Maybe so, maybe not. Fed. R. Civ. P. 41(a)(1)(A) permits a plaintiff to dismiss an action with prejudice and without court approval by filing a stipulation of dismissal signed by all parties who have appeared. However, in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), citing the language of Rule 41(a)(1)(A) that makes dismissal without a court order “[s]ubject to . . . any applicable federal statute,” the Second Circuit held that absent approval by either the district court or the Department of Labor, parties cannot settle claims under the Fair Labor Standards Act (“FLSA”) and stipulate to their dismissal with prejudice under Rule 41. Rather, before the court enters judgment on an FLSA settlement agreement, the parties must satisfy to the court that their agreement is “fair and reasonable.” The Second Circuit found that because the FLSA is “a uniquely protective statute,” a review of settlements is necessary to safeguard against the “disparate bargaining power between employers and employees.”
Fed. R. Civ. P. 68(a) presents a potential loophole through which FLSA claims could be settled with prejudice and without any court approval. Under Rule 68, a party defending a claim can make an “offer of judgment” to the other party. If the other party accepts the offer, the clerk must enter judgment pursuant to the offer’s terms. In the event the offered party rejects the offer and obtains a less favorable judgment at trial, that party must then pay the costs incurred by the offering party after the offer was made. Therefore, because Cheeks was decided in the context of a Rule 41(a) dismissal and did not involve or even mention Rule 68, “litigants have increasingly tried to evade the requirement for judicial or DOL approval by entering into settlements pursuant to Rule 68. These litigants have argued that approval is not required for such settlements because Rule 68 provides that ‘[t]he clerk must . . . enter judgment’ of an accepted offer of judgment and lacks any language comparable to Rule 41’s ‘applicable federal statute’ exception that figured prominently in Cheeks.” Yu v. Hasaki Rest., Inc., 2017 U.S. Dist. LEXIS 54597, at *5 (S.D.N.Y. Apr. 10, 2017).
The Second Circuit has not addressed the issue as to whether Cheeks applies to a Rule 68 offer and acceptance and district courts in the Second Circuit are divided, some holding that it does and others holding that it does not.
As such, on April 10, 2017, in Yu v. Hasaki Rest., Inc., the Southern District of New York concluded that there was a “substantial ground for difference of opinion” on this issue and certified it for interlocutory appeal. Although the court concluded that Rule 68 does not override the need for court or DOL approval of a FLSA settlements, “[b]ecause the issue is also a ‘controlling question of law’ and an immediate appeal from the Court’s order would ‘materially advance the ultimate termination of the litigation’ (as the Clerk of Court would have to enter judgment without further proceedings if the Second Circuit were to reverse and hold that the Court lacks authority to review the settlement), the Court certifies this Order for interlocutory appeal under Title 28, United States Code, Section 1292(b). Indeed, given the nature of the issue and the final judgment rule, it would be difficult (although perhaps not impossible) for the issue to get to the Circuit absent an interlocutory appeal. And in light of the split among the district courts, resolution by the Second Circuit is plainly desirable, if not necessary.”