Collective action lawsuits under the Fair Labor Standards Act (FLSA) are among the most challenging lawsuits an employer can face. Generally, it takes months, or even years, for the case to arrive at a point when courts will evaluate the collective action claims under a standard that gives employers the best chance of defeating them. But a recent Supreme Court case, Genesis HealthCare Corp. v. Symczyk, 133 S.Ct. 1523 (2013), has opened the door to employers pursuing a strategy that may allow them to mount a more effective challenge to collective action allegations earlier in the lawsuit.
In Symczyk, the plaintiff filed a collective action complaint alleging that her former employer's policy of automatically deducting 30 minutes per shift for meal breaks violated the FLSA. In collective actions like the one at issue in Symczyk, plaintiffs file suit on behalf of themselves and other "similarly situated" employees. While a court must "conditionally certify" the case as a collective action before the other employees may get involved, most courts apply a "lenient" standard when making that determination. After the court grants conditional certification, the other employees may "opt in" and participate in the lawsuit. The result is that employers regularly find themselves presented with a situation in which hundreds or even thousands of employees are given the chance to opt in and join the lead plaintiff in asserting FLSA claims.
In an effort to short-circuit the risk and costs associated with collective actions claims, the defendant-employer in Symczyk decided to serve the lead plaintiff with an offer of judgment under Federal Rule of Civil Procedure 68 at the same time it served its answer to the complaint. The offer of judgment included $7,500 for alleged unpaid wages, as well costs and attorney's fees. The plaintiff did not accept the offer. But the district court held that it gave the plaintiff "complete relief" and not only mooted her own claim, but deprived her of standing to bring collective action claims on behalf of the other allegedly similarly situated employees. On appeal, the Third Circuit reversed. It found that even though the offer mooted the plaintiff's individual claim, it did not moot the collective action allegations. The appellate court reasoned that permitting employers to use offers of judgments to "pick off" lead plaintiffs and moot collective action cases at the outset of a case would frustrate the FLSA's remedial purposes.
In a 5-4 decision, the Supreme Court disagreed. In doing so, it explained that the "mere presence of collective action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied." This finding came as a surprise to many practitioners because in the other type of mass-plaintiff lawsuit employers typically face—class actions arising under Federal Rule of Civil Procedure 23—class certification gives the class an "independent legal status," meaning the case can continue even if the defendant makes an offer of judgment to the lead plaintiff. But in FLSA collective actions, because the class members do not become part of the case until they affirmatively "opt in," the class does not obtain any separate legal status that would permit it to continue if the lead plaintiff's claims become moot.
In reaching this conclusion, the Supreme Court explicitly rejected the argument, adopted by the Third Circuit, that permitting employers to "pick off" named plaintiffs by making offers of judgment under Rule 68 violated the FLSA's remedial purposes. This ruling opens up several possible litigation strategies that many employers had previously avoided. While making an offer of judgment to one plaintiff would not prevent another plaintiff from coming forward and re-asserting the same collective action claims, there are many situations that justify taking the settlement risk. For example, in some situations, the statute of limitations may be running out on practices that have long ago been corrected, and a settlement with one plaintiff may preclude the potential for class claims. In other situations, the chances of other current or former employees coming forward are small if the claims of a particularly vociferous or potentially influential plaintiff can be mooted.
Notably, while the Supreme Court has endorsed this strategy, it did leave some doubt as to its ultimate viability. Specifically, the Court declined to address whether a Rule 68 offer of judgment to a plaintiff would moot the plaintiff's claim in every case; it held that the Symczyk plaintiff's claims were moot because both lower courts had held so and the plaintiff had waived her right to challenge those findings on appeal. Some Courts of Appeals—notably the Third, Fourth and Seventh Circuits—have held that an offer of judgment moots a plaintiff's claims. But the Second and Sixth Circuits have held that it does not.
Determining the ultimate meaning and extent of the Symczyk opinion as a potentially important litigation defense tool for employers is a process that will unfold in the lower district courts and courts of appeal in the coming months and years. For example, in Schlaud v. Snyder, 717 F.3d 451 (6th Cir. 2013), the Sixth Circuit Court of Appeals recently held that Symczyk did not apply to bar a Rule 23 class action, finding such lawsuits substantively different than an FLSA collective action. Federal district courts in Minnesota, Florida and California have ruled similarly. This suggests one potential avenue for plaintiffs to avoid a bar as in Symczyk is to bring putative class actions under state wage and hour laws instead of (or in addition to) an FLSA collective action.
In Michaels v. City of McPherson, No. 12-1372-CM, 2013 WL 3895343 (D. Kan. July 29, 2013), the federal district court in Kansas distinguished Symczyk and found it inapplicable because in Michaels the plaintiff filed a motion for conditional certification of an FLSA collective action before the defendant made its offer of judgment, as compared to Symczyk where the offer came before any certification motion was filed. A federal district court in Illinois reached the same conclusion. Should other courts adopt this reasoning, plaintiffs may seek to avoid early dismissal of an FLSA collective action by filing an early motion for certification at the same time or shortly after the filing of the complaint. Conversely, employers wishing to try to moot an FLSA collective action through an offer of full relief will need to be prepared to move very quickly to make an offer of full relief after learning a complaint has been filed.
Finally, in Velasquez v. Digital Page, Inc., No. CV 11-3892, 2013 WL 3376903 (E.D.N.Y. July 8, 2013), a federal district court in New York held that, where the employee plaintiffs disputed the sufficiency of the offer of judgment, Symczyk did not render their FLSA action moot. The district court in Michaels reached a similar conclusion where the employer failed to explain the basis for its calculation of the amount offered in settlement. These holdings point out that only an offer of "full relief" to an individual plaintiff can possibly moot his claim, and thus a putative collective action. Employers considering using this tool must therefore be careful to make the offer large enough to encompass all relief the individual plaintiff could possibly recover, and to the explain in their offer how the amount was determined.
Employers have faced a growing onslaught of wage and hour claims over the last decade, including an ever increasing number of FLSA collective actions, a trend that shows no signs of slowing. An employer's best defense is proactively to review its wage and hour practices to head off potential liability before such cases arise.