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 Amy Traub and Christina Fletcher

Once a settlement has been reached in an FLSA collective action, the defendant-employer typically wants that settlement to go into effect and end the case as soon as possible, so that the company can get past the myriad of distractions brought by the suit. However, as litigants increasingly are finding, the parties’ agreement to settle an FLSA collective action is nowhere near the end of the road, or the end of the case. There is a “judicial prohibition” against the unsupervised waiver or settlement of claims brought under the FLSA. Settlements must be “supervised” by the Department of Labor or a court, and gone are the days where the court would rubberstamp the parties’ FLSA collective action settlement agreement. Instead, courts nowadays are scrutinizing the settlement to ensure the “fairness” of the agreement.

A recent decision by District Judge Deborah K. Chasanow of the United States District Court for the District of Maryland describes the information that courts are requiring parties to provide in their settlement agreements and accompanying motions for approval of the settlement. In Lane v. Ko-Me, LLC, Judge Chasanow rejected the parties’ motion for approval of their FLSA settlement, finding the parties’ joint motion for approval to be “clearly deficient” in setting forth facts or arguments upon which the court could evaluate the fairness of the agreement.  The Lane decision is helpful in providing a roadmap as to what parties may want to consider including in their submissions to the court seeking approval of an FLSA collective action settlement:

• Provide a detailed description of the parties’ respective positions as to each issue so the court may assess whether there is, in fact, a bona fide dispute.  The Lane parties “simply listed the points of disagreement” they had regarding various issues, such as their dispute over whether the plaintiffs were properly classified as independent contractors and their disagreement regarding the amount of hours worked by the plaintiffs.  In the court’s view, this was not enough to allow the judge to evaluate the disputed issues resolved by the parties’ settlement.  For example, if an employee’s entitlement to overtime is in dispute, the employer should articulate the reasons for disputing the employee’s right to overtime, and the plaintiff should articulate the reasons justifying his/her entitlement to the disputed wages.

• Give the court sufficient data to allow it to assess the fairness of the settlement amount. In Lane, the judge rebuked the parties for only providing conclusory assertions that the proposed settlement fund of $90,000 represented the full amount due to the plaintiffs for all hours claimed to have been worked plus all liquidated damages, attorney’s fees, and costs. Instead, the judge wanted concrete data from the parties to allow her to assess whether the $90,000 settlement would fairly compensate the plaintiffs – i.e., the number of hours they claimed to have worked, the rates of pay they were owed, and the liquidated damages to which they claimed to be entitled.

• Remind the plaintiffs’ counsel of their duty to prove to the court that their proposed fee award is reasonable. Courts are charged with independently assessing the reasonableness of the fee award proposed in an FLSA settlement. While the level of detail required may vary by district or judge, Judge Chasanow wanted the plaintiffs’ counsel to provide her with sufficient facts to allow her to evaluate the requested award of attorneys’ fees under the lodestar method, including declarations establishing the hours counsel had expended on the matter, broken down for each task, and demonstrating that their hourly rate was reasonable. Judge Chasanow also noted that it was imperative that the parties inform the court how the $90,000 proposed settlement award was to be apportioned between the plaintiffs and their counsel.

• Present the court with a strong argument that any confidentiality provision in the settlement agreement is reasonable. The settlement agreement at issue in the Lane case contained a “Covenant of Confidentiality”, which compelled the plaintiffs’ silence as to the terms of the agreement and the negotiations leading to the agreement. Expressing doubt about the inclusion of such a provision, Judge Chasanow explained that confidentiality provisions in an FLSA settlement agreement operate in contravention of the FLSA, and, therefore, any agreement that contains such a provision must be rejected if it is unreasonable. The burden is on the parties to present arguments in support of their position that the proposed confidentiality provision is reasonable, enforceable, and should be approved by the court.

Following the steps outlined above when seeking court approval of an FLSA collective action may take more time and effort on the front-end, but may help smooth the way to getting the court’s approval and getting the case closed on the back-end.

Despite the lenient standards for conditionally certifying an FLSA collective action, a federal court in Miami recently ruled that a collective action against a local auto dealership was inappropriate.

First, some background on FLSA collective actions. The Fair Labor Standards Act provides that an action for overtime compensation “may be maintained . . . by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.”  29 U.S.C. § 216(b). The Eleventh Circuit Court of Appeals, which covers Alabama, Florida, and Georgia, has instructed district courts to follow a two-tiered procedure to determine whether plaintiffs are “similarly situated” for purposes of class certification under § 216(b).  At the initial stage, or “notice stage,” the district court’s decision is based only on the pleadings and any affidavits which have been submitted. The second stage of the two-tiered procedure typically occurs at the end of discovery when the matter is ready for trial and defendant has filed a motion for decertification of the class.

In deciding whether to authorize notice at the “notice stage,” the Court should strike a balance between allowing the named plaintiffs to contact potential class members to inform them of their rights, and the prohibition against solicitation of clients and the desire to avoid frivolous claims. One district court explained the rationale for this requirement as follows:

In seeking court-authorized notice, plaintiffs are in effect asking this court to assist in their efforts to locate potential plaintiffs and thereby expand the scope of the litigation. As a matter of sound case management, a court should, before offering such assistance, make a preliminary inquiry as to whether a manageable class exists. Moreover the sending of notice and consent forms to potential plaintiffs implicates concerns in addition to orderly case management. The courts, as well as practicing attorneys, have a responsibility to avoid the “stirring up” of litigation through unwarranted solicitation.

Severetson v. Phillips Beverage Co., 137 F.R.D. 264, 266 (D. Minn. 1991).

The Eleventh Circuit has held that a district court has the authority to enter an order requiring notice to individuals who are “similarly-situated,” but “before determining to exercise such power…the district court should satisfy itself that there are other employees…who desire to ‘opt in’ and who are ‘similarly situated.’” Dybach v. State of Florida Dep’t of Corrections, 942 F.2d 1562, 1567-68 (11th Cir. 1991). A plaintiff must offer “detailed allegations supported by affidavits which successfully engage defendants’ affidavits to the contrary.” Id.  Generalized, unsupported allegations are insufficient to discharge the plaintiff’s burden. Rather, a plaintiff has the burden of demonstrating a reasonable basis for crediting her assertion that aggrieved individuals exist in the proposed class. Rodgers, 2006 U.S. Dist. LEXIS 23272, at *7-8 (citing Haynes v. Singer Co., Inc., 696 F.2d 884, 887 (11th Cir. 1983)). 

Thus, plaintiff or her counsel’s mere belief in the existence of other employees who desire to opt in, and “unsupported expectations that additional plaintiffs will subsequently come forward, are insufficient to justify” certification of a collective action and notice to a potential class. Id.  Moreover, “[c]ertification of a collective action and notice to a potential class is not appropriate to determine whether there are others who desire to join the lawsuit.” Id. (citing Dybach, 942 F.2d at 1567-68). Rather, a plaintiff must show that others desire to opt in before the court can authorize notice. Id. 

When there is a lack of evidence to support a finding that other employees are interested in opting in to the litigation, a court should deny the Plaintiffs’ motion for conditional certification. 

That was exactly the result reached in a recent decision by United States District Court Judge Ursula Ungaro in Galban v. Bill Seidle's Nissan, Inc., Case No. 1:09-cv-20310-uu (S.D. Fla.)  The plaintiffs, former salesmen, alleged in their complaint that they were denied the federal minimum wage based on the dealership's "commission-only" pay plan.  They moved for conditional certification of a class, but failed to demonstrate that any other similarly situated salespeople had an interest in joining the litigation.  Absent such evidence, Judge Ungaro did not hesitate in denying the plaintiffs' motion.

The Galban decision illustrates an important principle of FLSA litigation.  A so-called "collective action" is not a collective action until the court says it is.  And although the standards for certifying a collective action at the initial, "notice" stage are lenient, there are certain minimum requirements that a plaintiff must meet.  It is defense counsel's role to hold plaintiffs to those standards and demonstrate, if possible, that a collective action is inappropriate.