U.S. Court of Appeals for the Second Circuit. Photo: ALM

A sharply divided panel of the U.S. Court of Appeals for the Second Circuit has held that parties to federal wage-and-hour disputes are not required to obtain judicial approval for resolving claims under the Fair Labor Standards Act.

The ruling, in Yu v. Hasaki Restaurants, involved settlements under Rule 68 of the Federal Rules of Civil Procedure, a risk-shifting tool designed to encourage settlements in civil litigation by allowing defendants to send plaintiffs an offer of judgment at any point prior to 14 days before trial. Under Rule 68, if a plaintiff accepts the offer, a clerk is generally directed to automatically enter judgment, without a judge having to sign off on the agreement.

For FLSA cases, however, parties have run up against an obstacle in the 2015 Second Circuit decision known as Cheeks, which held that under a different rule judges must first determine whether the settlements are fair and reasonable to employees.

The ruling, handed down Friday, was welcomed Monday by attorneys on both sides of FLSA litigation who said the decision would remove a major roadblock to settlements and increase efficiency in bringing cases to a close.

"At the end of the day, acceptance of a Rule 68 offer in a FLSA case can hardly be viewed as a bad result, as it is a public judgment, accepted by a plaintiff after consultation with counsel, and puts an end to often contentious litigation," said Lou Pechman, a labor and employment expert at Pechman Law Group, who represented Hasaki.

"Whether or not you are a fan of Cheeks, the result in Hasaki is a positive one, and will be welcomed by FLSA practitioners in the trenches," he said.

For defense counsel, in particular, Hasaki would remove much of the red tape in settling cases that companies would prefer to see resolved quickly, said Noel Tripp, a principal in the Long Island office of Jackson Lewis.

"Employers defending themselves in FLSA litigation would want, and should be able, to use Rule 68(a) the same as any other civil defendant," said Tripp, who defends class and collective action lawsuits under federal and state wage-and-hour laws.

But it would also help eliminate delays for plaintiffs to get paid and likely cut down on unnecessary fees and other provisions that may have been needed under Cheeks to win the court's approval.

"I think it's a great decision for plaintiffs, defendants and the court alike," said Amanda Fugazy, head of the labor and employment law group at Ellenoff Grossman & Schole. "It will cut down on thousands of dollars in work getting arms-length agreements to completion."

"It's nice to have another avenue" that is "faster and potentially less expensive," Fugazy said.

In fact, the unusual procedural posture of the parties to the Hasaki litigation underscored the wide agreement within the bar to how FLSA settlements ought to be handled.

Attorneys for both the plaintiff, a sushi chef named Mei Xing Yu, and his former employer lined up against an order by U.S. District Judge Jesse M. Furman of the Southern District of New York that an agreement for $20,000 plus reasonable attorney fees was subject to judicial review under Cheeks.

In issuing his decision, Furman acknowledged that there could be "substantial grounds for difference of opinion" and certified the order for interlocutory appeal. The appeals court appointed Public Citizen Litigation Group to act as amicus and also invited the Secretary of Labor to argue in favor of Furman's position.

But the consensus among attorneys belied the strong feelings of judges on the Second Circuit panel that took up the issue on appeal.

In a forceful dissent, Second Circuit Judge Guido Calabresi said he "strongly" and "emphatically disagreed with the majority's holding that Rule 68′s command that the clerk must enter judgment is "mandatory and absolute."

According to Calabresi, the ruling created a new method for resolving liability under the FLSA that was not authorized by statute and ignored positions long held by the U.S. Supreme Court, the Department of Labor and federal appeals courts.

"The bulk of the majority opinion is spent seeking to distinguish cases that run against it. It repeatedly tries to explain why—though those cases are obviously in tension with the majority's result—the majority is not absolutely bound by them," he wrote in a 28-page dissent.

"Yet, in the end, the majority always returns to its one simple and simplistic argument: Rule 68(a) settlements are mandatory and subject to no controls, unless a statute precludes such absolute applicability, and the FLSA has no words precisely to that effect," Calabresi said.

Second Circuit Judge John M. Walker Jr., however, answered back in the majority opinion that the FLSA included no requirement for judicial approval, and declined to read one in. The Supreme Court, he said, never said that court‐supervised settlements might be valid under the FLSA, but rather that the act of filing a lawsuit may differentiate stipulated judgments from compromises by the parties.

"In other words, the act of filing the suit, airing the parties' dirty laundry in public and before a judge, and then coming to an agreement distinguishes stipulated judgments from private, back‐room compromises that could easily result in exploitation of the worker and the release of his or her rights," Walker said.

Joined by Judge Debra A. Livingston, Walker said Rule 68′s mandate was "unambiguous," and there was nothing to indicate that Congress intended to exempt the FLSA from its procedures.

"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 we find 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, we decline to pull such a requirement out of thin air with respect to Rule 68(a) offers of judgment settling FLSA claims," he wrote.

Some attorneys on Monday told the New York Law Journal that the pointed language in both opinions indicated strong feelings within the Second Circuit on both sides of the issue and could signal that the court would consider rehearing the case en banc.

"The whole circuit is aware of the impact on practitioners," Tripp said. "I think they understand this is not some theoretical decision that lives in a dusty drawer somewhere."

 

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