On February 4, the Seventh Circuit Court of Appeals issued an important decision that may impact the ability of plaintiffs to maintain large wage and hour class and collective actions. Espenscheid v. DirectSat USA, LLC, Case No. 12-1943 (7th Cir. 2013). The Court of Appeals affirmed a district court ruling that decertified, near the eve of trial, a class of more than 2,300 class members alleging various wage and hour violations. The importance of this ruling is that it holds that the necessity of making individualized damages determinations at trial can preclude class and/or collective action treatment of wage and hour cases.

The lower court considered whether class certification was proper on several occasions after the case was filed in 2009. In response to defendants’ arguments that the class members’ claims were too disparate to be combined together, the district court simply divided the class into a number of subclasses, based on the allegedly unlawful policies to which the plaintiffs claimed they had been subjected. Following denial of the parties’ cross-motions for summary judgment, the court ordered the plaintiffs to develop a trial plan.

The plaintiffs’ plan consisted of selecting 42 plaintiffs (out of a class of 2,341) to serve as “representative” class members to testify at trial on behalf of the entire class. In May 2011, two weeks before trial was to have commenced, the district court, unconvinced that the plaintiffs’ trial plan was feasible or fair, issued an order decertifying both the Rule 23 class and the FLSA collective class, and dismissing the class members’ claims without prejudice, effectively ending the district court proceedings.

In affirming the district court’s decertification order, the Seventh Circuit repeatedly emphasized that the plaintiffs’ trial plan provided no reliable method to determine the damages of each class member. While acknowledging that plaintiffs’ burden was merely to establish a method that would enable the trier of fact “to draw a just and reasonable inference concerning the amount of time the employee had worked,” the court held that “what can’t support an inference about the work time of thousands of workers is evidence of the experience of a small, unrepresentative sample of them.” In that regard, the Seventh Circuit found that separate evidentiary hearings for each class member would have been required to determine damages – an obviously unfeasible exercise given the size of the class. Ultimately, the court concluded that where there is no accurate way to calculate individual damages, “the suit may have to be limited to injunctive relief, or nonlitigation remedies explored.”

Espenscheid represents a promising development for employers faced with large-scale wage and hour class actions. However, the Seventh Circuit’s holding appears to be at odds with class certification case law that has traditionally emphasized that while the need to conduct individualized liability determinations could preclude class treatment, individualized damages determinations should not preclude class treatment (except in the context of Rule 23(b)(2) class actions for injunctive relief). Lower courts will have to grapple with these lines of authority in addressing future class certification issues. Depending on how these cases are resolved, Espenscheid may provide a strong defense for employers faced with similar claims.