Procedural rules that govern lawsuits in federal court permit defendants to make an “offer of judgment,” which is a mechanism allowing a defendant to offer to settle a lawsuit. If a plaintiff is offered such a settlement and rejects it, and thereafter wins either the same or less than the amount contained in the offer of judgment, the plaintiff generally cannot recover for any costs incurred after rejection of the offer of judgment, such as attorneys’ fees. This mechanism can provide settlement leverage and, interestingly, it may now provide a helpful defense strategy for managing class and collective actions.
In Genesis Healthcare Corp. v. Symczyk, the United States Supreme Court recently dismissed a collective action suit brought under the FLSA seeking allegedly unpaid wages on a class basis. In the case, the employee had sued her employer on her own behalf and on behalf of those “similarly situated” under the FLSA for back pay for time she and other employees worked during lunch, but for which they were not compensated because meal time was automatically deducted. Early in the case, the employer made an offer of judgment. However, that employee failed to respond to the employer’s offer, a fact that ultimately caused the court first hearing the matter to dismiss the entire case based on the assertion that the offer of judgment fully satisfied the employee’s individual claim and no other individuals had yet joined the employee’s suit.
After an intermediate appellate court reversed that dismissal based on the argument that an employer’s ability to use an offer of judgment to moot a class or collective action, the Supreme Court reinstated the dismissal of the original court. Relying on the assumption that the employee’s individual claim was moot because she had not challenged the issue earlier on appeal, meaning it was admitted that the offer of judgment fully satisfied her individual claim, the Supreme Court concluded that both the individual and collective claims were properly dismissed. As to the collective claims, the Court stated that the “mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied.”
The Genesis decision suggests a potentially powerful strategy to consider at the outset of an FLSA collective action claim. However, an offer of judgment may not be an easy out — in Genesis, for example, the Supreme Court’s decision relied heavily on the fact that there was no dispute the offer of judgment fully satisfied the individual employee’s claim. In other words, simply making an offer of judgment and having it rejected will not provide an automatic basis for dismissal of collective actions. We expect further development of these issues, but for now, Genesis suggests a potential defense strategy worth consideration early on in FLSA collective action cases.