Third Circuit Greenlights FLSA Releases in Rule 23 Opt-Out Settlements

On October 16, 2025, in a matter of first impression, the U.S. Court of Appeals for the Third Circuit held in Lundeen v. 10 West Ferry Street Operations LLC d/b/a Logan Inn,¹ that the Fair Labor Standards Act’s (FLSA) opt-in requirement does not prohibit the release of unasserted FLSA claims through a Rule 23(b)(3) opt-out settlement procedure. This important ruling provides clarity for employers seeking to understand the potential scope of any release stemming from wage and hour litigation within the Third Circuit.²

In January 2024, the plaintiff, a former bartender and server, filed a hybrid class and collective action in a federal district court, alleging that his employer violated the FLSA and the Pennsylvania Minimum Wage Act by permitting a supervisor to share in the restaurant’s tip pool. 

After some period of litigation, which included the parties’ stipulating to FLSA conditional certification and issuing notice (resulting in nine additional employees affirmatively “opting in” to the case as party plaintiffs), and a discovery period, the parties reached a settlement in principle on a class-wide basis. 

As part of the settlement process, the plaintiff sought preliminary approval of the class-wide settlement pursuant to Rule 23. The settlement was structured, in pertinent part, to permit all class members to receive notice of the settlement and opportunity to object or exclude themselves from participating in the lawsuit. The parties proposed that, if they did not exclude themselves, each class member would participate in the settlement and receive a pro rata share of the settlement sums in exchange for a release of wage claims, including unasserted FLSA claims. The district court denied preliminary approval, reasoning that the FLSA’s opt-in requirement barred the release of FLSA claims by individuals who had not affirmatively joined the collective. Notably, in its opinion denying preliminary approval, the district court declined to otherwise assess the settlement’s fairness under Rule 23(e).

The district court similarly denied the defendant’s motion for reconsideration. However, it certified the following question for the appeals court to decide: “[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.” In other words, in a case where an individual has not “opted in” the case as a party plaintiff pursuant to the FLSA, can that individual release FLSA claims?

On appeal, the Third Circuit answered that question in the affirmative. In its vacating of the district court’s denial of preliminary approval, the Third Circuit held that § 216(b) of the FLSA governs the mechanism by which claims may be litigated, but, unambiguously, does not address or restrict how those claims may be waived. It further clarified that the “opt-in” requirement was designed to curb excessive litigation—not to shield employees from settlement releases. 

Notably, while the Third Circuit confirmed that courts can approve such settlements, it left open whether they should. The case now returns to the district court for a full fairness review under Rule 23(e)(2), including, among other things, scrutiny of the notice and opt-out procedures of the settlement.

The Third Circuit’s decision provides important clarity to both employers and wage and hour practitioners on the potential scope of releases sought in wage and hour litigation within the Third Circuit. However, in the wake of Lundeen, employers and wage and hour practitioners must still be mindful of the requirements that class action settlements must be “fair, reasonable, and adequate” within the courts’ discretion.