Both the Third and the Seventh Circuits are set to address the issue of whether collective actions under the Fair Labor Standards Act are compatible with class actions under state wage and hour laws. In the Third Circuit, briefing is underway in Parker v. NutriSystem, Inc., No. 09-3545. And argument is set in the Seventh Circuit for April 2, 2010 in Ervin v. OS Restaurant Servs., Inc., No. 09-3029. Both courts will address what some have called the “inherent incompatibility” of FLSA collective actions and state law wage and hour class actions that are pursued in the same case.

Various states have enacted wage and hour laws that are very similar to the FLSA, yet allow for class—as opposed to collective—treatment. The FLSA limits class members to those who “opt in” to the class, while under Rule 23 all eligible class members are part of the suit unless they “opt out” of the class. If a plaintiff initiates suit alleging minimum wage violations, for example, under both the FLSA and a state law allowing for class treatment, the non-plaintiff employees potentially could receive two seemingly conflicting notices, one requiring them to opt in to pursue claims and the other requiring them to opt out. The mechanics of such an arrangement also can be tricky for courts and employers.

In both Parker and Ervin, the district courts found an incompatibility between the two types of actions, with the result that no class was certified to pursue the state law claims. However, there is a split of authority on this issue, and it is hotly contested. The Secretary of Labor and others have filed amicus briefs in each case. The Secretary of Labor’s position is that the two types of actions are compatible.

Employers should be aware that, even though the FLSA allows only for collective actions, they may nonetheless face class challenges to their wage and hour practices under operable state law. The difference is more than technical. Because a class action automatically encompasses claims of all members unless they affirmatively opt out, a class action typically brings about much greater exposure. The outcomes of the Parker and Ervin cases, therefore, could have a substantial impact for employers.