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This month, the U.S. Court of Appeals for the Second Circuit held in Cheeks v. Freeport Pancake House, Inc. that parties are not permitted to enter into private settlements of wage and hour claims arising under the Fair Labor Standards Act (FLSA) without obtaining approval from the court, if a lawsuit has already been filed, or the United States Department of Labor.

Most cases that are filed in court can be resolved by the mere filing of a stipulation of dismissal.  The Second Circuit, however, ruled that settlements involving FLSA claims must be first approved by either the court or Department of Labor to ensure that the settlement reflects a reasonable compromise of disputed claims.  A consequence of this decision is that proposed settlement agreements will need to be filed publicly with the court for review, meaning that the amounts being paid  will technically no longer be deemed confidential, which might take away one of the employer’s incentives for settling a wage and hour case early.

The United States Supreme Court has never addressed this issue, and the Second Circuit is the first circuit court to do so.  Wage and hour claims resolved under state law statutes are not subject to court or Department of Labor review, unless the state statute at issue requires.  The New York Minimum Wage Act and New York State Department of Labor Regulations do not require court or Department of Labor approval for wage and hour claims arising strictly under New York Law.

In a past blog we wrote about a case in which movie studio interns who worked on the movie, “Black Swan,” claimed that they were misclassified as interns and were really employees, who should have been paid at least the minimum wage and overtime pay for hours worked beyond 40 in a workweek.  On July 2, 2015, the United States Court of Appeals for the Second Circuit, which covers New York, Connecticut and Vermont, ruled that the lower court erred in finding that unpaid interns should have been deemed “employees” for purposes of coverage under the Fair Labor Standards Act (FLSA).  In so doing, the Second Circuit rejected the U.S. Department of Labor’s tests for determining this issue

In Glatt v. Fox Searchlight Pictures, the Second Circuit adopted a new standard for  determining whether an unpaid intern is really an employee entitled to minimum wage and overtime payments.  According to the Second Circuit, “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”  In resolving this question, the Second Circuit held that courts should weigh and balance the following non-exhaustive list of factors:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

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