New Supreme Court Case May Cause Employers to Rethink FLSA Strategy

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, 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. 

Regardless, Symczyk is likely to change the way in which cases are litigated as more litigants look to it as a means of responding to collective action claims. The employment litigation team at Faegre Baker Daniels will continue to keep you updated on significant developments.