Third Circuit Holds FLSA § 216(b) Does Not Bar Release of Unasserted FLSA Claims in Rule 23 Opt‑Out Settlements

Case: Graham Lundeen v. 10 West Ferry Street Operations LLC d/b/a Logan Inn, No. 24-3375 (3d Cir. Oct. 16, 2025) (precedential)

Panel: Restrepo, McKee, and Smith, Circuit Judges; opinion by Smith, J.

Disposition: Vacated and remanded. The district court’s denial of preliminary approval, premised solely on a perceived categorical bar in FLSA § 216(b), was legal error.

Introduction

This precedential decision addresses a recurring and unsettled problem at the crossroads of the Fair Labor Standards Act (FLSA) and Federal Rule of Civil Procedure 23: when parties settle a state‑law wage‑and‑hour class action on an opt‑out basis under Rule 23(b)(3), may that settlement also release federal FLSA claims of absent class members who did not affirmatively opt into an FLSA collective?

The Eastern District of Pennsylvania answered “no,” denying preliminary approval because the proposed settlement required non‑opt‑in class members to release unasserted FLSA claims. The Third Circuit rejects that categorical prohibition. Focusing on the text and history of § 216(b), the court holds the opt‑in requirement governs how FLSA claims may be litigated—who may be a party plaintiff—not whether unasserted FLSA claims may be waived in a court‑approved Rule 23 settlement. The court remands for a full‑blown Rule 23(e)(2) fairness analysis.

Case Background

10 West Ferry Street Operations LLC operates the Logan Inn in New Hope, Pennsylvania. Plaintiff Graham Lundeen worked as a bartender and server and alleged that a salaried supervisor (the Bar Manager) improperly participated in a bartender tip pool, violating the FLSA and the Pennsylvania Minimum Wage Act (PMWA). Lundeen filed a hybrid action: an FLSA collective under § 216(b) and a Rule 23(b)(3) class for the PMWA claims.

The court conditionally certified the FLSA collective, notice issued, and ten individuals (including Lundeen) opted in. The parties later negotiated a global settlement and sought Rule 23(b)(3) class certification and preliminary approval. The $100,000 settlement contemplated:

$60,000 distributed pro rata to all Rule 23 class members who did not opt out, without claim forms;
An additional $5,000 pool shared among the ten FLSA opt‑ins;
A release by participating class members of state wage‑and‑hour claims and any FLSA claims arising in the relevant period.

The proposed class notice explained that failing to opt out would waive the right to recover wages and liquidated damages under the FLSA and described how to opt out or object.

The district court denied preliminary approval on a single ground: it read § 216(b)’s opt‑in requirement to bar a Rule 23 opt‑out settlement from releasing FLSA claims of non‑opt‑in class members. It certified this question for interlocutory appeal. Both parties urged reversal. The Third Circuit granted review and now clarifies the governing rule.

Summary of the Opinion

Holding: FLSA § 216(b) regulates who may be a “party plaintiff” in litigating FLSA claims; it does not address, and therefore does not prohibit, releasing unasserted FLSA claims through a Rule 23(b)(3) opt‑out class settlement approved by a court.
Error below: The district court applied an incorrect legal standard by treating § 216(b) as a categorical bar and denying preliminary approval on that ground alone. That was an abuse of discretion because it rested on legal error.
Remand: The district court must conduct the full Rule 23(e)(2) “fair, reasonable, and adequate” analysis (considering the Girsh/Prudential factors) and evaluate, among other things, the clarity and adequacy of notice and the consideration provided for the release of FLSA claims.

Analysis

Certified Question and Procedural Posture

The certified question asked whether § 216(b) permits a party to obtain the release of unasserted FLSA claims through a Rule 23(b)(3) opt‑out settlement. The Third Circuit reviewed the legal question de novo, while recognizing the denial of reconsideration is reviewed for abuse of discretion—an abuse occurs where the ruling rests on legal error. The court confined itself to issues fairly included within the certified order.

Statutory Framework: FLSA § 216(b) and Rule 23

Section 216(b) creates a private right of action to recover unpaid minimum wages/overtime and requires that “no employee shall be a party plaintiff to any such action unless he gives his consent in writing.” This is the “opt‑in” collective mechanism. By contrast, Rule 23(b)(3) class actions are “opt‑out”: absent class members are bound unless they exclude themselves after receiving notice and an opportunity to opt out.

The question is not whether the FLSA may be enforced via an opt‑out mechanism (it cannot), but whether an opt‑out settlement of a parallel Rule 23 class claim may also release unasserted FLSA claims. The Third Circuit answers: yes, if the Rule 23(e) standards are met.

Precedents Cited and Their Influence

Knepper v. Rite Aid Corp., 675 F.3d 249 (3d Cir. 2012): The Third Circuit previously held that FLSA collectives and Rule 23 state‑law classes are compatible and may proceed in “hybrid” fashion. Crucially, Knepper rejected the idea that policy concerns about § 216(b) could bar Rule 23 class actions; courts must look to statutory text, not perceived purpose. That textualist approach frames the court’s analysis here.
Richardson v. Wells Fargo Bank, N.A., 839 F.3d 442 (5th Cir. 2016): Although addressing claim preclusion after a state‑court Rule 23 settlement, Richardson reasoned that § 216(b) bars opt‑out litigation of FLSA claims but does not bar opt‑out settlements that release FLSA claims. The Third Circuit found Richardson’s textual distinction persuasive.
Rangel v. PLS Check Cashers of California, Inc., 899 F.3d 1106 (9th Cir. 2018): Like Richardson, Rangel applied res judicata to enforce FLSA releases in a Rule 23 settlement, supporting the notion that such releases are not categorically forbidden.
Hoffmann‑La Roche Inc. v. Sperling, 493 U.S. 165 (1989): The opt‑in requirement was added to limit representative actions and restrict party status to those asserting claims in their own right, not as a generalized worker‑protective measure to bar settlements.
Textualist canons and decisions: The court underscores that statutory silence is not ambiguity and courts may not add absent provisions: Garland v. Cargill, 602 U.S. 406 (2024); Virginia Uranium, Inc. v. Warren, 587 U.S. 761 (2019); Iselin v. United States, 270 U.S. 245 (1926); Rotkiske v. Klemm, 589 U.S. 8 (2019); Michigan v. Bay Mills Indian Community, 572 U.S. 782 (2014); Luna Perez v. Sturgis Public Schools, 598 U.S. 142 (2023); Encino Motorcars, LLC v. Navarro, 584 U.S. 79 (2018).
Rule 23(e) fairness authorities: The court emphasizes the district court’s fiduciary role: Ehrheart v. Verizon Wireless, 609 F.3d 590 (3d Cir. 2010); In re General Motors Corp. Pickup Truck Fuel Tank Products Liability Litigation, 55 F.3d 768 (3d Cir. 1995); Halley v. Honeywell Int’l, Inc., 861 F.3d 481 (3d Cir. 2017); Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975); In re Prudential Ins. Co. Am. Sales Practice Litigation Agent Actions, 148 F.3d 283 (3d Cir. 1998).
District court split: The opinion canvasses contrary district outcomes and aligns with those permitting releases in opt‑out settlements, e.g., Lunemann v. Kooma III LLC, 2024 WL 2133803 (E.D. Pa.); Then v. Great Arrow Builders, LLC, 2022 WL 562807 (W.D. Pa.); Stephens v. Farmers Restaurant Group, 329 F.R.D. 476 (D.D.C. 2019); Cotter v. Lyft, Inc., 2017 WL 1033527 (N.D. Cal.), while rejecting the contrary line, e.g., Myles, Tijero, Butler, La Parne.

Legal Reasoning

Plain text controls; § 216(b) addresses party status, not waiver. The statute requires affirmative written consent for employees to become “party plaintiff[s]” and litigate FLSA claims. It says nothing about settlement or the waiver of unasserted claims. Reading an implied bar on releases into § 216(b) would impermissibly add to the statute. Silence does not equate to ambiguity warranting judicial supplementation.
Congress’s purpose in adopting opt‑in: cabining representative suits, not foreclosing settlements. The opt‑in mechanism was added in the Portal‑to‑Portal Act of 1947 to respond to a wave of “representative actions” and “one‑way intervention,” thereby limiting party status to those asserting claims personally and relieving employers of broad representative liability. It was not a generalized, categorical worker‑protection device against settlements that also resolve federal claims.
Policy arguments cannot override clear text. The district court’s rationale—that releases would “end run” the FLSA’s opt‑in scheme—rests on perceived legislative purpose. Consistent with Knepper and Supreme Court guidance, the Third Circuit declines to elevate purpose over unambiguous text, particularly where Congress “wrote the statute it wrote—going so far and no further.”
“Can” versus “should.” Whether § 216(b) allows such releases (it does) differs from whether a given settlement should be approved. The latter hinges on a searching Rule 23(e)(2) fairness review, including whether absent class members received clear notice, a meaningful opportunity to opt out, and adequate consideration for the release of both FLSA wages and liquidated damages.

What Remains on Remand: The Rule 23(e) Fairness Inquiry

Having eliminated the categorical legal bar, the Third Circuit directs the district court to assess the settlement’s fairness, reasonableness, and adequacy under Rule 23(e)(2), guided by Girsh and Prudential. Key considerations particularly salient where FLSA claims are being released include:

Notice and opt‑out: Is the notice clear, accurate, and conspicuous about the FLSA release, including liquidated damages? Does it explain how to preserve FLSA claims by opting out? The proposed notice here explicitly warned that not opting out would waive FLSA wages and liquidated damages and described opt‑out procedures—points that likely weigh in favor of approval.
Consideration for released federal claims: Does the settlement reflect the value of releasing FLSA claims (including liquidated damages and any fee‑shifting benefits)? The differential of an extra $5,000 for opt‑ins and the $60,000 pro rata distribution are relevant data points; the court must ensure adequate compensation for the scope of release.
Scope of release: Is it limited to the wage‑and‑hour period and claims at issue? Overbroad releases risk unfairness.
Distribution method and participation: Automatic distributions (no claim forms) reduce friction and favor approval; allocation between opt‑ins and non‑opt‑ins should be justified.
Attorney’s fees and costs: Fees must be proportionate to the result and scrutinized for conflicts (e.g., “clear sailing” provisions).
Hybrid‑action coordination: Messaging across the earlier FLSA collective notice and the later Rule 23 notice should be consistent and not misleading; any discrepancies are relevant to fairness, even if not legally dispositive under § 216(b).
Settlement‑only certification: When certification and settlement are contemporaneous, courts must be “even more scrupulous” in testing adequacy of representation, predominance/superiority, and the overall exchange.

Impact and Implications

Doctrinal Significance

New Third Circuit rule: There is no categorical bar in § 216(b) to releasing unasserted FLSA claims through an opt‑out Rule 23 settlement. This aligns with the Fifth and Ninth Circuits’ preclusion jurisprudence and several district courts, and it clarifies the law in a circuit‑level, precedential way.
Textualism prevails over purpose‑based arguments: The opinion reinforces a robust textual approach to the FLSA and admonishes courts not to “improve” statutory schemes by inference from perceived goals.
Hybrid actions reaffirmed: Consistent with Knepper, hybrid FLSA/Rule 23 actions remain viable vehicles for global resolution so long as due process and Rule 23(e) are satisfied.

Practical Effects on Wage‑and‑Hour Litigation

Global peace is feasible: Parties can structure settlements to resolve both state class claims and federal FLSA exposure, even where many employees did not opt in, increasing the likelihood of comprehensive settlements.
Notice quality is paramount: Expect district courts to scrutinize how clearly FLSA releases are explained and whether opt‑out procedures are accessible, prominent, and meaningful.
Consideration calibration: Releasing FLSA claims (which carry automatic liquidated damages absent good faith) should be reflected in monetary relief. Tiered allocations for opt‑ins versus non‑opt‑ins may be permissible if justified.
Res judicata risk management: After this ruling, defendants will rely more heavily on the preclusive effect of releases; plaintiffs’ counsel must carefully advise class members about the consequences of failing to opt out.
Forum and strategy: The decision may reduce incentives to fragment litigation between FLSA collectives and state‑law classes, encouraging coordinated, court‑supervised resolutions within the Third Circuit.
Potential for Supreme Court attention: While no outright circuit split exists on the approval question, the prior divergence among district courts and the significant policy stakes could attract further appellate or high‑court review in time.

Best‑Practice Guideposts for Future Settlements

Draft release language narrowly to the wage‑and‑hour claims and time period at issue; avoid sweeping non‑wage claims.
Conspicuously explain that failure to opt out releases federal FLSA rights, including liquidated damages, and provide simple opt‑out channels and reasonable deadlines.
Ensure consistency between any prior FLSA collective notices and the later Rule 23 settlement notice to avoid confusion that could weigh against fairness.
Consider a separate or enhanced allocation recognizing the value of FLSA claims being released by non‑opt‑ins.
Provide transparent attorney’s fee requests and avoid arrangements that may signal conflicts (e.g., disproportionate “clear sailing” provisions).
Use automatic distributions where possible to maximize actual relief to the class.

Complex Concepts Simplified

FLSA “opt‑in” collective: Employees must affirmatively file written consent to become party plaintiffs in an FLSA action.
Rule 23(b)(3) “opt‑out” class: Absent class members are bound unless they exclude themselves after receiving notice; predominance and superiority must be shown.
Release of unasserted claims: A settlement may waive legal claims a person has not filed, provided due process protections (adequate representation, notice, and opt‑out rights) and Rule 23(e) fairness are satisfied.
Liquidated damages (FLSA): Typically equal to unpaid wages; they are presumptively awarded unless the employer shows good‑faith compliance.
Portal‑to‑Portal Act of 1947: Amended the FLSA to require opt‑in, primarily to curb representative suits and “one‑way intervention,” not to bar settlements.
Rule 23(e) fairness review: Courts act as fiduciaries for absent class members and must ensure the settlement is fair, reasonable, and adequate, applying factors from Girsh and Prudential.

Conclusion

The Third Circuit’s decision establishes a clear and pragmatic rule: FLSA § 216(b) is a gatekeeper for who may litigate FLSA claims as party plaintiffs, not a prohibition on the waiver of unasserted FLSA claims in a properly noticed, court‑approved Rule 23 opt‑out settlement. District courts may not categorically refuse such releases based on § 216(b). Instead, they must conduct the conventional Rule 23(e)(2) analysis—ensuring clear notice, meaningful opt‑out rights, and adequate consideration for the release of both state and federal wage‑and‑hour claims.

In hybrid wage‑and‑hour cases, this ruling legitimizes comprehensive settlements that can deliver global peace while safeguarding due process. The opinion is a significant textualist reaffirmation: courts must respect what Congress wrote—and did not write—in § 216(b), leaving the fairness of any particular settlement to rigorous application of Rule 23.

Note: This commentary is for informational purposes only and does not constitute legal advice.