In Fair Labor Standard Act (FLSA) mediations, parties often spend hours negotiating over financial terms. Oftentimes, however, the parties neglect to discuss a critical issue: how to dispose of the case. In the Second Circuit, there are two options: submit the settlement to the Court for Cheeks review, or pursuant to Federal Rules of Civil Procedure, issue a Rule 68 Offer of Judgment.

The failure to discuss this issue early on in a mediation can create barriers to settling, even if the parties reach an agreement on financial terms, such as the scope of the release and confidentiality provisions. This article explores the ramifications of Cheeks and its intersection with Rule 68 Offers of Judgment and how this decision can impact the mediation process.

A Brief History of Cheeks

An August 2015 decision by the U.S. Court of Appeals for the Second Circuit, Cheeks v. Freeport Pancake House, 796 F.3d 199 (2d Cir. 2015), had a massive effect on FLSA settlements in the Second Circuit. In Cheeks, the Court effectively prohibits parties from voluntarily entering into private settlements of claims under the FLSA, holding that parties cannot enter into settlements of individual FLSA claims without either the approval of the district court or the Department of Labor.

The effect of Cheeks was threefold. First, Cheeks requires the parties to submit settlements for court approval (including both the gross amount and attorneys’ fees), generally in the form of a letter motion. Some judges hold in-person or telephonic fairness hearings. First, Cheeks creates additional work for attorneys in preparing the approval papers or attending additional hearings; second, Cheeks adds delays for clients in finalizing their cases. Settlement checks cannot be distributed without the Court’s approval of the settlement, and although some judges issue their rulings within days or weeks, other judges may take several months. Consequently, attorneys are unable to advise their clients when exactly the settlement would be finalized.

Third, following Cheeks, courts began limiting what terms could be included in settlement agreements. For example, courts have rejected overbroad general releases, approving only limited wage and hour releases. Martinez v. Gulluoglu LLC, 2016 WL 206474, at *2 (SDNY, Jan. 15, 2016). Courts have also rejected overbroad confidentiality and non-disparagement clauses. See, e.g., Weng v T&W Rest., Inc., 2016 WL 3566849, at *4 (SDNY June 22, 2016). Therefore, employers seeking confidential settlements of wage and hour claims were essentially out of luck under Cheeks, which can effect their settlement posture.

The Rule 68 Workaround

In a decision issued on December 6, 2019, a panel of the Second Circuit held that notwithstanding that Court’s prior decision in Cheeks, judicial approval is not required when an FLSA case is settled pursuant to an offer of judgment under FRCP Rule 68(a). See Yu v. Hasaki, 944 F.3d 395 (2d Cir. 2019).

Like Cheeks, this decision had immediate applications to settlements of FLSA cases. By allowing for resolution of FLSA cases via Rule 68, parties can enter into side agreements not filed with the Court. These side agreements allow the parties to include general releases and confidentiality and nondisparagement clauses without court oversight. Perhaps most importantly, it allowed for speedier resolution of cases because the entry of a judgment takes mere days, whereas Cheeks approval could take substantially longer.

Applications in FLSA Mediations

FLSA mediations in both the Southern and Eastern Districts of New York are a significant percentage of each court’s mediation programs. In October 2016, the S.D.N.Y. expanded the automatic mediation referral program to include FLSA and Section 1983 cases filed with certain judges.¹ In 2021, 1483 cases were referred to the S.D.N.Y.’s mediation program, nearly half (44%) of which were FLSA, employment discrimination and § 1983 claims. In 2022, 1,550 cases were referred to the S.D.N.Y.’s mediation program, 36% of which were FLSA, employment, and § 1983 claims.²

Similarly, in the Eastern District of New York (E.D.N.Y.) in 2023, cases filed under the FLSA constituted about 8% of the total civil filings in that district.³ In 2023, 59% of all FLSA cases filed were referred to mediation. FLSA referrals made up 52% of the mediation referrals in 2023 and 65% of the FLSA matters referred to mediation during the period of this report were resolved before or as a result of a mediation session.

Unsurprisingly, most FLSA mediations tend to focus on financial terms, while not much attention is spent on how the parties will dismiss the case. However, parties and mediators can often get tripped up on this issue, if it is not raised in a timely fashion during the mediation.

In numerous FLSA mediations, I have seen the plaintiff’s attorneys insist on settling via Rule 68 instead of via Cheeks review to speed up the process. If the defendant has no objection to issuing a Rule 68 offer of judgment, this is not an issue. However, there are occasions where the defendant is unwilling or unable to issue a Rule 68 offer of judgment. In those situations, it is critical to raise this issue early in the mediation to identify a potential sticking point.

Another scenario where Cheeks vs. Rule 68 comes into play is where the employer has raised inability to pay or financial limitations. For example, hypothetically, assume the parties agree to a $60,000 settlement, but the employer requires six installments to pay out the total. A typical settlement provision is that the first installment will be made within 30 days of settlement approval by the Court under Cheeks, or 30 days within entry of judgment by the clerk under Rule 68. If the parties agree to a Rule 68 Offer of Judgment, they can be reasonably sure of the time frame for the first payment. Conversely, if the parties agree to submit for Cheeks approval, it will be several weeks (at least) prior to the first installment being due.

Understanding early on whether there will be a Rule 68 judgment or Cheeks approval allows the mediator and the parties to get creative in structuring the payout plan. For example, the employer can potentially frontload the first installment payment (since the employer will have additional time to make the first payment because of Cheeks). Alternatively, if the parties elect to proceed via Rule 68, the mediator can help craft the contours of the settlement agreement, such as an agreement for a general release, or some form of confidentiality.

Conclusion

In mediating FLSA cases in the Second Circuit, the Cheeks/Rule 68 decision can provide unique opportunities and incentives to resolve cases. Failing to raise this issue early in the mediation, however, can ultimately derail a settlement. As a result, the parties and mediator should think about Cheeks and Rule 68 early in the mediation to allow this choice to play out effectively.