Wage and hour collective actions constitute 90 percent of all class actions filed. These suits present an ever-increasing exposure to employers, with a $4.6 million mean settlement range and an ever-moreaggressive plaintiff’s bar searching the Internet for potential clients. A review of the statistical history of Fair Labor Standards Act of 1938 (FLSA) claim filings starkly reveals employers’ challenges; filings of wage and hour collective actions are at an all-time high. For the year ending March 31, 2011, more than 7,000 FLSA suits were filed, a 350 percent increase over 10 years ago, according to data published by the Federal Judicial Center.

How has, or will, the 2011 Wal-Mart v. Dukes, 131 S. Ct. 2541 (U.S. 2011) case affect this avalanche of wage and hour collective action litigation? Although federal courts apply Rule 23 certification standards in Title VII employment discrimination cases, many courts have used a relaxed application of these standards; for example, permitting broad “across the board” charges of employment discrimination that challenge every discriminatory employment practice of an employer, although the named plaintiffs have been injured by only one particular practice. While the Dukes case addressed Rule 23 certification issues in Title VII disparate treatment discrimination claims, it did clearly identify a genre of claims that do not lend themselves to class analysis and adjudication. The commonality required for Rule 23 will not be met, Dukes held, when the decisions being challenged are localized (region by region, department by department, supervisor by supervisor) rather than a uniform, “common” implementation of policy, or, where the relief requested would require a highly individualized assessment of available and/or appropriate damages. While this succinct summary of the Rule 23 commonality requirement is not direct precedent for FLSA claims, its analytic framework can be utilized, by general analysis, to test whether a collective FLSA action meets the similarly situated requirement for collective action, i.e., whether the plaintiffs were the victims of a single decision, policy or plan.

This localized versus uniform analysis is being used in post-Dukes FLSA and state law wage and hour collective action litigation. The following is a sample of some of the decisions rendered post- Dukes that reflect both the effectiveness of the “localized” policy argument and the ever-increasing rise of successful class-certification motions.

Post-Dukes Certification Cases

FLSA an d Rule 23 Cas es Where Certifica tion Denied

  1. Ninth Circuit: Sepulveda v. Wal-Mart Stores, Inc., 464 Fed. Appx. 636 (9th Cir. Dec. 30, 2011). Former and current employees who occupied assistant manager positions brought suit against their employer alleging that it violated provisions of the California Labor Code by classifying assistant managers as exempt from requirements regarding overtime pay and meal and rest breaks. The Ninth Circuit affirmed denial of certification in the state law wage and hour class action relying on Wal-Mart v. Dukes, wherein the Supreme Court explicitly adopted the “not incidental” test for certification under Rule 23(b)(2). Dukes, 131 S. Ct. at 2557. In Sepulveda, the district court found that the damages plaintiffs sought would “require highly individualized proof of the duties each [assistant manager] performed, the hours spent on those duties, and the overtime hours actually worked” and that fewer than half the putative class members could actually benefit from injunctive relief.
  2. Sixth Circuit: Pipefitters Local 636 Ins. Fund v. Blue Cross Blue Shield of Mich., 654 F.3d 618 (6th Cir. 2011). In this hybrid ERISA, state law contract class claim, the 6th Circuit Court of Appeals reversed class certification on commonality issues, holding an adjudication of the issues would require individualized attention and that there was no common contention capable of class-wide resolution.
  3. Ninth Circuit: Khadera v. ABM Industries Inc., 701 F. Supp. 2d 1190 (W.D. Wash. 2010). Class action certification denied for state law overtime claims because the class members’ individual interests were better served by pursuing the state-law claims as pendent to the FLSA collective claims; the opt-out state-law class raised concerns for individual litigants because of the possible res judicata implications of a class-wide resolution.
  4. Eleventh Circuit: Nadreau v. Lush Cosmetics NY, LLC., 2012 WL 3852231, 1 (M.D.Fla. 2012). FLSA plaintiff claimed that he and similarly situated retail managers across the country were subjected to overtime wage violations regarding work periods that exceeded forty (40) hours per week. In addition to the national FLSA collective action, the plaintiffs attempted to file a Rule 23 class action claim under California’s state labor laws; the Rule 23 sub-class certification was denied because of the potential conflicts of the FLSA opt-in versus Rule 23 opt-out options.

FLSA an d Rule 23 Cas es Where Certifica tion Granted

  1. Fourth Circuit: Myles v. Prosperity Mortg. Co.,2012 WL 1963390, 1 (D.Md., 2012) Lead Plaintiff, a former loan officer sued his former employer for alleged violations of the FLSA on behalf of himself and those similarly situated, claiming that the defendant misclassified loan officer employees as exempt from the overtime pay requirements under the “outside sales” exemption of the FLSA and thus improperly denied them overtime pay when they worked more than 40 hours a week.

Defendant argued unsuccessfully that the Supreme Court’s decision in Wal–Mart v. Dukes applied to FLSA actions and that the court should modify the traditional two-step analysis for collective actions under the FLSA.

The court found that although responsibilities were different for different categories of loan officers, the employer failed to argue that its compensation policy distinguished or had individualized implementation policies between the categories. The court specifically addressed Wal–Mart. v. Dukes, and opined as follows:

In general, courts have been circumspect about importing interpretations of Rule 23 class action requirements into FLSA collective action cases… As a result, “numerous courts ... have refused to apply  Dukes on motions for conditional certification under the FLSA, concluding that the Rule 23 analysis had no place at this stage of the litigation”. … In any case, even if it were proper to import Rule 23 standards into an FLSA case, the decision in Dukes does not suggest conditional certification is inappropriate here. The crux of the Court’s problem in Dukes was that plaintiffs did not allege “any express corporate policy” of discrimination. Rather, the injury at issue depended on the actions of individual managers exercising discretion at a local level. As a result, the Court stated, it was “impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I disfavored.” Id. at 2552 (emphasis in original). Here, on the other hand, [the defendant] has acknowledged that it had an express policy of considering its loan officers to be exempt under the FLSA; thus, no local management discretion is at issue and no individualized inquiry is necessary to determine why individual loan officers were disfavored.

  1. Second Circuit: Espinoza v. 953 Assocs. LLC, 280 F.R.D. 113 (S.D.N.Y. Nov. 16, 2011). Restaurant employees brought action against their employer under the FLSA and New York Labor Law, seeking to recover unpaid minimum wages, unpaid overtime compensation, and improperly withheld tips. The court noted that the employees’ claims were distinguishable from those that prevented certification in Dukes, writing:

Although plaintiffs’ claims may raise individualized questions regarding the number of hours worked and how much each employee was entitled to be paid, those differences go to the damages that each employee is owed, not to the common question of Defendants’ liability. Plaintiffs have alleged a common injury that is capable of class wide resolution without inquiry into multiple employment decisions applicable to individual class members. Accordingly, [Dukes] is distinguishable and does not preclude class certification....

  1. Third Circuit: Knepper v. Rite Aid Corp., 675 F.3d 249 (3d Cir. 2012). The Third Circuit rejected the conclusion that jurisdiction over an “opt-out” state law class action that parallels a FLSA opt-in class action is inherently incompatible. The Third Circuit found that nothing in the plain text of 29 U.S.C. section 216(b) of the FLSA addresses the procedure for state-law claims, nor does the provision’s legislative history establish a clear congressional intent to bar opt-out actions based on state law. The court rejected any purported “inherent incompatibility” and held that federal hybrid claims could proceed under the Class Action Fairness Act (CAFA) and would not violate the Rules Enabling Act.
  2. Ninth Circuit: Sanchez v. Sephora USA, Inc., 2012 U.S. Dist. LEXIS 99924 (N.D. Cal. July 17, 2012) Defendant attempted to use the Supreme Court’s decision in Dukes to defeat the plaintiff’s motion for conditional certification under the FLSA. The court flatly rejected this argument on the grounds that Dukes’ stringent commonality requirement is not controlling precedent for the FLSA’s less stringent “similarly situated” requirement, particularly at the first stage of conditional class certification.
  3. Seventh Circuit: Ervin v. OS Restaurant Services, Inc., 632 F.3d 971 (7th Cir. 2011). Rule 23 and FLSA class and collective certification were both granted for former restaurant employees rejecting any inherent conflict between FLSA opt-in and Rule 23’s opt-out procedures.
  4. Seventh Circuit: Espenscheid v. DirectSat USA, LLC, 708 F. Supp. 2d 781 (W.D. Wis. 2010). The District Court held that the FLSA did not preempt employees’ state-law claims in a proposed class and collective action despite employers’ contention that the opt-out procedure for class actions interfered irreconcilably with the opt-in procedure for the FLSA collective action.
  5. Second Circuit: Shahriar v. Smith & Wollensky, 659 F.3d 234 (2d Cir. 2011). Class certification upheld in hybrid action, collective action claims under the FLSA and class actions under state law wage and hour claims can be litigated currently. The exercise of supplemental jurisdiction was appropriate because:
    • The federal and state claims formed part of the same case or controversy, as they all arose out of defendant’s compensation policies and practices.
    • The plaintiffs’ claims did not raise complicated or novel issues of state law.
    • The state law claims did not substantially predominate over the federal claim.
    • The district court did not dismiss any claims over which it had original jurisdiction.
    • There was no compelling reason to deny class certification.
    • Although the defendant claimed there was an inherent conflict between the opt-in standard in FLSA collective actions and the opt-out standard of Rule 23 class actions, the Second Circuit disagreed, explicitly adopting the U.S. Court of Appeals for the Seventh Circuit’s prior holding that no inherent conflict precluded supplemental jurisdiction.

Wage and hour collective actions are a constant and ever-increasing challenge to employers across our country. Employers need to be aware of the evolving legal standards for certification and factors to be emphasized to defeat certification, either under the traditional Title VII class-certification analysis or the FLSA collective action analysis.