Good news for employers regarding settlement of FLSA, state class claims
A decision issued recently by the U.S. Court of Appeals for the Third Circuit contains what might be good news for employers who are facing “hybrid” litigation involving collective actions under the Fair Labor Standards Act and class claims under state wage-hour laws.
In Lundeen v. 10 West Ferry Street Operations, a three-judge panel of the court held that a class settlement of state wage-hour claims could encompass FLSA claims as well, even those of absent class members who do not opt out. In what may be even more encouraging, the panel was relatively non-partisan, consisting of an Obama appointee, a Clinton appointee, and a George W. Bush appointee.
Opt-in/Opt-out
An employee seeking to challenge employer pay practices under the FLSA can file what is called a “collective action” on behalf of the employee and all those “similarly situated.” If a “similarly situated” employee wants to join in the lawsuit, he or she must affirmatively “opt in.” In other words, the employee has to agree in writing to join the collective action. If a “similarly situated” employee does nothing, then he or she will not be part of the FLSA collective action.
Class actions are handled in nearly the opposite way. If an employee wants to challenge employer pay practices under an applicable state wage-hour law, then he or she can file a “Rule 23 class action” (named for the federal rule of civil procedure that applies to class actions). In a Rule 23 class action, the individuals with related claims become class members by default. If they don’t want to be involved, and they don’t want the outcome of the lawsuit to affect their rights, they must affirmatively “opt out” of the class action. But if they do nothing, then they will be part of the class.
Because the FLSA has significant overlap with state wage-hour laws and because there is no federal law preemption, it is not unusual for a plaintiff to assert both FLSA and state law claims in a “hybrid” action that alleges violations of the FLSA as well as violations of applicable state wage-hour law, especially where state statutes of limitations or statutory penalties are greater than those of the FLSA. The plaintiffs in this type of lawsuit would consist of the named plaintiff, plus anyone who opted in on the FLSA claims, plus anyone who did not opt out on the state law claims. Because of the nearly opposite opt-in/opt-out procedures, hybrid lawsuits usually have plaintiffs who are not included in the FLSA portion of the lawsuit because they did not opt in but who are included in the Rule 23 portion of the lawsuit because they did not opt out.
Settlement of hybrid lawsuits is even more complicated. Until the Third Circuit decision, courts had consistently held that individuals who did not opt in to the FLSA collective action could not be included in the settlement of the FLSA portion of a hybrid lawsuit. This meant that employers could settle the state wage-hour claims with all of the individuals who did not affirmatively opt out of the lawsuit but still had potential legal exposure on the FLSA claims of those individuals.
This rule has made resolution of class and collective wage-hour claims confusing, difficult, and cumbersome for employers.
Third Circuit panel takes a different view
The panel in Lundeen disagreed with these earlier decisions, finding that the parties who were part of the Rule 23 class could settle their class and potential FLSA claims all at once – even if they had not opted in on the FLSA claims. The only individuals excluded from the settlement would be the individuals who had affirmatively opted out of the Rule 23 class.
The panel noted that the FLSA opt-in requirement applies to the decision to join the lawsuit but says nothing about having to opt in to join in a settlement of FLSA claims. In the words of Judge D. Brooks Smith, who wrote the opinion, “Put simply, [the relevant portion of the FLSA] requires written consent to litigate an FLSA claim, but it says nothing about waiver of such a claim in settlement. And in that silence ‘it is our duty to respect not only what Congress wrote but, as importantly, what it didn’t write.’”
The panel also noted that the opt-in provisions of the FLSA were added in 1947, after the decision in Anderson v. Mt. Clemens Pottery, which “unleashed thousands of lawsuits seeking back pay -- nearly all of which were representative actions initiated by third party union officials.” According to the Lundeen decision, “Congress created the opt-in scheme, not as a worker-protection measure but ‘primarily as a check against the power of unions’ and a bar to ‘one-way intervention’ whereby plaintiffs could wait for a favorable outcome before choosing to opt in and be bound by the judgment.”
What now?
The Lundeen decision is binding in the Third Circuit states of Delaware, New Jersey, and Pennsylvania. It remains to be seen whether other federal appellate courts will adopt the panel’s view. But at the very least, the decision is good news for employers in the Third Circuit who are seeking to bring hybrid class and collective actions to closure with maximum claim preclusion finality.
