The Future of Judicial Approval of FLSA Settlements

This article briefly addresses a question that recently has received much attention and significantly impacts the work of wage and hour lawyers: “Must I spent valuable time and resources – and incur significant delays – in order to obtain judicial review and approval of my individual client’s Fair Labor Standards Act (“FLSA”) settlement?” As you probably can tell from my one-sided wording of the question, I submit that the answer to this question is “No” as a matter of both law and public policy.

1. Federal Employment Rights Lawsuits are Generally Settled Without Any Judicial Review or Approval.

The United States Code is replete with statutes that protect employees against all forms of workplace misconduct. As a result, Pennsylvania’s federal courts oversee hundreds of lawsuits each year alleging, inter alia, sex discrimination, sexual harassment, race discrimination, disability discrimination, pregnancy discrimination, and family medical leave violations.

When the above lawsuits are settled, the litigation is terminated quickly and efficiently. Dismissal generally is effectuated through either: (i) Federal Rule of Civil Procedure 41(a), which provides for the voluntary dismissal of actions via notice or stipulation, or (ii) Local Civil Rule 41.1(b), which provides for the voluntary dismissal of settled actions via notice.

Make no mistake: these settled employment rights lawsuits are of great importance to the litigants and to American society in general. Yet, the federal judges presiding over such lawsuits play no role in reviewing the settlements for “fairness” or “reasonableness.” In my opinion, that’s as it should be. Judges have no obvious right to intervene in an individual employee’s personal decision to settle a lawsuit. This is especially true when the employee is represented by lawyers who are required, expected, and presumed to represent their client’s best interests in accordance with the Rules of Professional Conduct.

2. Yet Many Judges – in the Absence of Third Circuit Guidance – Insist on Reviewing Individual FLSA Settlements.

Things aren’t so simple when the settlement resolves an FLSA lawsuit. That’s because many Pennsylvania federal judges expect parties to submit FLSA settlements for judicial review to ensure a “fair and reasonable” resolution of a “bona fide” FLSA dispute and a “fair and reasonable” attorney’s fee. See, e.g., Howard v. Philadelphia Housing Authority, 197 F. Supp. 3d 773 (E.D. Pa. 2016).

This purported judicial approval requirement can seriously drain attorney and judicial resources. That’s because some judges embark on an extensive analysis that includes, inter alia, consideration of the nine “Girsh factors” applicable to Rule 23 class action settlements. See, e.g., Bettger v. Crossmark, Inc., 2015 WL 279754, 2015 U.S. Dist. LEXIS 7213 (M.D. Pa. 2015). Other judges, meanwhile, disavow strict adherence to the Girsh factors, but nonetheless employ an extensive three-step analysis. See, e.g., Carney v. Travelers Aid Society of Philadelphia, 2020 WL 703684, 2020 U.S. Dist. LEXIS 24818 (E.D. Pa. Feb. 11, 2020).

Crucially, this practice of reviewing FLSA settlements has never been endorsed by the Third Circuit Court of Appeals. Instead, it has its genesis in an old Eleventh Circuit Court of Appeals decision entitled Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982). Therein, the Eleventh Circuit asserted:

There are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees. First, under section 216(c), the Secretary of Labor is authorized to supervise payment to employees of unpaid wages owed to them. An employee who accepts such a payment supervised by the Secretary thereby waives his right to bring suit for both the unpaid wages and for liquidated damages, provided the employer pays in full the back wages.

The only other route for compromise of FLSA claims is provided in the context of suits brought directly by employees against their employer under section 216(b) to recover back wages for FLSA violations. When employees bring a private action for back wages under the FLSA, and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness.

Id. at 1352-53.

3. Pennsylvania Judges Start to Question the Judicial Approval Rule.

Federal judges throughout the Nation have expressed both frustration and skepticism with respect to the practice of expending judicial and attorney resources on the review of individual FLSA settlements.[1] Here in Pennsylvania, Western District Judge Nicholas Ranjan penned Horton v. Right Turn Supply, LLC, wherein he explained that the judicial review of FLSA settlements lacks any statutory basis. See 455 F. Supp. 3d 202, 204-05 (W.D. Pa. 2020). Nonetheless, “in order to provide the parties comfort,” Judge Ranjan reviewed the settlement’s reasonableness based on a streamlined analysis limited to a “simple cost benefit analysis.” See id. at 205-09. However, the Judge refused to review the attorney’s fee, explaining that such review was clearly improper. See id.

In the wake of Horton, two additional Western District opinions characterized judicial approval as something done to comfort the parties rather than comply with the law. See Penska v. T.S. Dudley Land Co., 2021 WL 719661, 2021 U.S. Dist. LEXIS 34219, *3 (W.D. Pa. Feb. 24, 2021) (Ranjan, J.) (“Nevertheless, to provide the parties comfort, the Court will consider their motion for approval of the settlement.”); Fletcher v. Campbell Dev. LLC, 2020 WL 7385285, 2020 U.S. Dist. LEXIS 236208, *1-2 (W.D. Pa. Dec. 16, 2020) (Bissoon, J.) (“As the parties note, and the Court agrees, the law in the Court of Appeals for the Third Circuit is unclear as to whether the parties require court approval of a proposed settlement of an individual action. Nonetheless, given the parties’ specific request for Court-approval, and that other courts in this District have approved settlements in similar situations, the Court will consider this motion for approval of settlement.”).

4. Two Pennsylvania Judges Recently Rejected the Judicial Approval Rule.

But all of this was just a lead-up to Alcantara v. Duran Landscaping, Inc., 2022 WL 2703610, 2022 U.S. Dist. LEXIS 122552 (E.D. Pa. July 12, 2022), wherein Eastern District of Pennsylvania Judge Joshua Wolson thoroughly analyzed the issue and explained that the judicial review of individual FLSA settlements is not required. The opening paragraphs of the opinion aptly characterize the subsequent analysis:

Ronald Reagan described the nine most terrifying words in the English language: “I’m from the Government, and I’m here to help. As federal judges, we are not immune from the possibility that our “help” will make things worse, not better, for the parties before us. So it is with courts’ requirement that they approve individual settlements under the Fair Labor Standards Act. Many courts start with the proposition that they will “help” plaintiff-employees by ensuring that settlements are fair and reasonable. In reality, those plaintiff-employees, represented by able counsel, are equipped to make that decision for themselves. And the “help” that we courts offer – a settlement approval process – drives up litigation costs in small-value cases, makes settlement more difficult, and delays the disbursement of unpaid wages to FLSA plaintiffs. Nor is it clear that the help that courts offer is worth all that much. Most of the time, courts have very little to add to the settlements that parties present. Sometimes we nibble around the edges, modifying confidentiality provisions or making other minor changes. But rarely does this procedural burden yield anything of value to the parties trying to settle.

The problem is that, because judges (this Court included) have convinced themselves that they can help the parties before them, they lose sight of the plain language of Federal Rule of Civil Procedure 41. By allowing parties to dismiss their claims at any time, and without court action, that rule gives effect to the bedrock principle of American courts that public policy favors private settlements of civil litigation. See, e.g., F.T.C. v. Actavis, Inc., 570 U.S. 136, 153, 133 S. Ct. 2223, 186 L. Ed. 2d 343 (2013); Ehrheart v. Verizon Wireless, 609 F.3d 590, 594 (3d Cir. 2010). To stay true to Rule 41’s language, it is incumbent on courts to avoid throwing up procedural hurdles to settlement. The rule requiring prior court approval of an FLSA settlement is an example of just such a procedural hurdle. The rule has no support in the FLSA’s text; it is a judge-made rule that makes litigation slower and more expensive and is at odds with the text of Rule 41. For the reasons below, the Court will assume that employees represented by counsel can decide for themselves whether to settle a case, and the Court will not continue to be an impediment to settlement in these cases.

2022 U.S. Dist. LEXIS 122552, at *1-3

In the ensuing months, other federal from outside the Third Circuit district judges have agreed with Judge Wolson: judicial review of individual FLSA settlements is not required. See, e.g., Evans v. Centurion Managed Care of Arizona LLC, __ F. Supp. 3d __, 2023 U.S. Dist. LEXIS 139126 (D. Ariz. Aug. 9, 2023); Askew v. InterContinental Hotels, Corp., 620 F. Supp. 3d 635 (W.D. Ky. 2022); see also Unifirst Corp. v. Rapshus, 2023 WL 4615061, 2023 U.S. Dist. LEXIS 125371 (E.D. Wis. May 15, 2023) (dismissing approval motion on grounds that parties failed to explain why judicial approval necessary and refusing to “self-impose or adopt such a requirement where the FLSA does not explicitly require it”).

Finally, in July 2023, Walker v. Marathon Petroleum Corp., __ F. Supp. 3d __, 2023 U.S. Dist. LEXIS 130671 (W.D. Pa. July 28, 2023), Western District of Pennsylvania Judge J. Nicholas Ranjan issued an opinion agreeing with Judge Wolson and refusing to review a proposed FLSA settlement. The opinion is worth reading in its entirety. However, the concluding paragraph cuts to the chase:

In short, the parties and courts do not benefit from a court-made rule requiring judicial approval of FLSA settlements for policy reasons that serve no relevant policy. While it is understandable that parties would want to know that their settlements will not be rendered void in the future for failing to comply with the FLSA, the courts are not the place to get that comfort.

2023 U.S. Dist. LEXIS 130671, at *15.

5. Conclusion.

Hopefully, the Third Circuit Court of Appeals soon will have an opportunity to take up the “judicial approval” issue. In the absence of appellate guidance, we’re sure to see more clashing district court opinions. Under such a scenario, I predict that the fresh viewpoints expressed in Alcantara and Walker will begin to “overtake” the prevailing viewpoint that FLSA settlements require judicial approval.