By Brian London, Associate, Fisher Phillips
The Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq., protects employees by establishing a minimum hourly rate of pay, maximum work hours, and overtime compensation for work in excess of 40 hours per week. Employers who violate these requirements, even unintentionally, are often subject to costly wage and hour lawsuits in federal court.
On January 12, 2021, the United States Fifth Circuit Court of Appeals issued its ruling in Swales v. KLLM Transport Services, LLC, a landmark case that promises to significantly alter the legal landscape for employers facing FLSA lawsuits for years to come.
- Collective Actions Under Section 216(b) of the FLSA
Before delving into the Fifth Circuit’s ruling, however, a bit of background information is necessary.
The plaintiff in a lawsuit may generally pursue his claims individually or through a special type of litigation called a class action, in which the named plaintiff serves as a representative for other individuals who are seeking the same or similar relief. Most class actions filed in federal court are governed by Rule 23 of the Federal Rules of Civil Procedure, which sets forth specific requirements that plaintiffs must satisfy in order to seek relief on behalf of the class.
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Plaintiffs pursuing claims under the FLSA have at least one additional option, however. More specifically, they may file a “collective action,” which is a different type of group litigation proceeding created by Section 216(b) of the FLSA.
Section 216(b) allows any employee to file suit in federal court on behalf of himself “and other employees similarly situated” to recover compensation owed by an employer.(1) The statute does not define the phrase “similarly situated,” however, nor does it offer any guidance on what process courts should use when deciding whether employees satisfy this standard.
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2. The Two-Step Lusardi Approach
Previously, most federal courts have utilized a two-step certification procedure called the Lusardi approach to determine whether an employee may maintain a collective action under Section 216(b).(2)
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The first step of the Lusardi approach is commonly referred to as the “conditional certification” stage. At the conditional certification stage, the court makes a preliminary determination of whether there are other employees with similar claims who should receive notice of the lawsuit. This determination typically occurs at the outset of the litigation, with the court basing its decision on the allegations of the plaintiff’s complaint and any affidavits that have been submitted. Because there is little evidence available at this point in the lawsuit, conditional certification motions are typically evaluated using a fairly lenient standard that is easily satisfied in most cases.
If the court rules in the employees’ favor, the case will be “conditionally certified” as a collective action, and other potential class members will be given notice of the lawsuit and an opportunity to join the lawsuit by filing a signed consent form with the court. Unlike in traditional class actions under Rule 23, only employees who have filed a written notice of consent to join the collective action are parties to the lawsuit who are bound by the court’s rulings in the case.(3)
The second step of the Lusardi approach, typically referred to as the “decertification” stage, occurs once the opt-in period has closed and all discovery is complete. At the decertification stage, the court must make a final determination of whether the named plaintiff and opt-in plaintiffs are sufficiently similar to allow their claims to proceed to trial on a collective basis. This time, however, there is additional evidence available, so the court applies a much stricter standard when conducting the “similarly situated” analysis at the decertification stage than it did during the earlier conditional certification ruling.
If the court finds that the claimants are not similarly situated, it will decertify the class and dismiss the opt-in plaintiffs from the lawsuit, allowing the named plaintiff to proceed to trial on an individual basis. Conversely, if the court finds that the claimants are similarly situated, it allows the named plaintiff to proceed to trial, both for himself and as a representative of the other plaintiffs who have opted into the case.
3. The Swales Case
In Swales, however, the Fifth Circuit expressly rejected Lusardi‘s two-step certification procedure, finding it inconsistent with both the text of the FLSA as well as Supreme Court precedent interpreting Section 216(b).(4)
One of the biggest issues with Lusardi, the Fifth Circuit noted, is that it provides no guidance about how district courts should proceed in cases where at least some discovery has been completed prior to conditional certification. This created a confusing mix of approaches among district courts, many of which discourage judges from considering evidence showing dissimilarities between the named plaintiff and potential opt-ins until the decertification stage. Employees were often able to use this to their advantage by requesting that notice be sent to an overly broad group of employees at the conditional certification stage and then using the size of the opt-in plaintiffs to exert settlement pressure on the employer.
Thus, rather than relying on Lusardi’s two-step approach, the Fifth Circuit held that district courts “must rigorously scrutinize the realm of ‘similarly situated’ workers, and must do so from the outset of the case, not after a lenient, step-one ‘conditional certification.’”(5) To facilitate this analysis, the Fifth Circuit explained that district courts should identify at the earliest possible time what facts and legal considerations will be material to determining whether a group of ‘employees’ is ‘similarly situated’” and then “authorize preliminary discovery accordingly.”(6) This, the court reasoned, is the only way to ensure that appropriate putative class members receive notice of the lawsuit while avoiding stirring up unwarranted litigation from individuals who are ineligible to participate in the collective.(7)
4. Implications for Healthcare Employers
The Swales decision is welcome news for healthcare employers doing business in the Fifth Circuit, which includes the States of Texas, Louisiana, and Mississippi. The ruling could not have come at a better time, as employees were successful on conditional certification motions in an unprecedented 84% of cases in 2020, the highest rate in 15 years.(8)
Going forward, employees will now be required to make a strong evidentiary showing of similarity to the putative class members they seek to represent before they are allowed to utilize the FLSA’s powerful collective action procedures. This should not only reduce the number of collective actions that will be certified in the coming years, but also ensure that the cases in which certification is granted are appropriately limited in scope.
References
[1] 29 U.S.C. § 216(b) (“An action to recover the liability prescribed in the preceding sentences may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and on behalf of himself or themselves and other employees similarly situated . . . The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.”).
2 The Lusardi approach is named for the New Jersey federal district court case in which the procedure was first articulated, Lusardi v. Xerox Corporation, 122 F.R.D. 463 (D.N.J. 1988).
3 See 29 U.S.C. § 216(b) (“No 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.”).
4 See Swales v. KLLM Transport Services, LLC, — F.3d — (5th Cir. 2021), available at https://www.ca5.uscourts.gov/opinions/pub/19/19-60847-CV0.pdf (last visited Feb. 1, 2021).
5 Id. at p. 4.
6 Id. at pp. 17-18.
7 Id. at pp. 5 – 6.
8 According to Seyfarth Shaw LLP’s annual Workplace Class Action Litigation Report, courts ruled in employees’ favor almost 84% of the time on conditional certification motions in 2020, which is a higher rate than in any other time in the last 15 years. See Executive Summary, Workplace Class Action Litigation Report: 2021 Edition, available at https://www.seyfarth.com/dir_docs/publications/WCAR_SAMPLE_2021.pdf, at p. 3 (last visited Jan. 30, 2011).