Since 2000, the number of wage and hour cases filed under the Fair Labor Standards Act (“FLSA”) has increased by more than 450 percent, with the vast majority of those cases being filed as putative collective actions.  Under 29 U.S.C. § 216(b), employees may pursue FLSA claims on behalf of “themselves and other employees similarly situated,” provided that “[n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.”  Despite the prevalence of FLSA collective actions, the legal implications and consequences of being a “party plaintiff” in such an action continue to be addressed.  The Court of Appeals for the Third Circuit recently examined this issue, in an opinion that may prove useful to defendants seeking to obtain discovery from all opt-in plaintiffs in a putative collective action.

In Halle v. West Penn Allegheny Health System, Inc. et al., the named plaintiff filed a putative collective action alleging defendants violated the FLSA by failing to properly pay employees for work performed during meal breaks.  The district court dismissed the collective action allegations based on a related case that had previously been decided, and dismissed the opt-in plaintiffs’ claims without prejudice to re-filing individual actions.  After the named plaintiff subsequently settled his individual claim, three opt-in plaintiffs sought to appeal the district court’s decision.

The Third Circuit held the opt-in plaintiffs lacked the right to appeal, because they were no longer “parties” after the collective action claims were dismissed. The opt-in plaintiffs retained the right to pursue their own individual claims, but they had no right to pursue an appeal from the named plaintiff’s individual final judgment.  The court held that, “[b]y consenting to join Halle’s collective action, these opt-in plaintiffs ceded to Halle the ability to act on their behalf in all matters, including the ability to pursue this appeal.”

In reaching this decision, the Third Circuit engaged in an extensive analysis of the “fundamental question arising from the procedural history of this case: just what is a ‘collective action’ under the FLSA?” Unlike a class action brought under Federal Rule of Civil Procedure 23, where all putative class members are bound by the court’s ruling unless they affirmatively “opt out” of the case, “the existence of a collective action depends upon the affirmative participation of opt-in plaintiffs.”  As the Third Circuit noted, “[t]his difference means that every plaintiff who opts in to a collective action has party status, whereas unnamed class members in Rule 23 class actions do not,” prompting “the as-yet unanswered question of what ‘party status’ means in a collective action.”

The court’s analysis of this issue, while tangential to Halle’s holding, highlights the tension inherent in the language of FLSA § 216(b), which, according to the Third Circuit, “raises more questions than it provides answers.  While the first sentence [of § 216(b)] sounds in representational terms (to proceed ‘in behalf of’ others ‘similarly situated’), the second sentence refers to those who file consents as ‘party plaintiffs,’ seeming to imply that all who affirmatively choose to become participants have an equal, individual stake in the proceeding.”  This tension is particularly significant with regard to defendants’ discovery rights in a collective action.

Under Rule 33 and Rule 34 of the Federal Rules of Civil Procedure, in the absence of any court-imposed limits, a party may serve interrogatories and document requests “on any other party.”  Based on this language, and FLSA § 216(b)’s designation of individuals who opt in to a collective action as “party plaintiffs,” arguably a defendant in a collective action should be entitled to serve discovery requests on each individual who opts in to the litigation, unless the court orders otherwise.  Despite this fact, the Third Circuit noted that, “[f]requently,” discovery in collective actions “focuses on the named plaintiffs and a subset of the collective group,” a limitation that may hinder defendants’ ability to present individualized defenses that may not be applicable to all opt-in plaintiffs.

While the Third Circuit did not fully resolve the question of what it means to be a “party plaintiff,” two aspects of the Halle decision may prove helpful to defendants seeking to assert their right to obtain discovery from all opt-in plaintiffs in a collective action.  First, as noted above, the Third Circuit emphasized that each opt-in plaintiff “has party status.”  This language, when read in conjunction with the Federal Rules of Civil Procedure regarding the scope of discovery, should support defendants’ right to seek discovery from “any other party,” including all opt-in plaintiffs.

Second, in holding that the opt-in plaintiffs had no right to appeal a final judgment involving the named plaintiff, the court emphasized the importance of “the language of their opt-in consent forms, which handed over all litigation authority to named plaintiff.” The Third Circuit noted that courts often rely on the language of the opt-in consent form “to determine which rights opt-in plaintiffs delegated to the named plaintiffs.”  Based on this guidance, defendants may wish to propose including language in the opt-in consent form stating that individuals who join the collective action may be required to provide documents and information, sit for depositions, and/or testify at trial.  Such language may help demonstrate that the opt-in plaintiffs were meant to be treated as active parties to the litigation, with the same rights and obligations as named plaintiffs.

While a court may ultimately exercise its discretion to impose limits on the scope of discovery, particularly in collective actions with a large putative class, the Third Circuit’s analysis in Halle may prove useful to defendants seeking support for their argument that they should be entitled to obtain discovery from each opt-in plaintiff.

By Stuart Gerson

Wage-hour lawsuits filed under the federal Fair Labor Standards Act (FLSA) represent one of the fastest growing and most problematic areas of litigation facing employers today, especially when such cases are brought as collective actions. A recent Supreme Court case based in class action analysis provides a potentially-useful analog for employers to stave off such collective actions.

Class action criteria are set forth in Fed. R. Civ. P. 23, and they allow for one or more individual named plaintiffs to sue on behalf of a large – sometimes very large – group of unnamed employees, where: 1) the number of putative class members is so large that it would be impractical for them to participate; 2) where the putative class claims are defined by common questions of law or fact; 3) where the representative plaintiffs’ claims or defenses are typical of those of everyone else; and 4) where the named plaintiffs will fairly and adequately represent the interests of the rest of the putative class.

The courts have long recognized, as did the drafters of Rule 23, that there are good reasons and bad reasons for a class action. Economy is the most prominent of the good reasons. The “opt out” feature of a Rule 23 class results in a single proceeding that allows relief for a large number of claimants. In the wage-hour context, it also protects against retaliation as to workers who benefit from the general anonymity and group force of the collective. All too frequently, however, a class action is brought to raise the economic risk to the defendant employer and so to force a large settlement of a case that might otherwise never have been mounted.

While class actions are not uncommon, it should be remembered that class treatment is an exception to the general way in which lawsuits are presented, and plaintiffs and their attorneys can go too far. The bell-weather case in that regard is Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011). However, Wal-Mart was in many ways unique, describing a potential nationwide class so large and crossing so many fields of activity for hundreds of thousands of workers at significantly different levels and locations that the lack of commonality among sometimes- competing claimants was not hard to understand. Still, the Supreme Court was divided and, in subsequent cases, some courts have tried to limit the application of Wal-Mart. The favored technique for that avoidance has been to hold that facts ultimately going to the merits of the suit cannot be explored at the class-certification phase of a case.

Plaintiffs’ lawyers took heart as to gaining such routine certification of class actions when the Supreme Court handed down its decision in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (decided February 27, 2013), upholding virtually-automatic certification of a securities fraud class action. However, it is clear that the holding in that case is dependent upon the unusual, judicially-created fraud on the market theory that essentially forestalls the need to weigh facts that might distinguish the reliance element of class members. The Court has now broken that collective heart.

Within the past few days, on March 27, 2013, the Supreme Court, in Comcast Corp. v. Behrend, No. 11-864, exploded the theory that merits analysis could not be undertaken in considering class certification. Comcast, while an antitrust case, not a wage-hour case, offers an instructive conclusion that should govern at least some of the more complex versions of the latter type.

A divided Court overturned a controversial Third Circuit decision that certified a class action against the cable television provider Comcast because the plaintiffs failed to establish that the case could manageably be tried as a class action. On the required element of money damages, plaintiffs failed to provide reliable evidence that common issues of fact and law predominated over individual issues—an absolute prerequisite for certification of a class action. The case arose from a suit filed by six cable subscribers in the Philadelphia area who claimed that Comcast violated federal antitrust laws. The trial court had certified the plaintiffs as representatives of a class of all Comcast cable television subscribers from the 650 franchise areas that comprise the entire Philadelphia market. A federal district court in Pennsylvania certified the class more than five years ago. A divided panel of the U.S. Court of Appeals for the Third Circuit affirmed the certification order in 2011. The majority was no doubt moved by the apparent fact that the only reason the plaintiffs’ lawyers sought class certification in this case was to coerce the defendant into settling without regard to the merits of the plaintiffs’ claims.

The Supreme Court held that the Third Circuit ran afoul of the Court’s precedents, namely Wal-Mart, when it refused to entertain arguments against respondents’ damages model that bore on the propriety of class certification simply because they would also be pertinent to the merits determination.  Taken in conjunction with Wal-Mart, Comcast should be of clear value, by analogy, in defending against collective action in the wage-hour context,  at least in those wage-hour cases that involve complex issues, numerous potential plaintiffs, multiple locations and, for example, classification issues that depend upon non-uniform employee activities. Where individual issues can be found to predominate over allegedly common ones, or where pleaded damages models don’t adequately reflect variant situations among workers, employers and their counsel have been given useful ammunition by the Supreme Court to examine relevant factual issues and to confine litigation to individual claims where the facts and law compel it before massive litigation costs and expansive risk obtain.

By Michael Kun and Aaron Olsen

Agreeing with the recent federal district court opinion in our case Alonzo v. MAXIMUS, Inc., 832 F.Supp.2d 1122, 1126 (2011), the California Court of Appeals has confirmed in a case against See’s Candy that California employers may round employees’ time entries so long as the employer’s rounding policy does not consistently result in a failure to pay employees for time worked.

In  Alonzo, a federal district court granted summary judgment in favor of our client MAXIMUS, Inc. on the plaintiffs’ time rounding claims.  The Alonzo Court explained that the federal standards regarding time rounding apply to employees’ time rounding challenges brought under California law.  In the case against See’s Candy , the plaintiff urged the California Court of Appeals to reject the federal court’s analysis in Alonzo.  The California Court of Appeals, however, stated, “We agree with the Alonzo court.  In the absence of controlling or conflicting California law, California courts generally look to federal regulations under the FLSA for guidance….  Assuming a rounding-over-time policy is neutral, both facially and as applied, the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.”

Given the number of employers throughout California that have time-rounding policies, the California Court of Appeals’ decision to adopt the reasoning from the federal court in  Alonzo is another welcome development for employers.  Indeed, plaintiffs’ counsel likely had a number of time rounding class actions lined up to file in the event the Court of Appeals held that time rounding policies were unlawful.  Those class action complaints have likely found their way to the recycling bin.

By Michael Thompson

The Seventh Circuit has ruled that pharmaceutical sales representatives are covered by the Administrative exemption to the FLSA because “the core function of the representatives’ duties, the physician office visits,” requires significant discretion and independent judgment. While other courts have applied a case specific analysis to determine the applicability of the Administrative exemption in this context, the Seventh Circuit’s analysis appears to be applicable to virtually all sales representatives in the pharmaceutical industry. Indeed, without separate analyses, the Court of Appeals dismissed two distinct class actions (against Eli Lilly and Abbott Laboratories) in one fell swoop.

The exempt status of pharmaceutical sales representatives is a hotly litigated issue because pharmaceutical sales representatives do not actually consummate sales. Thus, the Second Circuit Court of Appeals has held that they are not covered by the Outside Sales exemption. Conversely, the Ninth Circuit Court of Appeals has held that, in the context of the industry, “common sense” shows that these sales representatives fall within the terms of the Outside Sales exemption. The United States Supreme Court has granted the plaintiffs’ petition to review the Ninth Circuit ruling, and is poised to resolve the conflict regarding the Outside Sales exemption.

In the event that the Outside Sales exemption is held to be inapplicable to pharmaceutical sales representatives, employers will have to rely on the Administrative exemption if they wish to defend the exempt status of their sales representatives. That defense, however, has met with mixed results. 

For example, the Second Circuit Court of Appeals in In re Novartis Wage & Hour Litigation, concluded that Novartis sales representatives did not have enough independent discretion to qualify for the Administrative exemption. Conversely, in Smith v. Johnson & Johnson, the Third Circuit Court of Appeals found that the named plaintiff formulated and implemented strategies for her territory, and thus exercised sufficient independent discretion to qualify for the Administrative exemption.

The Seventh Circuit took up this issue through a consolidated opinion on two collective actions, Schaefer-LaRose v. Eli Lilly & Co. and Jirak et al. v. Abbott Laboratories Inc.  The Court of Appeals first concluded that the sales reps did “administrative” work directly related to the general business operations of their employers because “[t]he representatives before us are the public face of their employer to the most important decision-maker regarding use of their companies’ products, the prescribing physicians.”

The Seventh Circuit went on to evaluate whether the pharmaceutical sales representatives used independent discretion in “the core function of the representatives’ duties, the physician office visits.”  The Court of Appeals briefly addressed the related tasks performed outside the presence of the physicians, which it said “manifest a substantial measure of judgment.” The Seventh Circuit noted that sales representatives exercised discretion because they could choose “to see physicians not on their call plans or non-physicians who may influence prescribing patterns,” were expected to propose “comprehensive visit plans for the territories” and spent “the vast majority of their time entirely unsupervised.”

While these considerations were relevant, the Seventh Circuit placed greater emphasis on the sales representatives’ face-to-face meetings with physicians. The Court stated that “these physician interactions [are] the critical function of the job and the place in which discretion is most evident.” The Court of Appeals explained that “[i]n speaking to individual physicians, the representatives must tailor their messages to respond to the circumstances, whether those be the time or attention constraints from the physician or the concerns and objections that are voiced during a particular or previous visit.” The Seventh Circuit further noted that “[t]he representative who is unable to tailor the conversation to the time and circumstances, or to engage the physician in an intelligent conversation, is understandably not an effective representative to the professional community whose estimation of the company is key to its success.”

For those reasons, the Seventh Circuit held that the FLSA’s administrative exemption applied to pharmaceutical sales representatives (and that the applicability of the Outside Sales exemption was therefore moot). Accordingly, the Seventh Circuit Court of Appeals affirmed the summary judgment in favor of Eli Lilly and reversed the summary judgment against Abbott Laboratories.

By Michael Kun

Yesterday, only weeks after its long-awaited Brinker v. Superior Court decision, the California Supreme Court issued another important ruling on California meal and rest period laws. 

In Kirby v. Immoos Fire Protection, Inc., the Supreme Court ruled that neither party may recover attorney’s fees on claims involving meal and rest periods.  The Court analyzed the legislative history of the meal and rest period provisions and concluded, “We believe the most plausible inference to be drawn from history is that the Legislature intended [meal and rest period] claims to be governed by the default American rule that each side must cover its own attorney’s fees.” 

Although plaintiffs’ counsel throughout the state have tried to put a happy face on this decision, claiming a victory because plaintiffs cannot be made to pay an employer’s attorney’s fees should the employer prevail, the decision is plainly a victory for employers.  Rarely, if ever, are plaintiffs made to pay an employer’s attorney’s fees in a meal and rest period case, while employers are routinely asked to do as part of the resolution of such cases.  And as employers who have faced meal and rest period class actions know, the resolution of those cases has often turned on disputes over plaintiffs’ counsel’s fees, where it has not been unusual for plaintiffs’ counsel to seek fees that dwarf the recovery they seek for the employees themselves. 

While Kirby will have a great impact on meal and rest period cases, it is unlikely to spell the end of those cases.  Instead, employers can expect that plaintiffs’ counsel will include claims for which attorney’s fees can be recovered, such as claims for unpaid overtime or claims under the Private Attorneys General Act, and that they will later contend that most of their time was devoted to those claims, not the meal and rest period claims.

Additionally, employers should be aware that the Supreme Court all but invited the state legislature to add an attorney’s fees provision for meal and rest period violations: “it is up to the Legislature to decide whether [minimum wage law’s] one-way fee-shifting provision should be broadened to include [meal and rest period] actions.”