Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

By Evan J. Spelfogel

For several years, employers’ counsel have moved to block the combining of state wage and overtime claims with federal Fair Labor Standards Act (“FLSA”) claims, arguing that Rule 23 opt-out class actions were inherently inconsistent with FLSA collective opt-in actions. For support, they cited to the decision of the Third Circuit in De Asencio vs. Tyson Foods, Inc., 342 F. 3d 301 (3^rd Cir. 2003) reversing a district court’s exercise of supplemental jurisdiction because of the inordinate size of the state-law class, the different terms of proof required by the implied contract state-law claims, and the general federal interest in opt-in wage actions. Since De Asencio, numerous district courts in the Third Circuit have dismissed state law wage claims that paralleled FLSA claims because of the “inherent incompatability” between opt-in collective actions and opt-out class actions. 

On September 26, 2011, the Second Circuit U.S. Court of Appeals approved the combining of state law Rule 23 opt-out class wage claims with an FLSA opt-in collective action. Salim Shahriar, et al. vs. Smith & Wollensky Group, Inc. d/b/a Park Avenue Restaurant, et al., __________ F. 3d _________ (2^nd Cir. No. 10-1884). The Court noted that nothing in the FLSA statutory language or legislative history precluded joint prosecution of FLSA and state law wage claims in the same federal action. The U.S. Department of Labor weighed in with an amicus brief stating that the Restaurant had misinterpreted the FLSA, urging the court to reject any attempt to use the FLSA to bar certification of a class action of state law wage claims in federal courts merely because a FLSA collective action was pending.

The Second Circuit in Smith & Wollensky approved and relied substantially upon the Seventh Circuit’s decision in Irvin vs. OS Restaurant Services, Inc., 632 F. 3d 971 (7^th Cir. 2011) holding that a district court had abused its discretion in denying Rule 23 class action certification of state claims merely because of the existence of a parallel FLSA collective action. The Seventh Circuit noted that neither the text of the FLSA nor the procedures established by that statute suggested that the FLSA was intended generally to oust other ordinary procedures used in federal courts, or that class actions in particular could not be combined with an FLSA proceeding. 

The Ninth and District of Columbia Circuits also concluded that any alleged incompalability between the FLSA and Federal Rule 23 was insufficient to deny supplemental jurisdiction. See, Wang vs. Chinese Daily News, Inc., 623 F. 3d 743 (9^th Cir. 2010) (vacated and remanded in light of Walmart, 564 U.S. _____, 10/3/11); and Lindsay vs. Government Employees Insurance Co., 448 F. 3d 416 (DC Cir. 2006). In summary, these Circuits have held that, while there may in some cases be exceptional circumstances or compelling reasons for declining jurisdiction, the “conflict” between the opt-in procedure under the FLSA and the opt-out procedure under Rule 23 was not a sufficient cause by itself to decline jurisdiction.   

Ultimately, the US Supreme Court may be called upon to review an apparent split in the Circuits on this issue. In the meantime, employers are urged to continue to raise the issue in courts that have not yet ruled, and to urge “exceptional circumstances” and “compelling reasons” for courts in the Second, Fourth, Seventh, Ninth and D.C. Circuits to bar hybrid state Rule 23 opt-out claims from the federal processes. 

This might include, for example, the size of the putative opt-out Rule 23 class in the state law claims as compared with the number of opt-ins in the FLSA collective action. Hybrid collective and class actions typically arise where only a small number of potential opt-in plaintiffs under a FLSA claim actually opt-in, while there are hundreds and perhaps thousands of putative class members with potential state law claims. One purpose of Congress in enacting the FLSA opt-in provision, it may be argued, was to control the volume of litigation and ensure that absent individuals would not have their rights litigated without their input or knowledge. The opt-in mechanism under the FLSA limits FLSA claims to those affirmatively asserted by employees “in their own right” and frees employers from the burden of representative actions. Allowing a Rule 23 opt-out option to be combined in the same lawsuit with an opt-in FLSA option allows plaintiffs to evade the requirements of the FLSA by permitting litigation through a representative action and bringing unnamed plaintiffs into the lawsuit. See, e.g., Dell vs. Citizens Financial Group, Inc., Western District Pennsylvania No. 2:10-Civ-00320, 6/8/11.

By Michael Kun, Regina Musolino and Aaron Olsen

Since the Supreme Court’s historic ruling in Wal-Mart Stores, Inc. v. Dukes, attorneys have debated the scope and impact of the decision.  Not surprisingly, plaintiffs’ counsel have argued that the decision was limited to its facts, or to discrimination cases, or to cases involving nationwide claims.  And they have argued that Wal-Mart has no application whatsoever to wage-hour class actions and collective actions.  In only a few words, the Supreme Court may have answered some of these questions.

Earlier this month, the United States Supreme Court quietly vacated a $7.7 million award in a wage-hour class action in Chinese Daily News v. Wang, remanding the case to the Ninth Circuit for further consideration in light of Wal-Mart.  While the Supreme Court did not provide any further analysis or guidance, and while the Ninth Circuit’s ultimate ruling cannot be predicted, the vacation order alone would seem to undermine a few of the arguments that many plaintiffs’ counsel have been making since Wal-Mart was decided – particularly that Wal-Mart was limited to its facts and has no application to wage-hour matters.  Simply, if the Supreme Court believed Wal-Mart was not applicable to wage-hour claims, there would have been no reason to vacate Chinese Daily News. 

The history of the Chinese Daily News class action is a long and tortured one that most readers of this blog would have little interest in.  It is a hybrid class action alleging claims under both the federal Fair Labor Standards Act (“FLSA”) and California state law for unpaid overtime wages, meal and rest break violations, wage statement violations and waiting time penalties as to approximately 300 employees working at a single facility.  A California district court certified a class under the FLSA, as well as under both Rule 23(b)(2) and Rule 23(b)(3).  The matter ultimately went to trial, where the class prevailed.  The Ninth Circuit subsequently affirmed the district court's decision to certify the class under Rule 23(b)(2), but declined to address whether certification was appropriate under Rule 23(b)(3).   

Given no guidance from the Supreme Court, it would be pure speculation how the Ninth Circuit will ultimately rule.  However it rules, the Ninth Circuit’s ruling on remand will have an enormous impact upon the defense of wage-hour actions throughout the country.  That impact could be short-lived, though.  However the Ninth Circuit rules, we should not be surprised to see one party seeking to take the ruling up to the Supreme Court.  And the Supreme Court reverses Ninth Circuit rulings in approximately 80% of the Ninth Circuit cases it hears.

 By Michael Kun

     The wage hour class action epidemic that has plagued California employers for the last decade or so appears to have no end.

    If anyone tells you otherwise, they are not paying enough attention. 

    And if they tell you the California Supreme Court is about to put an end to the epidemic, they are mistaken about that, too. 

    The California Supreme Court couldn't put an end to it even if it wanted to, at least not with the issues now before it.  And who is to say that they want to do that anyway?

    As in recent years, employers and their counsel are awaiting several important rulings from the California Supreme Court that relate to these wage hour class actions.   

    In Brinker v. Superior Court and Brinkley v. Superior Court, the Supreme Court should finally clarify whether employers must "ensure" that meal and rest periods be taken, or merely make them "available" to employees.

    In Arias v. Superior Court, the Supreme Court should finally clarify whether claims brought under the Private Attorneys General Act ("PAGA") for alleged Labor Code violations must be brought as a class action and satisfy the requirements for class treatment, or whether an employee can represent a group of employees merely by filing suit under PAGA. 

    And in Pineda v. Superior Court, the Supreme Court should finally clarify whether California's Unfair Competition Law allows employees restitutionary recovery of "waiting time" penalties.

    More than a few commentators are predicting victories for employers in all four cases. 

    Hopefully, no one is placing any bets.  Predicting what the California Supreme Court will do is, respectfully, a fool's game. 

    At the beginning of the decade, many predicted an employer friendly ruling from the Supreme Court in Sav-On v. Superior Court, anticipating that the Supreme Court would hold that wage-hour claims were not appropriate for class treatment, killing the epidemic early.  Those predictions, of course, were wrong.  Very wrong. 

    Little more than two years ago, most commentators predicted that the Supreme Court would rule that premiums for missed meal and rest breaks were "penalties," rather than "wages," and hold that they were subject to a one-year limitations period, rather than three (or four) years.  The ruling in Murphy v. Kenneth Cole, of course, was otherwise, surprising virtually everyone.  And, unless there's a signed and dated document to prove it, anyone who tells you that he or she expected that the Supreme Court was going to rule that premiums for missed breaks were somehow "wages," not "penalties," just isn't being candid with you.   

    So, what should employers expect the Court to do in Brinker, Brinkley, Arias and Pineda?

    No predictions here.

    But, reading the cases, the applicable statutes and their legislative history would suggest that employer friendly decisions should be rendered in Brinker, Brinkley and Pineda -- and, unfortunately, an employee friendly decision in Arias (largely because of missing verbiage in the statute specifiying that PAGA claims are to be brought as class claims). 

    But there's an enormous difference between should and will.

    Based on the Supreme Court's recent history in employment cases -- particularly Sav-On and Murphy --  it would seem prudent for employers to adopt the same conservative, New England-ish approach that, until recently, fans of the Boston Red Sox favored for years-- expect the worst, and be pleasantly surprised if something better arrives. 

    That said, anyone who believes that even employer friendly decisions will put an end to the wage hour class action epidemic in California is mistaken.

    These cases make far too much money for plaintiffs' lawyers, and they are not going to walk away from them without finding ways to get around any unfavorable Supreme Court decision. 

    And getting around them may not be too difficult. 

    If, for instance, the Supreme Court rules that meal and rest periods need only be made "available," not "ensured," you can be certain that plaintiff's counsel will simply change the boilerplate allegations in their complaints to say that meal and rest periods were not made "available." 

    In the few seconds it takes to make a global change in a document, even an employer friendly Supreme Court decision could effectively be undone. 

    And in the few seconds it takes to pick up the phone, calls will be placed to legislators throughout the state demanding that the laws be rewritten to provide that breaks must be "ensured," which would completely undo that Supreme Court decision.  

    Such is the life of the employer who does business in California.

    Even a victory can be taken away.