agree to a private settlement of his FLSA claims without court approval or the supervision of the Department of Labor. The parties did not wish to disclose the terms of their settlement, thus, asked the Second Circuit Court of Appeals to determine whether parties may settle FLSA claims without court approval or Department of Labor supervision. District courts had previously been split on this issue.
The Second Circuit affirmed the district court’s decision and ruled that due to the unique policy considerations underlying the FLSA, settlement agreements in FLSA suits must be approved by the court or the Department of Labor to take effect. The Second Circuit reasoned that approval in FLSA cases are necessary due to the potential for abuse in settlement agreements, such as the inclusion of overbroad waivers and high attorneys’ fees. The Court described the FLSA as being a uniquely protective statue, with a “…primary remedial purpose: to prevent abuses by unscrupulous employers and remedy the disparate bargaining power between employers and employees.” Now, in light of this decision, settlement agreements in the Second Circuit must be filed in court, for approval.
The full decision can be read here.