Labor & Employment Law Daily Wrap Up, WAGE-HOUR—SETTLEMENTS—3d Cir.: FLSA settlement not governed by opt-in requirement, (Oct 17, 2025)

By Todd Harrison, J.D.

Section 216(b) of the FLSA “establishes only the mechanism by which FLSA claims may be litigated, not the conditions under which they may be waived.”

Vacating a district court’s denial of the preliminary approval of a negotiated settlement between restaurant employees and their employer with regard to tip pooling, the Third Circuit found that the FLSA’s opt-in requirement does not prohibit named plaintiffs in a class action from settling prospective class members’ unasserted FLSA claims as part of an opt-out class settlement under Rule 23(b)(3).The court determined that there was nothing in the statutory language of Section 216(b) that addressed the release of unasserted claims. However, while Section 216(b) does not forbid the release of unasserted FLSA claims in opt-out settlements, such releases remain relevant to the court’s overall Rule 23(e)(2) analysis, which the district court is required to consider on remand (Lundeen v. 10 West Ferry Street Operations LLC, No. 24-3375 (3d Cir. Oct. 16, 2025)).

The employer in this case operates a restaurant and bar. The restaurant’s bartenders contributed to a tip pool which was distributed proportionally among them. The named plaintiff in this action alleged that a bar manager, who was a salaried supervisory employee, also received distributions from that tip pool.

Lawsuit. In January 2024, the named plaintiff filed this action on behalf of himself and other similarly situated employees. He asserted violations of the FLSA and the Pennsylvania Minimum Wage Act, seeking compensatory damages, including lost tip credits.

Opt-in. After the suit was filed, the parties stipulated to—and the district court ordered—conditional certification of an FLSA collective comprised of bartenders and servers. Plaintiff’s counsel mailed notice and “Consent to Join” forms to all putative collective members. The notice stated: “If you do not join the lawsuit, you will not be part of the ‘collective’ of individuals pursuing their FLSA rights. Thus, you will not be affected by any judgment or settlement resulting from the FLSA claim.” Ten employees opted in by filing written consents.

Settlement agreement. The parties succeeded in reaching a settlement agreement in June 2024. The named plaintiff filed an unopposed motion for conditional certification of a class under Rule 23(b)(3) and a preliminary approval of a class settlement. The employer’s maximum total payment under the settlement was $100,000, $60,000 of which would be distributed pro rata to all class members who had not opted out without requiring those class members to submit a claim form. In addition, the 10 individuals who had previously opted into the FLSA collective would share an additional $5,000 pool.

In exchange, class members, excluding those who affirmatively opted out, would release their wage-and-hour claims, as well as any FLSA claims which had arisen during the relevant period. The parties also attached to their motion a proposed “Notice of Settlement” form to be sent to class members. The notice informed class members that by failing to opt out they would “waive the right to recover both wages and liquidated damages under the FLSA.” The notice also explained how to opt out or object to the settlement.

Preliminary approval denied. Subsequently, the district court convened a hearing not to address the overall fairness, reasonableness, and adequacy of the settlement under Rule 23(e)(2), but specifically to address whether class members who had not opted into the FLSA collective action could nonetheless be required by the class action settlement to waive FLSA claims.

Eight days later, the district court denied preliminary approval of the class settlement. Citing Section 216(b)’s command that “[n]o employee shall be a party plaintiff to any... action unless he gives his consent in writing,” the court determined that the agreement was neither fair nor reasonable because it “require[d] class members who did not opt in to the FLSA collective to release their FLSA claims.”

The employer moved for reconsideration, arguing that Section 216(b) imposed no such restriction on releasing FLSA claims. The district court denied the motion but certified the following question for interlocutory appeal: “[W]hether Section 216(b) of the Fair Labor Standards Act permits a party to obtain the release of unasserted FLSA claims through a Rule 23(b)(3) opt-out class settlement.”

On appeal, both parties urged reversal, contending that Section 216(b) does not bar approval of a Rule 23 settlement that includes such releases. The Third Circuit agreed.

Statutory language. In reaching its decision, the district court concluded that the language of the statute prohibited it from approving a Rule 23 class settlement that required absent class members to release FLSA claims. However, it recognized that “[r]easonable minds can disagree about [this] conclusion.” Indeed, while no other circuit has yet to squarely address this issue, district courts appear to be split on the matter. In this instance, the Third Circuit agreed with those courts that have held that Section 216(b) of the FLSA provides only a method for opting into collective action. Accordingly, it held that the language of Section 216(b) does not bar the release of unasserted FLSA claims in a court-approved Rule 23 settlement.

By its terms, explained the court, Section 216(b) establishes a private right of action for employees to recover under the FLSA. Its plain text requires that employees affirmatively opt in before they may act as party plaintiffs. However, the statute stops there, observed the court, noting that nothing in Section 216(b) addresses the release of unasserted claims. In other words, continued the court, Section 216(b) requires written consent to litigate an FLSA claim, but is silent about the waiver of such a claim in settlement.

Silence is not ambiguity. According to the district court, it could infer from Section 216(b) a supposedly worker-protective principle forbidding such releases. The appeals court found such a reading to be flawed.

The plain text of Section 216(b) neither compels nor forbids the release of unasserted FLSA claims in a class settlement, said the court, noting that on this point the statute is silent. However, Congress’s silence is not synonymous with ambiguity, explained the court. Section 216(b)’s natural meaning is not elusive. It creates a private right of action and requires employees to opt-in to litigate their claims, while saying nothing about releasing claims that have not been asserted.

Portal-to-Portal Act. In any event, the Third Circuit found the district court’s reading of Section 216(b)’s history to be mistaken. Although the FLSA was originally enacted to safeguard employees, Congress did not have worker-protection in mind when it later adopted the opt-in mechanism, explained the court.

The Portal-to-Portal Act of 1947 amended Section 216(b) to require written consent before an employee could join an action. Thus, Congress created the opt-in scheme not as a worker-protection measure, but “primarily as a check against the power of unions” and a bar to “one-way intervention” whereby plaintiffs could wait for a favorable outcome before choosing to opt in and be bound by the judgment. Accordingly, the court here rejected the view that permitting the release of unasserted FLSA claims in a Rule 23 (b)(3) settlement undermines the Congressional purpose of the Portal-to-Portal act.

In sum, reiterated the court, Section 216(b) requires written consent to litigate FLSA claims, but does not forbid the release of unasserted claims through a Rule 23(b)(3) opt-out settlement. To the extent the district court rested its denial of preliminary approval on a contrary reading, it committed legal error in doing so. Accordingly, the court here held that the district court abused its discretion in denying reconsideration.

Can vs. should. Even so, the court explained that this was not the end of the matter. As the district court recognized, whether judges can approve opt-out settlements that release FLSA claims is a different inquiry from whether judges should do so. The former question is one of statutory interpretation while the latter turns on whether the settlement is fair, reasonable, and adequate, subject to the district court’s discretion.

In other words, while Section 216(b) does not forbid the release of unasserted FLSA claims in opt-out settlements, such releases remain relevant to the court’s overall Rule 23(e)(2) analysis. Accordingly, it is for the district court on remand to assess the fairness of the proposed settlement in light of the factors articulated by Third Circuit precedents.

The case is No. 24-3375.

Judge: Smith, D.

Attorneys: Peter Winebrake (Winebrake & Santillo) for Graham Lundeen. David J. Freedman (Barley Snyder) for 10 West Ferry Street Operations LLC dba Logan Inn.

Companies: 10 West Ferry Street Operations LLC; Logan Inn

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