Why it matters

Offering a cautionary tale for employers, a California federal court invalidated releases signed by potential members of a Fair Labor Standards Act (FLSA) collective action after the employer attempted to settle with plaintiffs outside the litigation. A group of mortuary drivers brought the action, asserting they were misclassified as independent contractors and were owed additional wages. The drivers filed a motion for conditional certification. A few weeks into the opt-in period, the employer sent letters with a “Settlement and Release Agreement” to drivers and held a meeting with current workers where participation in the suit was discouraged. By the end of the opt-in period, every driver currently working for the employer had signed the release and elected not to participate in the litigation, while the majority of former drivers opted in. The class moved to invalidate the releases. Granting the motion, the court found that the employer engaged in ex parte communications, discouraged drivers from participating in the lawsuit, and provided the drivers with a misleading and inaccurate release. For employers, the order provides a good road map regarding what not to do when rolling out releases in the context of collective and class actions.

Detailed discussion

Mortuary drivers for Serenity Transportation filed suit against the company, claiming they were misclassified as independent contractors in violation of the Fair Labor Standards Act (FLSA). In April 2016, U.S. Magistrate Judge Jacqueline Scott Corley granted conditional certification.

Notice was issued to 74 putative class members, who had until July 30 to opt in to the collective action. Approximately 30 days into the opt-in period, Serenity began contacting putative class members in an attempt to secure their exclusion from the litigation.

The company sent a four-page letter to current and former drivers asserting that Serenity complied with all state and federal wage and hour laws and referenced the case against it, describing the litigation process as an “uncertain process for all those involved.” The letter stated that given this uncertainty, the company had decided to offer “fair and reasonable” settlements.

Current Serenity drivers also testified that the company’s chief operating officer (COO) discouraged drivers from participating in the lawsuit, warning them at a meeting that if they participated, he would take the drivers off the rotation and terminate their contract because “participation in the lawsuit would be a conflict of interest.” And one current driver testified that the COO continually pestered him about signing the settlement release.

At the end of the opt-in period, every Serenity driver who was still working for the company had signed a release and did not opt in to the lawsuit. The releases included settlement payments ranging from $1 to $220, with most being less than $60. Alternatively, 28 of 55 of former Serenity drivers opted in to the suit, with the majority of those electing to join the case before receiving the letter and release.

The plaintiffs filed a motion asking the court to invalidate the releases and order a curative notice to be provided to potential class members.

Siding with the plaintiffs, Judge Corley granted the motion. The discrepancy between the opt-in rate of current drivers (zero) and that of former drivers (more than half) was “reasonably explained by [the COO’s] threat via his ‘conflict of interest’ comment … to fire current drivers,” she wrote. “Similarly, that every single current driver signed the Release for nominal sums, as low as $1, is also consistent with [the COO] having discouraged driver participation in the lawsuit.”

The COO did not deny that he told drivers they would have a conflict of interest, but responded that he “never threatened anybody during that meeting or at any other time that they would lose their job, be retaliated against, or suffer any other form of discipline as a result of joining the lawsuit.” The court disagreed, as “telling your drivers that they have a conflict of interest if they join the lawsuit is an implicit threat that will discourage participation.”

Judge Corley was similarly not persuaded by the defendant’s argument that only a few drivers submitted declarations in support of the plaintiffs’ motion.

“To accept Serenity’s argument would reward employers for engaging in such conduct since the more successful they are at discouraging drivers from participating the more likely they are to prevent any judicial curative action,” the court held. “Because the Court finds that Serenity actively discouraged its current drivers from participating in this lawsuit, their releases must be invalidated and curative notice issued.”

The court also invalidated the releases signed by former drivers, finding that Serenity’s written communications were problematic. The release and letter failed to inform drivers that the settlement of FLSA claims required court approval, incorrectly stated on whose behalf the claims in the litigation were brought (excluding several years of drivers), and improperly suggested that by signing the release, the driver was precluded from participating as a witness in the litigation.

Further, the defendant failed to provide the relevant complaint to the drivers when it sent the release and suggested in the letter that drivers could contact the defense counsel, even though the employer’s lawyers could not ethically advise a driver on whether to sign the release.

“These misstatements and omissions require invalidating the Release as to all drivers and sending curative notice to all drivers notifying them that their releases are invalid and reinstating the FLSA opt in period for a period of 60 days from the sending of a new notice,” the court said.

Judge Corley declined to take the “drastic remedy” of prohibiting Serenity from communicating with the drivers about the litigation until the resolution of the lawsuit, but did order the defendant to refrain from any contact with the drivers about the lawsuit during the renewed opt-in period.

To read the order in Johnson v. Serenity Transportation, Inc., click here.