Labor & Employment Law Daily Should Rule 68 offers of judgment in FLSA wage cases get DOL or judicial approval?
Monday, January 20, 2020

Should Rule 68 offers of judgment in FLSA wage cases get DOL or judicial approval?

By Pamela Wolf, J.D.

NELP says they should—so that attorneys cannot end-run the FLSA’s mandatory wage-and-hour protections and impose abusive confidentiality and non-disclosure agreements.

The National Employment Law Project (NELP) is weighing in on whether cases brought under the Fair Labor Standards Act can be resolved by a Rule 68 offer of judgment without any judicial review or settlement approval, as is typically required in FLSA wage claims. NELP argues that if a Second Circuit panel’s ruling that judicial approval in not required for Rule 68(a) offers of judgment settling FLSA claims, this will become the preferred method for settling, permitting attorneys to make an end-run around the FLSA’s mandatory wage-and-hour protections.

Offer of judgment. In 2016, a sushi restaurant worker sued his employers at Hasaki Restaurant for unpaid overtime, on his own behalf and on behalf of his similarly situated coworkers. His employers responded several months later with an “offer of judgment” for $20,000 under Federal Rule of Civil Procedure 68. The employee, represented by counsel, accepted and notified the court of his acceptance.

The district court ordered the parties to submit their settlement agreement along with a joint letter explaining why the settlement should be approved as fair and reasonable. The court cited the Second Circuit’s 2015 decision in Cheeks v. Freeport Pancake House, Inc. (holding that stipulated dismissals settling FLSA claims with prejudice pursuant to Rule 41(a)(1)(A)(ii) require approval of either the district court or the Department of Labor), in explaining that it had to scrutinize the settlement to ensure it was fair and reasonable.

The parties submitted a joint letter arguing that they did not need judicial approval, but the court issued an opinion finding that judicial approval of the settlement agreement was required. However, it certified its order for interlocutory appeal.

On appeal. On appeal, because the parties were aligned on the issue, the Second Circuit appointed Public Citizen Litigation Group as amicus curiae to defend the district court’s position. The Department of Labor also filed an amicus brief, emphasizing that “[t]he Department’s longstanding position is that FLSA rights cannot be waived or compromised by private agreement and that, accordingly, an employee can only enter a settlement agreement that terminates her FLSA claim with prejudice if it is supervised by the Department or approved by a court.”

Approval not required. In December 2019, with one judge dissenting, the Second Circuit panel ruled that judicial approval is not required of Rule 68(a) offers of judgment settling FLSA claims. In light of the unambiguously mandatory command of Rule 68(a) for the clerk of the court to enter offers of judgment when they are accepted, and because the appeals court found no indication by Congress or the Supreme Court that the FLSA requires judicial approval of stipulated judgments concerning FLSA claims in the context of ongoing litigation, the appeals court declined to find such a requirement. Thus, the judgment of the district court was reversed and remanded with instructions that the clerk of the court enter judgment as stipulated in the parties’ accepted Rule 68(a) offer.

Dissent. Judge Calabresi strongly dissented, arguing that the “majority misreads the language, the history, and the design of the Fair Labor Standards Act” and “ignores the longstanding position of the Supreme Court of the United States, the Department of Labor, and seven Courts of Appeals,” including the Second Circuit’s own decision in Cheeks.

Petition for rehearing. Public Citizen Litigation Group has filed a petition seeking rehearing en banc, arguing that the panel’s decision undermines the FLSA’s protections and conflicts with both Second Circuit and Supreme Court precedent. NELP has filed an amicus brief in support of reversal, citing the importance of judicial or DOL fairness review of wage theft settlements to promote compliance and transparency.

Robust private enforcement. According to NELP, workers in low-wage industries, largely immigrants and people of color, depend on robust private enforcement of the FLSA’s minimum wage and overtime protections—supervised by DOL and federal courts. If the full appeals court does not reverse the panel’s decision, Rule 68 offers will become the preferred method for settling FLSA cases, allowing attorneys to achieve an end-run around the FLSA’s mandatory wage-and-hour protections. This end-run will undermine robust private enforcement of the FLSA, with dire effects not only on workers, but also on law-abiding employers that are complying with the FLSA’s minimum wage and overtime requirements.

Abusive non-disclosure provisions. NELP also points the potential harm of confidentiality and non-disclosure agreements (NDAs) that will be included in FLSA settlements. “DOL and judicial review is especially critical to prevent harms flowing from employers’ inclusion of abusive confidentiality and non-disclosure provisions in FLSA settlements,” the worker advocacy group wrote in its brief. “Without DOL or judicial review, such provisions will be routinely included in FLSA settlement agreements to silence worker-plaintiffs—undermining the FLSA’s twin goals of rooting out wage theft and unfair competition by unscrupulous employers.”

NELP also cited the #MeToo movement and its exposure of the “wide-ranging harms wrought by confidentiality provisions and NDAs in settlements of discrimination and harassment claims.”

“The panel’s decision threatens to return this Circuit to the pre-Cheeks era, allowing confidentiality provisions and NDAs to proliferate in FLSA settlements,” NELP argued. “Public filing of the Rule 68 offer cannot correct for the damaging effect of such NDAs, as signers will still believe they cannot speak out without violating their agreement.”

The case, Yu v. Hasaki Restaurant, Inc., is No. 17—3388.

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