New Jersey Law Journal, “No Opt-In Needed: The Third Circuit Rules Class Settlements under FRCP 23 Can Release FLSA Claims for Absent Class Members,” by Erik Sardiña, Esq., 12-15-2025

In a recent New Jersey Law Journal article, Kaufman Dolowich’s Erik Sardiña offers insight into a landmark Third Circuit decision clarifying how Fair Labor Standards Act (FLSA) claims may be resolved through Rule 23 class settlements, a ruling with significant consequences for labor law, class-action practice, and workers’ rights enforcement.

Read the full article below:

In a published, precedential case of first impression, the U.S. Court of Appeals for the Third Circuit clarified a significant question at the intersection of the Fair Labor Standards Act (FLSA) and class-action procedure under Federal Rule of Civil Procedure 23. The decision, Lundeen v. 10 West Ferry Street Operations (No. 24-3375), grappled with a matter of first impression: whether a named plaintiff in a class action may settle unasserted FLSA claims on behalf of prospective class members, even if those members have not “opted in” as required under 29 U.S.C. Section 216(b). In doing so, the Third Circuit answered the question affirmatively, that a properly scrutinized class settlement can waive prospective FLSA claims for prospective class members.

Background

The case arises out of a wage-and-hour dispute involving employees at the Logan Inn, a restaurant and bar in New Hope, Pennsylvania. The named plaintiff, a Logan Inn bartender and server, sued his employer, 10 West Ferry Street Operations, alleging that their tip-pooling practices unlawfully diverted tips from non-supervisory tipped workers, in violation of both the FLSA and the Pennsylvania Minimum Wage Act (PMWA). Importantly, Lundeen’s complaint was structured as a hybrid action: he brought his FLSA claim as a collective action under Section 216(b), and his PMWA claim as a Rule 23(b)(3) opt-out class action.

Under the FLSA, employees may only join a collective action if they opt in by giving written consent. Lundeen’s attorneys sent out “Consent to Join” forms, and ten employees opted in. After some discovery, the parties negotiated a settlement in which the Logan Inn would pay up to $100,000. Under the terms, $60,000 would be distributed pro rata to all class members who did not opt out, without requiring those class members to submit a claim form. The ten opt-in FLSA plaintiffs would split an additional $5,000 pool. However, the proposed settlement required non-opt-in class members—i.e., employees who had not affirmatively joined the FLSA collective—to release their FLSA claims, even though they never provided written consent under Section 216(b).

The District Court declined to preliminarily approve the settlement, reasoning that the FLSA’s opt-in provision barred the release of FLSA claims by those who had not opted in. The court found the release “neither fair nor reasonable” because it required non-consenting class members to waive FLSA rights. It denied reconsideration and certified the issue for interlocutory appeal.

The Third Circuit’s Analysis

The Third Circuit, in an opinion by Judge Smith, reversed. The court framed the question squarely: Does Section 216(b) of the FLSA prohibit a Rule 23(b)(3) class settlement that requires non-opt-in class members to waive unasserted FLSA claims? The panel held: no.

In doing so, the court started with the key statutory language of Section 216(b): “No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” The court reasoned that the language is merely a mechanism by which an employee can opt into a collective wage and hour action under the FLSA, and does not bar the release of unasserted FLSA claim in court-approved Rule 23 settlements. The Third Circuit emphasized that Section 216(b) governs how FLSA claims are litigated—it requires employees to opt in to become party plaintiffs, but it does not address whether those claims may later be waived. The text says nothing about settling or releasing unasserted claims. Therefore, any rule that forbids a class release of such claims would have to be drawn from the statute’s silence, not its express terms. The Third Circuit declined to invent a broader prohibition: “nothing in Section 216(b) addresses the release of unasserted claims.” 

A central part of the court’s reasoning is that Congress’ silence does not automatically render the statute ambiguous. According to the court, while a provision that does not address waiver might raise policy concerns, it does not necessarily produce a textual ambiguity. When the statutory text is clear—and here, it requires opt-in for litigation but says nothing about waiver—the court should not read in additional restrictions. The court rejected the District Court’s concern that allowing such a release would subvert the protective purpose behind the opt-in rule. While Section 216(b)’s opt-in scheme does serve a gatekeeping function, the Third Circuit highlighted that Congress originally adopted that mechanism not purely for worker protection but also to check union or representative litigation, among other considerations.
 
While the court ruled that the release is permissible, it declined to approve the settlement unconditionally. It remanded to the District Court to perform a full fairness review, as required by Rule 23(e). The review entails assessing whether the settlement is “fair, reasonable, and adequate,” taking into account the interests of absent class members, the quality of notice, and the opportunity to opt out. Importantly, the Third Circuit noted that the proposed notice here was “plaintext”: it clearly informed class members about the release and how to exclude themselves to preserve potential FLSA claims.

Importance of the Decision

This ruling has several significant implications for labor law, class actions and the enforcement of workers’ rights:

• Clarification on a Gray Area: Prior to Lundeen, no circuit had definitively addressed whether you can settle unasserted FLSA claims in a class settlement that binds non-opt-in individuals. The Third Circuit’s decision fills that gap, offering a clear rule: Section 216(b) does not categorically bar such releases. Such a release must still meet the gatekeeping requirements written into Rule 23.
• Potential Efficiency Gains: This decision will make it easier for employers and plaintiffs to negotiate global settlements that resolve both opt-in FLSA claims and related state-law claims via Rule 23. That could reduce litigation complexity, lower costs, and foster quicker resolutions.
• Protection for Absent Class Members: The court’s insistence on a robust fairness inquiry ensures that absent class members are not railroaded into waiving their claims without adequate notice and a meaningful opt-out choice, reinforcing the district court’s role in safeguarding absent class members. Courts must scrutinize whether the settlement structure, notice, and opt-out mechanism truly protect absent class members.
• Precedential Value: As a precedential Third Circuit decision, Lundeen will guide lower courts in Pennsylvania, New Jersey, Delaware, and U.S. Virgin Islands. Given its reasoning, it may also influence courts in other circuits wrestling with similar questions.

Conclusion

Lundeen v. 10 West Ferry Street Operations marks a pivotal development in FLSA and class-action jurisprudence. The Third Circuit holds that while the opt-in requirement of Section 216(b) restricts who can join a collective, it does not prevent settling unasserted FLSA claims through an opt-out class mechanism under Rule 23. For plaintiffs’ attorneys, employers and courts, Lundeen provides a new framework for structuring settlements in hybrid class/collective cases. As class-action litigation continues to evolve, this decision will likely serve as a touchstone for how FLSA claims can be resolved comprehensively—and responsibly.

Erik Sardiña is a commercial litigation partner in the Hackensack office of Kaufman Dolowich. He serves as general outside counsel handling complex commercial matters in state and federal courts. He advises business clients throughout a myriad of industries litigating and resolving business and corporate conflicts, labor and employment matters, advising companies and executives on corporate governance, DOL, FDA, FTC, USDA, CBP compliance. He can be reached at esardina@kaufmandolowich.com.

Reprinted with permission from the Dec. 15, 2025 edition of “New Jersey Law Journal” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.