Jiro Dreams of Settlement

a blurry sushi bar, with chefs preparing sushi

2nd U.S. Circuit Court of Appeals to Hear Case that Questions the Mandatory Court Approval of FLSA Settlements

On October 23, 2017, a petition was granted by the Second Circuit Court of Appeals to consider whether parties can use a procedural rule to settle federal wage-and-hour lawsuits without abiding by the current framework that requires judicial oversight and approval of settlements.

Sushi chef Mei Xing Yu (“Yu”) sued his former employer, Hasaki Restaurant Inc., and its owners, (collectively, “Hasaki”) claiming unpaid overtime in violation of the Fair Labor Standards Act (“FLSA”). In 2016, Yu accepted Hasaki’s settlement offer, which was made under Rule 68 of the Federal Rules of Civil Procedure. This Rule, titled “Offer of Judgment”, mandates that within fourteen (14) days after accepting and settlement offer – such as was done by Yu – either party may file the offer and notice of its acceptance with the Clerk of the Court, who must then enter judgment, effectively ending the lawsuit through settlement.

On April 10, 2017, U.S. District Judge Jesse M. Furman ruled that Yu and Hasaki could not circumvent the standing requirement for either judicial or U.S. Department of Labor (“DOL”) approval of FLSA settlements. See Mei Xing Yu v. Hasaki Rest., Inc., 319 F.R.D. 111, 112 (S.D.N.Y. 2017), lv. to appeal granted, 874 F3d 94 (2d Cir. 2017).

The decision rests largely on the intersection of Rule 41 of the Federal Rules of Civil Procedure. Rule 41 makes dismissal of a case without a court order “[s]ubject to … any applicable federal statute”. Applying this language, the Second Circuit held in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015) that Rule 41 applies to FLSA settlement dismissals and, consequently, “require the approval of the district court or DOL to take effect”.

Citing to a number of differing circumstances, Judge Furman determined that a Rule 68 settlement is not, ipso facto, mandatory. He also echoed the Cheeks ruling and its progeny by stating the remedial and humanitarian goals of the FSLA would hampered without oversight on the fairness of proposed FLSA settlements, where the disparity in bargaining power between an employee and an employer could tip the scales of justice.

In so holding, however, Judge Furman recognized the split amongst district courts in evaluating whether judicial (or DOL) oversight is always necessary in FLSA settlements. Accordingly, he certified the ruling – which was opposed by both Yu and Hasaki – for interlocutory review. The petition for review being granted, the Second Circuit is tentatively scheduled to hear the case in October 2018.

This case has the potential to significantly alter the litigation tactics and strategies of employees and employers alike in handling FSLA claims. For more information on how this case may impact you, your employment, or your business, please contact us.

Ryan T. Biesenbach, Esq.
July 27, 2018