Second Circuit Court of Appeals Rules That Private Settlements of Wage and Hour Claims Require Court or Department of Labor Approval

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.