Most cases, when they settle, contain a provision that the plaintiff's complaint will be dismissed “with prejudice.” “With prejudice” is legal shorthand for saying that those claims can never be raised again. Once they're gone, they're gone for good. Why defendants want this is understandable. In exchange for money, they believe that they are buying peace, making the problem posed by the plaintiff go away forever.
In federal court the authority to do this this is contained in Rule of Civil Procedure 41, which says that dismissals with prejudice can be by stipulation — an agreement — of the parties, unless a law says that the court's permission is required. New Jersey state practice has a similar provision, Rule of Court 4:37.
Dismissals also can be “without prejudice,” but this is seldom the case in a negotiated settlement.
Now, in Cheeks v. Freeport Pancake House, a case of first impression, the US Court of Appeals for the Second Circuit, says “not so fast” when parties settle a wage and hour case under the Fair Labor Standards Act.
Although the FLSA has no provision that requires the court's approval to settle with prejudice, the Second Circuit ruled that the overall remedial character of FLSA requires that a settlement be approved by the court or be under Department of Labor supervision. The rationale is to protect employees who are entitled by the FLSA to full payment of wages due, and in some cases to enhanced financial remedies.
I have a hard time believing that the parties would want to settle under “DOL supervision,” whatever exactly that might mean. More likely they would prefer to submit the settlement to the court, and instead of dismissing the case by stipulation, ask the court to order the dismissal with prejudice.
The intricacies of civil procedure often have substantive effect, and it will be interesting to see how this new requirement of court or administrative approval of settlements will affect the agreeable disposition of FLSA cases, most of which involve small employers with small resources and small amounts of wages due. It will be equally interesting to see if other federal circuit courts follow the lead of the Second.
The easy way to resolve this issue would be for Congress to speak on the question: does it or does it not want FLSA settlements to require court approval? If so, on what terms?
Will it? My Magic 8 Ball says “my reply is no.” That sounds right to me. What is clear is that settling FLSA cases just got a little harder.