Merits-based (a/k/a “fail-safe”) classes have a long-settled reputation of being one of the best examples of the worst defined class. Fail-safe classes are those defined in terms of the merits (e.g., all who were victims of defendant’s wrongdoing). These classes are problematic because the class size varies depending on the verdict. A verdict for a plaintiff will create a sizable class, while a verdict for a defendant will mean there was never a class to begin with (no wrongdoing = no victim), and no one is bound by the verdict.
Because a class member either wins, or by virtue of losing, is defined out of the class and is therefore not bound by the judgment, vigilant courts have refused to certify fail-safe classes. Defendants should be wary of classes with fail-safe definitions and keep this defense in their toolkits to a means to cut off these suits at the outset.
In a recent example, a proposed class of former Dollar General employees double downed and double failed when, in Paulino v. Dollar General Corp., the U.S. District Court for the Northern District of West Virginia sustained Dollar General’s objections to a Magistrate’s Report and Recommendation and denied Plaintiff’s motion for Rule 23 class certification.
In that case, Plaintiff sought certification of a class of all former employees who were “involuntarily terminated . . . and who were not paid their final wages within 72 hours of termination.” The Court found the class definition “fail safe”; that is, whether a person qualified as a member depended upon the merits of each person’s claims. Because Plaintiff failed to properly define her class, her claims did not survive class certification.
The Paulino Court’s Opinion
In Paulino, Plaintiff argued that her class was not fail safe because, to determine membership, the Court needed only to examine Dollar General’s records to determine whether a former employee was “involuntarily terminated.” The Court rejected her argument.
The Court held that, to determine whether an employee was a proper class member, it would need to make an individualized inquiry regarding whether Dollar General fired the employee, and then engage in further inquiry to ascertain the date and time of the termination before it could determine whether Dollar General failed to pay the employee his or her final wages within seventy-two hours.
The Court concluded that it would be required to conduct an individualized inquiry on the merits to determine whether a person qualified as a member of the class, resulting in a determination of whether the person had a valid claim. According to the Court, “[t]his is the essence of a fail-safe class.”
Fail-Safe Classes and Wage & Hour
The fail-safe issue arises (1) where a class is defined in terms of a defendant’s liability with respect to the class as a whole, and (2) where classes are defined in terms of the validity of an individual class member’s claim. Naturally, the issue typically arises in wage & hour cases, where class definitions usually include “entitled to” or “qualified for” language. Indeed, a delay in final wages is just one example of the many kinds of fail-safe classes that pop up in class wage & hour lawsuits. Rights to lunch breaks, rest breaks, overtime play, and time for donning and doffing are frequently tested by plaintiffs bringing class claims. Being on call and receiving overtime pay are additional contexts within the framework.
Implications For Employers
Convincing a court that a plaintiff has proposed a flawed class definition is one way to defeat class certification. Defendants should argue that class definitions requiring a merits determination of the elements of the claim are flawed, and should be stricken as fail-safe. Employers should take note of the Court’s opinion in Paulino and keep the fail-safe argument in their defense kits for future use.