Seyfarth Synopsis: A New York federal court in Durling, et al. v. Papa John’s International, Inc., Case No. 7:16-CV-03592 (CS) (JCM) (S.D.N.Y. Mar. 29, 2017), recently denied Plaintiffs’ motion for conditional certification of a nationwide collective action in an FLSA minimum wage action against Papa John’s International, Inc. (“PJI”), in which the drivers alleged that they have not been sufficiently reimbursed for the cost of their vehicle expenses. This ruling shows that even though the burden for “first stage” conditional certification is modest, employers can defend their pay practices by showing the absence of any evidence of a common policy or plan that violates the FLSA. This is especially so when plaintiffs seek to certify a nationwide collective action, for as the court held in Durling, conditional certification is not proper when plaintiffs submit evidence pertaining to only a small sub-set of the putative collective action members.

In 2016, approximately 80% of conditional certification motions were granted in the Second Circuit. Plaintiffs undoubtedly have a low bar to hurdle to obtain conditional certification under section 16(b) of the FLSA. It is a hurdle nonetheless, and some courts have shown a willingness to look closely at plaintiffs’ proffered evidence to ensure that a factual nexus exists that binds together the members of a putative collective action. In Durling, et al. v. Papa John’s International, Inc., Judge Cathy Seibel of the U.S. District Court for the Southern District of New York rejected Plaintiffs’ motion for conditional certification of a nationwide collective action that would have included drivers employed at corporate-owned stores and stores operated by franchisees. The Court concluded that Plaintiffs’ evidence did not support a finding that the named plaintiffs were similarly situated to thousands of drivers employed by hundreds of different employers.

By highlighting Plaintiffs’ failure to show that Papa John’s International, Inc. (“PJI”) dictated a common corporate policy to franchisees, or any significant factual nexus among the members of the putative collective action across corporate and franchise stores, PJI won a significant victory.

Case Background

Plaintiffs are five delivery drivers who work for either PJI or one of two restaurants owned by independent franchisees. Each Plaintiff delivered pizzas in his own vehicle, and alleged that PJI and the franchisees under-reimbursed delivery drivers for wear and tear, gas, and other vehicle expenses such that PJI violated the FLSA. Pointing to the practice of one franchisee, as an example, Plaintiffs averred that they were paid $6 per hour plus $1 per delivery, which, at an average rate of five deliveries per hour, amounts to wages of approximately $11 per hour. Applying the IRS standard mileage rate, Plaintiffs claim that they paid $13.50 per hour for upkeep on their vehicles, resulting in a net loss of $2.50 per hour. Accordingly, Plaintiffs asserted that they earned less than minimum wage in violation of the FLSA and corresponding state minimum wage laws.

There are over 3,300 Papa John’s restaurants in the United States. Approximately 700 are owned and operated, at least in part, by PJI. The remaining 2,600 plus restaurants are owned and operated by 786 independent franchisees. Although four of the five Plaintiffs worked for franchisees, they did not sue any franchisees in this litigation — only PJI. Plaintiffs claimed that PJI is a joint-employer of the drivers at all franchised Papa John’s. They alleged that PJI disseminated policies to the franchisees that caused the drivers to be under-reimbursed in a uniform way. Plaintiffs supported this theory with purported evidence that all stores, both corporate and franchise, use the same point-of-sale (“POS”) technology to record deliveries and calculate reimbursements, and use the same logos and uniforms.

Plaintiffs filed their Complaint on May 13, 2016, which they amended on July 12, 2016. On October 14, 2016, Plaintiffs filed a motion for conditional certification of their FLSA collective action, seeking to represent all delivery drivers on a nationwide basis.

The Court’s Decision

The Court denied Plaintiffs’ conditional certification motion. While the Court declined PJI’s invitation to apply a heightened standard in assessing the motion (due to the discovery that had been undertaken in the case), the Court found that Plaintiffs failed to satisfy even the modest standard generally used in step one conditional certification motions. The Court also declined to decide whether PJI was in fact a joint-employer, finding this to be a merits issue. Framing the conditional certification issue, however, the Court reasoned that Plaintiffs could show that they were similarly-situated with the other members of the proposed collective action in two ways: (1) by demonstrating that PJI dictated a common reimbursement policy for all delivery drivers working at both corporate and franchise-owned restaurants, or (2) by showing that a common policy existed across the entire proposed collective action.

As to the first issue, the Court found that while PJI admitted that it reimbursed the drivers it employs at corporate-owned stores by paying them a specific amount per delivery (without conceding that the rate is so low as to violate the FLSA), Plaintiffs failed to offer any evidence that PJI was involved in its franchisees’ policies for reimbursing delivery drivers. According to the Court, the mere use of the same POS system, with the corresponding ability to access data on how drivers are paid, “in no way indicates that [PJI] dictated a nationwide delivery driver payment policy.”

In analyzing the question of whether Plaintiffs could show a common policy across the collective action that would bind the putative members together, the Court answered it in the negative. The Court rejected Plaintiffs’ attempt to show common policies regarding issues wholly unrelated to the purported practice of under-reimbursement. The Court reasoned that proffering common policies “such as wearing the same uniforms, or use of the Papa John’s logo, or even the general use of personal vehicles to make deliveries, is not sufficient to demonstrate a common policy with respect to the payment of drivers.”

The Court determined that while Plaintiffs arguably had made a “modest showing” of a common policy across PJI corporate-owned stores and the two franchises for which Plaintiffs work, this “evidence is insufficient to infer a nationwide policy.” The Court rejected Plaintiffs’ conclusory averments that other franchisees had the same policy, observing that witnesses as to this claim lacked personal knowledge. The Court also found that Plaintiffs failed to offer evidence of a common policy that violated the FLSA, noting that while the evidence showed that a few more franchisees do not use the IRS reimbursement rate, “there is no evidence that these franchisees do not pay a rate reasonably related to driving and wear and tear costs, or that what they pay is so low that the drivers end up getting less than the minimum wage.” The Court also opined that it had found no similar cases where plaintiffs succeeded in certifying a nationwide collective action involving hundreds of franchisees where the declarations offered descriptions of only two stores, and no evidence existed that the franchisor dictated the policy at issue to all franchisees. Thus, even recognizing that the Plaintiffs’ modest burden at the conditional certification stage, the Court declined to certify the collective action by “infer[ring] from the policy of two franchisees, that a nationwide 780-something other franchisees reimburse delivery drivers on a per-delivery basis that results in compensation below the minimum wage.” Consequently, the Court denied Plaintiffs’ motion for conditional certification of a nationwide collective action, holding that Plaintiffs failed to meet their modest burden of showing that delivery drivers were similarly-situated.

Implication for Employers

FLSA collective actions are ubiquitous due in large part to the low burden for conditional certification — especially compared to class certification under Rule 23. Indeed, the vast majority of FLSA collective actions are conditionally certified, which can have the effect of driving large early settlements. Members of the plaintiffs’ class action bar have attempted to stretch the conditional certification device to cases that involve joint employer theories, in the hopes that the court will certify a large collective action without scrutinizing the novel aspects of the case. Employers facing FLSA collective action allegations in situations involving a decentralized policy across multiple locations can add this ruling to their defensive arsenal. And although the Plaintiffs’ bar will likely continue to pursue FLSA collective actions as long as the burden for conditional certification is so low and the benefit of a substantial settlement is so high, this ruling shows that certification is far from automatic.