Over the past decade, employers in almost every industry have faced an increasing number of wage and hour lawsuits. Employers in hospitality, heavy and light manufacturing, health care, retail, pharmaceuticals, and agriculture have seen a significant uptick in the number of wage and hour class action lawsuits filed by current and former employees. Unfortunately, this trend will likely continue following a recent decision by the Seventh Circuit in Erwin v. OS Restaurant Serv., which opens the door for plaintiffs to bring state wage and hour class actions in the same lawsuit as federal claims under the Fair Labor Standards Act (FLSA).

The plaintiffs in Erwin were a group of former tipped employees at Outback Steakhouse who challenged the restaurant’s pay practices. They claimed that Outback Steakhouse’s employment policies and pay practices violated the FLSA, the Illinois Minimum Wage Law, and the Illinois Wage Payment and Collection Act. The employees moved for conditional certification under section 16(b) of the FLSA at the same time they moved for certification of three different classes under Federal Rule of Civil Procedure 23(b)(3) for the state law claims. The narrow issue addressed by the Seventh Circuit on appeal was whether the employees could meet the requirements for class actions under Rule 23(b)(3).

Different procedural rules apply to collective actions brought under FLSA and class action claims brought under state law. A FLSA collective action requires potential class members to affirmatively “opt into” the class, whereas a Rule 23 state class uses the more generous “opt out” procedure that automatically includes all of the potential additional plaintiffs by default, unless the potential plaintiffs specifically “opt out” of the lawsuit. The district court refused to certify the class of former and current employees for the state law claims because Rule 23 certification of the state law claims was incompatible with the FLSA’s opt-in procedure. The district court held that because state class actions and the FLSA used opposite methods for determining the class of plaintiffs, the state law claims could not meet the superiority requirements for class actions to proceed under Rule 23.

On appeal, the Seventh Circuit disagreed and reversed the district court’s decision. The Court rejected Outback Steakhouse’s claim that the employees would never be able to establish the superiority required by Rule 23 if they were pursuing both a class action and FLSA collective action in one proceeding. The Court also rejected that such a combined lawsuit containing both opt-in and opt-out procedures would result in confusion. As a result, the Seventh Circuit held that plaintiffs may bring a class action state wage and hour action in the same lawsuit as a FLSA collective action.

The practical implication of this holding is that plaintiffs are certain to bring more combined wage and hour cases in Illinois, Indiana, and Wisconsin (i.e., the area covered by the Seventh Circuit), resulting in increased exposure for employers and possible forum shopping. While employers in the past had been successful in moving to dismiss state class actions on the basis that the opt-out procedures were incompatible with the FLSA’s opt-in procedures, this decision creates obvious difficulties with such strategy. We will have to see if this decision is followed by other Appellate Courts and eventually taken up by the Supreme Court.