We recently discussed in an article for Law360 the shifting landscape across the country regarding the release of wage and hour claims. On October 16, 2025, in a unanimous decision, the Third Circuit weighed in on the issue, vacated a Pennsylvania district court’s decision denying approval of a class settlement that released claims under the Fair Labor Standards Act (FLSA) and concluded that the FLSA does not prohibit the release of FLSA claims through a Rule 23(b)(3) class settlement.

The case involved allegations that 10 West Ferry Street Operations LLC (10 West) implemented an improper tip pool by allowing a salaried Bar Manager to participate in the tip pool, thereby denying plaintiff Graham Lundeen and other similarly situated bartenders and servers all wages due, in violation of the FLSA and the Pennsylvania Minimum Wage Act (PMWA).[1] The action was filed as a hybrid  Rule 23(b)(3) class action with respect to Lundeen’s PMWA claims and a Section 216(b) FLSA collective action with respect to Lundeen’s FLSA claims. Under Rule 23(b)(3), prospective class members must opt-out of a certified class if they do not wish to be bound by the case’s outcome. However, under Section 216(b), “similarly situated” employees who receive court-ordered notice of the action must affirmatively opt-in to the case in order to pursue their FLSA claims as part of the collective.[2]

Following court-ordered notice of the FLSA collective and preliminary discovery, the parties participated in a settlement conference and reached an agreement. Under the terms of the proposed settlement agreement, class members (excluding those who affirmatively opted out) would release their claims against 10 West, including under the PMWA and any unasserted FLSA claims. The district court denied preliminary approval of the proposed settlement, finding that class members who had not opted into the FLSA collective after receiving court-ordered notice could not be required to waive their potential FLSA claims. The parties appealed.

The issue before the Third Circuit was whether the FLSA’s opt-in requirement in Section 216(b) prohibits 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) when the prospective class members’ have not filed a consent-to-join form in accordance with Section 216(b). The Third Circuit held that, “[b]ecause [Section] 216(b) establishes only the mechanism by which FLSA claims may be litigated, not the conditions under which they may be waived,” [3] the FLSA does not forbid such settlements. The Third Circuit reasoned, in part, that Section 216(b)’s express mechanism through which employees may pursue FLSA claims but silence regarding the waiver of such claims does not render the provision ambiguous.

The Third Circuit noted, however, that the inquiry does not end there. Rule 23(b)(3) class settlements are still subject to a rigorous approval process, which turns on whether the settlement is “fair, reasonable, and adequate,” subject to the district court’s discretion. “Thus, 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.”[4] This decision has the potential to meaningfully affect how parties structure class and collective action settlements releasing FLSA claims moving forward. Indeed, parties often incorporate a mechanism in their settlement agreement and administration process that requires employees who will release state and common law claims as members of a Rule 23 class to still affirmatively opt into the case to waive their FLSA claims. Under Lundeen, that may no longer be necessary, at least with respect to cases arising in the Third Circuit. Whether that may be true in other jurisdictions remains an open question. Accordingly, employers should continue to be cognizant of the views of their particular jurisdiction when negotiating and entering into agreements purporting to release FLSA claims. We will continue to monitor developments in this rapidly evolving area of law.

[1] Lundeen v. 10 W. Ferry St. Operations LLC, 2024 WL 4466678 (E.D. Pa. Oct. 9, 2024).

[2] The FLSA collective action notice process itself is a developing area of law across jurisdictions, as we previously discussed here.

[3] Lundeen v. 10 W. Ferry St. Operations LLC, 2025 WL 2935340, at *1 (3d Cir. Oct. 16, 2025).

[4] Id. at *7.