Third Circuit decision gives HR leaders more flexibility to resolve wage-and-hour class actions – find out what this means for your compliance strategy
A federal appeals court just made it easier for employers to settle wage-and-hour lawsuits – reshaping class action strategies for HR teams nationwide.
On October 16, 2025, the United States Court of Appeals for the Third Circuit issued a decision in Graham Lundeen v. 10 West Ferry Street Operations LLC d/b/a Logan Inn. The case involved allegations by Graham Lundeen, a former bartender and server at the Logan Inn in Pennsylvania, that the inn’s tip pool was improperly shared with a salaried manager. Lundeen brought the action on behalf of himself and similarly situated employees, alleging violations of the Fair Labor Standards Act (FLSA) and the Pennsylvania Minimum Wage Act (PMWA).
Lundeen filed the suit as a hybrid class and collective action, seeking compensatory damages and liquidated damages under the FLSA and PMWA. The FLSA claim was brought as a collective action under § 216(b), and the PMWA claim as a Rule 23(b)(3) class action. The District Court conditionally certified an FLSA collective and identified a proposed class of 59 individuals, including Lundeen.
The parties reached a settlement agreement in June 2024, with a maximum total payment of $100,000. Of this, $60,000 would be distributed pro rata to all class members who did not opt out, and an additional $5,000 would be shared among the ten individuals who had opted into the FLSA collective. In exchange, class members who did not opt out would release their wage-and-hour claims, including any FLSA claims arising during the relevant period.
The District Court denied preliminary approval of the settlement. The court reasoned that the FLSA’s opt-in requirement in § 216(b) prohibited the release of FLSA claims for employees who had not filed written consent to join the action. The court concluded that the settlement was “neither fair nor reasonable” because it required class members who did not opt in to release their FLSA claims.
Both parties appealed, and the Third Circuit reviewed the question of whether § 216(b) of the FLSA prohibits the release of unasserted FLSA claims in a Rule 23(b)(3) opt-out class settlement. The appellate court held that § 216(b) establishes only the mechanism by which FLSA claims may be litigated, not the conditions under which they may be waived. The court concluded that the statute does not forbid such settlements.
The Third Circuit vacated the District Court’s order denying reconsideration and remanded the case for the District Court to conduct the full fairness inquiry required by Rule 23. The appellate decision clarified that while the FLSA requires written consent to litigate claims, it does not address the release of unasserted claims in a class settlement.
The decision does not finalize the settlement but directs the District Court to review the fairness, reasonableness, and adequacy of the proposed agreement. The case remains ongoing, and the District Court will determine whether the settlement meets the standards required for approval under Rule 23.
