Did the Logan Inn’s Tip Pool Violate Wage Laws? Third Circuit Ruling Reshapes FLSA Settlements

In 2025, the Third Circuit issued a precedential decision on Lundeen v. 10 W. Ferry St. Operations LLC, clarifying the FLSA’s opt-in rule as a procedural requirement.

Case: Lundeen v. 10 W. Ferry St. Operations LLC

Court: U.S. Court of Appeals for the Third Circuit

Appellate Docket No.: No. 24-3375

District Court: U.S. District Court, Eastern District of Pennsylvania

District Court Case No.: 2:24-cv-00109-JDW

Get to Know the Parties: Lundeen v. 10 W. Ferry St. Operations LLC

Graham Lundeen, the plaintiff, worked as a bartender and server for the defendant at New Hope’s Logan Inn in Pennsylvania from September 2021 through December 2022. He filed the case on behalf of himself and other similarly situated hourly bartenders and servers.

A Brief History of the Case:

Lundeen filed the original wage and hour complaint in January 2024 in the Eastern District Court of Pennsylvania, alleging federal and state labor law violations related to the Inn’s tip-pooling policy. Filed as a hybrid case, the two claims proceeded separately - the FLSA claim as a collective action (opt-in) and the PMWA claim as a class action (opt-out). Parties agreed to a conditional certification of the FLSA collective, and notice was issued to eligible workers. (Lundeen and 9 others filed written consents). After discovery and a settlement conference, the parties proposed a settlement in June 2024. The proposal included an opt-out class settlement to resolve state wage claims and release FLSA claims for class members who did not opt out, even if they never opted in to the FLSA collective. The district court denied preliminary approval, stating that, under labor law, written consent to serve as a party plaintiff is required, so the settlement cannot require class members who did not opt in to release FLSA claims. The Third Circuit vacated the district court’s decision and remanded the case.

What Was the Main Question in the Case?

The central question was whether the FLSA’s opt-in requirement in 29 U.S.C. § 216(b) prohibits an opt-out Rule 23 class settlement from releasing unasserted FLSA claims held by class members who never opted into the FLSA collective.

Summary of the Allegations

Lundeen alleged that the Logan Inn operated a tip pool funded by bartenders’ tips, but, according to the complaint, the bar manager (a salaried supervisory employee) allegedly also received distributions from this pool. The plaintiff argued that this practice violated both federal and Pennsylvania wage laws.

What is a Tip Pool?

A tip pool is a shared fund of tips redistributed among a designated set of workers. Employees collect all or a portion of their tips into a shared fund/tip pool, with the original intent to ensure an equitable distribution of gratuities. However, the tip pool creates the opportunity for mismanagement that can lead to dissatisfaction and labor law complaints.

The Third Circuit’s Decision

The Third Circuit vacated the order and remanded so the district court could consider the settlement for fairness under Rule 23. While § 216(b) sets the procedure for litigating FLSA claims (opt-in), it does not determine the conditions for waiving or releasing claims through settlement.

FAQ: Wage and Hour Violations

Q: Why was Lundeen v. 10 W. Ferry St. Operations LLC a landmark wage and hour case in 2025?

A: The case addresses resolving hybrid cases, a recurring issue in wage and hour litigation, efficiently and fairly.

Q: What does this case change for wage-and-hour settlements?

A: It provides precedential support for resolving hybrid cases through an opt-out Rule 23 settlement that can include FLSA releases, subject to judicial review for fairness and adequate notice.

Q: What is Rule 23?

A: Courts use the familiar Rule 23 framework to evaluate settlements for notice, opportunity to opt out, objections, and judicial review.

Q: What Can You Do If Your Employer Violates Labor Law?

A: If you believe your employer’s business policies or standard practices violate labor law, reach out to an experienced local employment law attorney to discuss your options.

Q: What is the difference between an FLSA “collective action” and a Rule 23 “class action”?

A: In an FLSA collective action, workers must generally opt in by filing a written consent. In a Rule 23 class action, workers are included unless they opt out after receiving notice.

Q: Did the Third Circuit rule that the settlement in Lundeen was automatically fair?

A: No. The court did not approve the settlement. It held only that § 216(b) does not prohibit the settlement structure and remanded the case for a full Rule 23 fairness review.

If you believe your tips were improperly diverted, your employer used an unlawful tip credit, or you were denied legally owed wages, the employment law attorneys contactat Blumenthal Nordrehaug Bhowmik De Blouw LLP can help you assess your wage-and-hour rights and options. Contact the firm’s offices in Los Angeles, San Diego, San Francisco, Sacramento, Riverside, or Chicago to discuss pursuing unpaid compensation and accountability under the law.