The Third Circuit has finally answered a hotly-debated question of compatibility and ruled that Fair Labor Standards Act (FLSA) opt-in collective actions are not inherently incompatible with opt-out Rule 23 class actions based on parallel state laws.

In its precedential decision in Knepper v. Rite Aid Corporation, decided March 27, 2012, the Third Circuit joined the Second, Seventh, Ninth, and D.C. circuits in endorsing these dual-filed actions. At the same time, the Third Circuit affirmed the district court’s ruling that the FLSA does not preempt the state law statutory wage and hour claims.

The plaintiffs, assistant store managers at Rite Aid, opted into a nationwide collective action in Pennsylvania alleging that they were misclassified as exempt employees under the FLSA. They then filed state law Rule 23 claims in Maryland and Ohio federal courts. The later-filed claims ultimately landed before the same federal judge in Pennsylvania based, in part, on the plaintiffs’ assertion of jurisdiction under the Class Action Fairness Act (CAFA). The district court ruled that the state employment-law claims paralleling the FLSA were “inherently incompatible” with the opt-in procedure prescribed by Congress in 29 U.S.C. Section 216(b) to eliminate “representative,” i.e., opt-out, class actions.

The Third Circuit disagreed. Examining the plain text of Section 216(b), the Third Circuit found that nothing in that provision makes the two types of actions inherently incompatible. “We do not find Section 216(b) ambiguous: it explicitly limits its scope to the provisions of the FLSA, and does not address state-law relief.”

The Third Circuit also rejected the legislative theory that Congress intended the opt-in scheme to foreclose representative actions. Instead, the court found that the history of the FLSA suggested that the 1947 addition of an opt-in and written consent procedure was meant to stem the tide of litigation manufactured by third-party unions and to bar the one-way intervention of plaintiffs who would not be bound by an adverse judgment. Nothing in this legislative history addressed the propriety of an opt-out class action lawsuit, nor would that have been possible, since the modern-day Rule 23 device was not created by Congress until 1966.

Notably, the Third Circuit distinguished its prior decision in DeAsencio v. Tyson Foods on the grounds that Knepper, unlike DeAsencio, did not involve novel or complex issues of state law that would predominate over the federal claims. (DeAsencio had two novel state-law issues and an “inordinate” state-law class size.) Moreover, Knepper did not present an issue of supplemental jurisdiction, as independent jurisdiction over the plaintiffs’ state claims existed under CAFA.

For cases arising in Pennsylvania, New Jersey, Delaware, or the U.S. Virgin Islands, Knepper eliminates the argument, typically made at the outset of litigation, that an FLSA collective action claim may not appear side-by-side with its state law class action counterpart in the same proceeding. Employers may still rely on a host of other jurisdictional, procedural, and merit-based arguments, however, to defeat these claims.