In putative class action lawsuits, it is not uncommon for counsel for the employer to interview putative class members about the claims in the lawsuit. A new decision from the United States District Court for the Eastern District of Pennsylvania has concluded that such communications could be improper, at least in that state.

In Weller v. Dollar General Corp., No. 17-2292 (E.D. Pa.), a case in which the plaintiff brought both putative class action claims under Fed. R. Civ. P. 23 and a proposed collective action on the Fair Labor Standards Act (“FLSA”), the employer interviewed putative class members and submitted declarations from some of them in opposition to the plaintiff’s motion for class certification.

The plaintiff moved to strike those declarations on the grounds that (i) defendant had not identified the declarants in its initial or supplemental disclosures and (ii) Pennsylvania law prohibits ex parte communications with putative members of class actions.

In its decision, the court held that defendant’s communications with putative class members in fact were improper, but allowed the plaintiff to depose the declarants rather than exclude this evidence. The court determined that the defendant did not violate Fed. R. Civ. P. 26 by failing to identifying the declarants in its disclosures.

On the issue of communications with putative class members, the court found the absence of an absolute bar on defense counsel’s communications with potential FLSA plaintiffs irrelevant for purposes of determining the propriety of counsel’s communications with putative Rule 23 class members. As the court explained, defense counsel was still required to comply with law governing Rule 23 class actions in Pennsylvania, and under Pennsylvania Rule of Professional Conduct 4.2, defense counsel may not contact or interview potential witnesses who are putative class members without the named plaintiffs’ consent. In so holding, the court rejected the defendant’s argument that the U.S. Supreme Court case of Gulf Oil Co. v. Bernard supports ex parte communications between defense counsel and putative class members, reasoning that Gulf Oil addressed a plaintiff’s efforts to communicate with putative class members and recognized the potential for abuse in any party’s communication with potential class members.

On the issue of insufficient disclosures, the court reasoned that the defendant did not violate Rule 26 by not identifying putative class member witnesses in its disclosures because defendant was barred from ex parte communications with putative class members and therefore could not identify such class members in its disclosures. Moreover, the court held that the defendant did not need to update its disclosures to identify employees that were already known to the plaintiff through other forms of discovery.

Finally, as to sanctions, while the court acknowledged the prejudice to the plaintiff arising from the defendant’s ex parte communications with current employees likely to cooperate with their current employer, it did not find bad faith on the defendant’s part (notwithstanding the court’s conclusion that it should have known the law) and determined that such prejudice could be cured by allowing plaintiff access to these employees in the form of depositions.

This decision is a reminder that the rules regarding counsel’s communications with putative class members are not uniform and that the consequences for improper ex parte communications can be severe. As the court in Weller advised, if in doubt about whether contact is permitted, a party should seek court authorization or request the information through formal discovery. At a minimum, counsel should consider the consequences of any communication before initiating contact with potential class members.

The obligations of a district court to analyze conflicting evidence regarding class and collective action certification was recently addressed by the Third Circuit Court of Appeals in Reinig v. RBS Citizens N.A., 912 F.3d 115, (3d Cir. 2018) (“Citizens”). In that case, the Third Circuit opined that Fed.R.Civ.P. 23 class certification orders (i) must explicitly define the classes and claims that are the subject of a certification order and (ii) provide an analysis of how the court reconciled any conflicting evidence supporting class certification.

In addition, the Third Circuit held that while Rule 23(f) permits an interlocutory appeal from a class certification order relating to 10 state law wage hour claims, the court did not have pendent appellate jurisdiction to review a related order certifying a nationwide collective action under Section 216(b) of the Fair Labor Standards Act (“FLSA”).

Facts

Plaintiffs, a group of mortgage loan officers, alleged that, among other things, Citizens failed to pay overtime wages in accordance with the FLSA and state law. Plaintiffs pursued a collective action under Section 216(b) of the FLSA and separate Rule 23 class actions under the laws of 10 states.

Each mortgage loan officer was informed of Citizens’ policy that he or she was “required to obtain prior approval from [his or her] supervisor for any hours worked in excess of 40 hours per week,” and could be disciplined for working unapproved overtime. But, plaintiffs claimed, Citizens’ written overtime policy was a “ruse,” and that the company actually had a “policy-to-violate-the-policy.” Specifically, plaintiffs alleged that Citizens’ “coordinated, overarching scheme” was to encourage unreported overtime by: (1) disciplining mortgage loan officers who reported working overtime that was not preapproved; (2) restricting the amount of overtime hours that could be approved; (3) violating its own attendance monitoring and timesheet approval policies so that overtime hours could go unreported; and (4) discouraging or harassing mortgage loan officers who reported or requested overtime.

In May 2016, the District Court for the Western District of Pennsylvania granted plaintiffs’ Section 216(b) motion for conditional certification of a collective action. In August 2017, based on the recommendations of a Special Master, the District Court denied Citizens’ motion to decertify the FLSA collective action, granted the plaintiffs’ motion for certification of the FLSA collective action claims, and granted plaintiffs’ Rule 23 motion for certification of 10 state wage/hour class actions.

Pursuant to Rule 23(f), Citizens appealed from the District Court’s order certifying the state law wage class claims.

A Rule 23 Class Certification Order Must Define Class and its Claims

Reiterating its earlier decision in Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 592 (3d Cir. 2012), the Third Circuit vacated the District Court’s order, because it failed to define the classes being certified and to define the claims, issues, or defenses accorded class treatment. The District Court’s order stated only that Plaintiffs’ “state law subclasses are for Pennsylvania, Connecticut, New York, Massachusetts, Rhode Island, Illinois, Michigan, New Hampshire, North Carolina, and Ohio,” without defining the scope of those subclasses.

The Third Circuit commented that the District Court’s analysis was insufficient to allow it to determine whether the evidence proffered by the plaintiffs satisfied Rule 23’s commonality and preponderance requirements. It opined that, when ruling on a motion for class certification, a district court must “clearly articulate its reasons,” so that the certification decision can be reviewed on appeal.

Rule 23(a)(2) requires that the putative class members “share at least one question of fact or law in common with each other,” and Rule 23(b)(3) requires that common issues predominate over issues affecting only individual class members. Analyzing these elements together, the Third Circuit stated that the plaintiffs had to demonstrate that (1) Citizens’ managers were carrying out a “common mode” of conduct through the company’s internal “policy-to-violate-the-policy,” and (2) Citizens had actual or constructive knowledge of this conduct.

Rather than conduct its own rigorous analysis, the District Court relied on the Special Master’s reports, which cited to testimony from “roughly two dozen [mortgage loan officers]” that “Citizens’ managers nonetheless regularly and almost uniformly instructed [mortgage loan officers] not to report all the hours that they worked.” The Third Circuit commented that the Special Master’s reports did not specifically identify the testimony relied upon to reach this conclusion and did not reference the evidence showing that knowledge of the purported policy was imputable to Citizens.

The record on appeal failed to support uniform application of the “policy to violate the policy,” but rather evidenced different, individualized experiences. Witness testimony was “confined to interactions with specific managers in distinct offices.” On multiple occasions, the testimony of putative class members contradicted the plaintiffs’ argument that managers “almost uniformly” instructed mortgage loan officers not to report all hours worked. The District Court did not reconcile these record conflicts. The Third Circuit was unable to determine whether the evidence met the commonality and predominance requirements of Rule 23.

Relying on Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1046-47 (2016), the Third Circuit stated that, for the plaintiffs’ representative evidence to satisfy the commonality/predominance requirements of Rule 23, the evidence must be sufficiently representative of the class as a whole, such that each individual plaintiff “could have relied on [the] sample to establish liability if he or she had brought an individual action.” The record on appeal was to the contrary.

The Third Circuit vacated the order and remanded the matter to District Court with instructions that a class certification order must include: “(1) a readily discernible, clear, and precise statement of the parameters defining the class or classes to be certified, and (2) a readily discernible, clear, and complete list of claims, issues or defense to be treated on a class basis.”

No Pendent Appellate Jurisdiction over the District Court’s FLSA Collective Action Order

The Third Circuit’s decision is also important because it signaled an unwillingness to conflate the FLSA’s similarly situated standard for a collective action with FRCP Rule 23’s more stringent test for class certification. In declining to do so, the Third Circuit recognized that other circuit courts have “treated FLSA and Rule 23 certification as nearly one and the same.” See Epenscheid v. DirectSat USA, LLC, 705 F.3d 770, 772 (7th Cir. 2013), and Theissen v. Gen. Elec. Capital Corp., 267 F.3d 1095, 1105 (10th Cir. 2001).

Rule 23(f) permits interlocutory review of a Court’s order granting or denying class action certification. No comparable procedural rule permits review of an order certifying a collective action pursuant to FLSA Section 216(b). In Citizens, defendant sought appellate review of the District Court’s interlocutory order denying defendant’s motion to decertify the collective action through the doctrine of pendant appellate jurisdiction.

Pendant appellate review is available in two limited circumstances, to wit: (i) ‘”inextricably intertwined’” orders and (ii) review of a “non-appealable order when it is necessary to ensure meaningful review of [an] appealable order.” Neither circumstance was met to permit appellate review of the District Court’s order certifying a Section 216(b) collective action, while vacating an order certifying a Rule 23 class.

Pendent appellate jurisdiction allows an appellate court to exercise jurisdiction over issues that are not independently appealable, but that are inextricably intertwined with issues over which that court has independent jurisdiction. The question before the Third Circuit was whether Rule 23(b)(3)’s requirement that common state law issues predominate over issues affecting only individual class members was inextricably intertwined with the issue of whether the plaintiffs were “similarly situated” as required to certify an FLSA collective action. The Third Circuit opined that the doctrine of pendant appellate jurisdiction is “narrow” and “should be used ‘sparing.’” (Citations omitted).

The Third Circuit joined with the Second Circuit in Myers v. Hertz Corp., 624 F.3d 537, 553-54 (2d Cir. 2010), to conclude that FLSA and Rule 23 certification orders were not inextricably intertwined, because the requirements of Rule 23’s predominance standard were significantly higher than the FLSA’s similarly situated standard. Therefore, a court may find that Rule 23 requirements had not been met without addressing whether the lower FLSA standard had been satisfied. The Third Circuit aligned with the Second Circuit in holding that Rule 23 certification is not “inextricably intertwined” with an FLSA collective action certification, and, therefore, declined to exercise pendent appellate jurisdiction over the interlocutory FLSA certification order.

The Third Circuit’s ruling in Reinig will assist employers who are faced with Rule 23 class certification motions that seek to certify ill-defined classes and ambiguous claims based on anecdotal evidence. However, under Reinig, employers will be hard pressed to obtain immediate appellate review of the certification of an FLSA collective action.

On October 21, 2016, a Pennsylvania appeals court found that a group of franchisees were in violation of the state’s Wage Payment and Collection Law (“WPCL”) when they required employees to be paid with payroll debit cards. While the WPCL only permitted wage payment in cash or check, the Pennsylvania court noted that voluntary use of payroll debit cards may be an appropriate method payment. In this case, the court held that mandatory use of payroll debit cards was not lawful, as it may subject the employee to fees without his or her consent.

Two weeks later, on November 4, 2016, the Pennsylvania legislature adopted new legislation amending the WPCL and officially including payroll debit cards as a permissible form of payment by employers, provided that several conditions are met. The new law takes effect on May 5, 2017.

Under the new law, the use of payroll debit cards is permitted if, among other things:

  • The payroll card account is established at a financial institution whose funds are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration;
  • The employer does not make the payment of wages, salary, commissions or other compensation by means of a payroll card account a condition of employment or a condition for the receipt of any benefit for any employee;
  • Prior to obtaining an employee’s authorization, the employer provides the employee with clear and conspicuous notice, in writing or electronically, of all of the following: all of the employee’s wage payment options, the terms and conditions of the payroll card account option, including the fees that may be deducted, a notice that third parties may assess fees in addition to the fees assessed by the card issuer, and the methods available to the employee for accessing wages without fees;
  • The payroll card account provides the employee with the ability without charge to make at least one withdrawal each pay period and one in-network ATM withdrawal each pay period;
  • The payroll card account provides the employee with a means of ascertaining the balance in the employee’s payroll card account through an automated telephone system or other electronic means without cost to the employee; and
  • An employer does not use a payroll card account that charges fees to the employee for any of the following: the application, initiation or privilege of participating in the payroll card program, the issuance of the initial payroll card, the issuance of one replacement card per calendar year upon request of the employee, the transfer of wages, salary, commissions or other compensation from the employer to the payroll card account, purchase transactions at the point of sale, and nonuse or inactivity in a payroll card account consisting of the failure to withdraw funds from an account, deposit funds into an account, transfer funds to another person or use an account for purchase transactions, if the nonuse or inactivity is less than 12 months in duration.

Pennsylvania employers now have another option in paying employees. Payroll debit card regulations have been introduced in many states, so employers should ensure they review any applicable laws before setting up these cards.