Seventh Circuit Raises The Bar On Collective And Class Certification of Wage-Hour Claims

Seventh Circuit.jpgCo-authored by Laura Reasons, Giselle Donado, and Noah Finkel

In an opinion likely to make it more difficult for wage-hour plaintiffs to certify a class action and maintain certification of a collective action, the Seventh Circuit affirmed the Western District of Wisconsin’s decertification decision in Espenscheid v. DirectSat USA, LLC on the grounds that trial was not manageable under the plan submitted by plaintiffs, where determining damages would require 2,341 separate evidentiary hearings.  We previously discussed the District Court’s decision here (and thus will not rehash the background facts).  Espenschied is a very important decision that could shape the wage-hour certification landscape because of its holding that ultimate certification of a collective action is subject to the same standard as a Rule 23 class action, its requirement that damages in a wage-hour case be capable of being determined through common proof, and its emphasis on a workable, trial plan as a predicate for class and collective action certification.

In the Seventh Circuit’s opinion, Judge Posner started from the premise that, for certification purposes, there is no reason to treat a state-law wage-hour class action brought pursuant Federal Rule of Civil Procedure 23 differently from a collective action under Section 216(b) of the FLSA.  It explained that the district court correctly held that plaintiffs had not presented a feasible trial plan.  Determining damages would require 2,341 separate evidentiary hearings.  This was not a case where, for example, each technician worked from 8 a.m. to 5 p.m. and was forbidden to take a lunch break.  The court reasoned that, in such a case, damages could be calculated formulaically by a computer program.  But in this case, damages for each individual plaintiff would have to be determined separately by a trier of fact, as such determinations would turn on individual facts such as a workers’ effort and efficiency, different tasks performed, and the reasons the workers did not record certain tasks.  Those same factors are present in several off-the-clock collective or class actions

The Seventh Circuit also upheld the district court’s rejection of plaintiffs’ proposal to present trial testimony from 42 “representative” members of the 2,341-person class.  This proposal was problematic because it did not appear that the “representatives” were chosen in a statistically sound manner.  Moreover, extrapolating damages of the “representatives” to the whole could result in conferring a windfall on some, while shorting others.  Indeed, plaintiffs themselves acknowledged at argument that it would be “[d]ifficult for Plaintiffs to provide an objective framework for identifying each class member within the current class definitions without making individualized findings of liability.”

The court stated that class counsel “must think that like most class actions suits this one would not be tried -- that if we ordered a class or classes certified DirectSat would settle.  That may be a realistic conjecture, but class counsel cannot be permitted to force settlement by refusing to agree to a reasonable method of trial should settlement negotiations fail.”  The court wrote that class counsel essentially had “asked the district judge to embark on a shapeless, free-wheeling trial that would combine liability and damages and be would virtually evidence free as far as damages were concerned.”  This, the Seventh Circuit would not allow and thus upheld the district court’s decertification decision.

With this opinion, the Seventh Circuit has given employers some improved tools to defend against class and collective claims.  This decision demonstrates an emerging trend to treat Section16(b) collective actions and Rule 23 class actions as one for purposes of analyzing certification.  Judge Posner expressly stated that “there isn’t a good reason to have different standards for the certification of two different types of action, and the case law has largely merged the standards, though with some terminological differences.”  With that in mind, Judge Posner reviewed the district court’s decision to decertify the three subclasses, treating “the entire set of suits before [the court] as if it were a single class action.”  Few appellate courts, or district courts for that matter, have set forth the level of common proof that collective action plaintiffs must set forth at the ultimate certification stage.  The Sixth Circuit, for example, has suggested that it may be similar to the standard for joinder under Federal Rule 20.  O’Brien v. Ed Donnelley Enterprises, Inc. 575 F.3d 567, 584-86 (6th Cir. 2009).  The Seventh Circuit takes the different view that the standard is more in line with the rigorous standard under Rule 23.  In doing so, Espenschied  brings the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes into the fold for 216(b) collective actions by using Rule 23’s commonality standard to drive the certification decision. 

This decision also puts the onus on plaintiffs seeking certification of large classes based on a “representative” sample to provide evidence that the claims and damages of all class members can be readily ascertained from the sampling in order to satisfy Rule 23’s commonality standard.  Indeed, plaintiffs’ inability to articulate how their “representative” sample was truly representative was fatal to certification.  Importantly, Judge Posner suggests that even differences in damages among the class members might be reason enough not to allow certification.  Offering a purportedly “representative” sample of class members, without more, likely will no longer be sufficient.  Here, Dukes’ guidance on statistical evidence will prove useful to employers by providing a high threshold for what statistical evidence plaintiffs may use as the glue that binds the claims and damages of class members.  With that in mind, employers would be wise to prepare a discovery plan that demands that plaintiffs establish the validity of the “representative” nature of their class sample with respect to their claims and damages.  This strategy may prove useful in limiting the class to the individual representatives, and foster an early settlement given the heavy burden plaintiffs will face to validate their “representative” sample. 

Finally, Espenschied makes clear that practical considerations are not to be ignored at the ultimate certification stage.  The Seventh Circuit gave much weight to the fact that the plaintiffs did not offer a feasible way for determining liability and damages based upon their representative sample, and noted that while, as a practical reality, most certified classes do go on to settle, that does not obviate the need to provide evidence that plaintiffs are able to calculate damages in a meaningful way for all class members.  Employers would be wise to demand a trial plan from plaintiffs explaining how they will attempt to ask the court to determine liability and damages for the class, particularly in those cases where plaintiffs rely on a representative sample.  Any failure by plaintiffs to provide a feasible plan to ascertain the claims and damages should prove useful in opposing certification.  Indeed, these practical considerations also may be worth raising at the conditional certification stage.  While the standard is a lenient one, alerting the court that plaintiffs’ claims present significant practical hurdles that cannot be cured may sway the court.  The court’s message in Espenscheid  was clear--judicial resources should not be wasted simply to facilitate a settlement of a class whose claims are not ascertainable and damages are not readily calculable without individualized findings.

Rehabilitating Long-Term Care Provider's Auto-Deduct Defense: Decertification at Last

N.D. Ohio.bmpAuthored by Kristin G. McGurn

A federal judge in the Northern District of Ohio continued a recent trend in automatic meal break deduction litigation by decertifying a conditionally-certified nationwide class of HCR Manorcare’s nursing home employees (click to link HERE). The potential class included 44,000 current and former HCR workers from 300 short- and long-term assisted living, skilled nursing, and rehabilitation facilities across the country.  Discovery involved managers, HR staff, and hourly employees at 26 facilities as plaintiffs hailing from 28 states had opted in to the suit.  The court concluded that HCR’s meal break policy, which deducted 30 minutes automatically from timecards on certain shifts and required employees to report exceptions, was lawful.  There was no allegation or evidence that HCR employed a policy to violate that compliant policy.  Plaintiffs argued that the common theory of liability binding plaintiffs together was HCR’s lack of vigilance and involvement in local implementation.  The court refused to maintain the conditional class based on HCR’s use of the automatic deduction  itself.  It focused instead on differences among the opt-in plaintiffs as to how managers in HCR’s far-flung network handled reporting of missed or interrupted meal breaks, their training on the policy, and encouragement for exception reporting.  The court also found that differing responsibilities, employment experiences, personal habits, and individualized defenses among HCR’s registered nurses, licensed practical nurses, certified nursing assistants, and admission coordinators were too disparate to support a collective action.  The court held that proceeding collectively would be neither fair nor useful if based on representative testimony, and was otherwise procedurally unmanageable.  As a result, the court dismissed the claims of 318 opt-in plaintiffs.

Importantly, the court also refused to certify a partial collective action because discovery revealed that employees’ meal break experiences were not linked to their position, shift or facility, but rather to individual managers’ decisions in implementing policy.  Plaintiffs did not suggest how sub-classes could be established. 

Decertification of the conditional class followed a mandamus petition to the Sixth Circuit, in which HCR challenged, under federal rules governing joinder of parties and class actions, the familiar two-step process (conditional certification and notice/decertification) employed by most courts facing FLSA collective actions.  Through the writ of mandamus, HCR sought to vacate the nationwide conditional certification and interrupt the delivery of notice to a sampling of employees across the country, relying on Wal-mart, Inc. v. Dukes principles (click to link HERE) that the district court had held were inapplicable to the collective action.  Though the Sixth Circuit denied the writ, that court recently upheld decertification in similar automatic meal-period deduction cases in, White v. Baptist Mem’l Health Care Corp. (click to link HERE) and Frye v. Baptist Mem’l Hosp., Inc. (click to link HERE).  The Northern District of Ohio, bound by those decisions, has continued this trend.

More Than Morgan: Federal Court Decertifies Nationwide FLSA Collective Action Despite Arguments Likening it to Plaintiff-Friendly Result in Morgan v. Family Dollar

N.D. Ala.gifCo-authored by Brett Bartlett and Kevin Young

Last month, we reported on a ruling handed down by Judge Scott Coogler, a U.S. District Court Judge in Alabama, decertifying a nationwide FLSA collective action of store managers who claimed that they were misclassified as overtime-exempt.  As is common in store manager cases under the FLSA, the plaintiffs in that case, Knott v. Dollar Tree Stores, essentially argued that they should be thought of as managed rather than managing—this, despite the fact that each  was the highest-ranking employee in his or her store.  Who ran the stores, one might ask?  The district managers…the regional managers…the corporate manual…anyone but the store managers, the plaintiff-store managers argued.  In decertifying the collective, Judge Coogler made clear not only that the FLSA’s executive exemption was in play, but also that its duty-specific nature left no room to force Dollar Tree to argue the defense on a one size fits all basis.

One month later, we can report a nearly identical result in a remarkably similar case: on Monday, Judge Coogler decertified another nationwide collective action of store managers for a large retail chain, Dollar General Stores, who alleged that they were misclassified due to the prevalence of their non-management duties.  The named plaintiff, Cynthia Richter, won conditional certification in March 2007, and thousands of current and former store managers joined the litigation thereafter.  Over five years later, Judge Coogler’s decertification order means that those who joined the case will likely be dismissed. 

Richter is an important decision, in part because of the district  court’s handling of Morgan v. Family Dollar, a store manager misclassification case in which the Eleventh Circuit upheld a $35 million verdict and refused to reverse a pretrial decision denying the employer’s decertification motion.  Since it came down in 2008, plaintiffs have cited Morgan routinely and indiscriminately in their efforts to resist decertification, often drawing upon facts from that case that could be established against any large employer—a uniform classification decision was made, a single job description existed, a handbook was in place.

Morgan was the strategy in Richter, where the plaintiffs argued, among other things, that: (i) the employer made a single decision to classify the manager position as exempt, rather than on an employee-by-employee basis—just like in Morgan; (ii) the managers were expected to adhere to a company handbook and operating manual—just like in Morgan; (iii) the employer had one job description for the manager position—just like in Morgan; and (iv) the managers spent much of their time on non-management work—just like in Morgan.  These facts were “virtually identical” to Morgan, the plaintiffs argued, and therefore necessitated the same result.

Judge Coogler offer a multifold rejection of the plaintiffs’ Morgan offensive.  First, the district judge explained, Morgan merely upheld the trial court’s decision permitting the store managers in that case to proceed to trial collectively as something less than an “abuse of discretion.”  “It does not necessarily follow,” Judge Coogler explained, “that a contrary ruling would have been an abuse of the district court’s discretion.”  In other words, just because denying decertification was not utterly wrong does not necessitate that it was right. 

Second, Judge Coogler rejected the plaintiffs’ assertions that evidence that they spent over half their time on non-management duties was similar to Morgan and sufficient to bind them together for trial.  Judge Coogler correctly noted that, under the FLSA, even employees who spend over half their time on non-exempt work may be exempt.  Moreover, even if the plaintiffs spent similar amounts of time on management duties, the relative importance of each type of work could lead to differing determinations on their “primary duty,” the touchstone of exempt status.  For example, the plaintiffs managed entirely different stores, which impacted the nature and extent of their exempt work (e.g., larger stores have more associates to manage, stores in high-crime areas require a greater focus on asset protection, etc.).

Third, and perhaps most importantly, in considering the fairness of forcing Dollar General to a collective action trial, Judge Coogler rejected the argument that because the company made a universal classification decision, like the defendant in Morgan, the court could and should try its exemption defense on a universal basis.  The exemption turns on an assessment of an employee’s actual management duties—it could work for one store manager and not another.  Recognizing this, Judge Coogler explained that while a single, massive trial might be most efficient, such efficiency “cannot be obtained at the expense of Dollar General’s due process rights.”  This reasoning is especially important because it is remarkably similar to the Supreme Court’s due process holding in Wal-Mart v. Dukes, which, as we have discussed before, is a game-changing case whose application in the FLSA arena is still being decided.

Judge Coogler’s decision is an important one.  At a time when plaintiffs have come to reflexively cite Morgan to raise and preserve massive collectives, his ruling recognizes that Morgan did not hold that the trial court got it right in permitting an FLSA collective action trial, but rather that it had not gotten it completely wrong.  And a time when Dukes’ applicability in collective actions is still being charted, his ruling draws upon the very due process concerns annunciated in that case, which dictate that it is not okay to trade the right of a litigant—even a corporate litigant—to defend itself for some measure of efficiency or cost savings.

Are Hospital Automatic Meal Period Deduction Cases Now On Life Support?

ND Ill Seal.bmpCo-authored by Noah Finkel, Kristin McGurn, and Laura Reasons

The United States District Court for the Northern District of Illinois recently decertified an FLSA collective action and denied certification of a Rule 23 class in Camilotes v. Resurrection Health Care Corporation, No. 10-cv-366 (Oct. 4, 2012).  Camilotes is part of a rash of cases filed around the country over the last several years against hospitals and other health care providers alleging that defendants’ policies or practices of automatically deducting thirty minutes for an unpaid meal period violate the FLSA and various state wage and hour laws.

In Camilotes, Resurrection’s policy states that non-exempt employees scheduled for a shift of at least 7.5 hours will receive a thirty-minute unpaid meal period.  Instead of requiring an employee to clock out for the meal period and then back in, Resurrection’s time keeping system automatically deducts 30 minutes of work time for the meal period from an employee’s hours, unless that employee reports that he or she did not take an uninterrupted meal period.  The policy also directs employees to obtain manager approval to work through a meal period.  Plaintiffs allege that they were regularly required to work through all or part of their meal periods without being paid for the time worked.

In decertifying the FLSA collective action, the court discussed at length the differences in how the policy was implemented and enforced by different managers in different departments.  It found that individual issues would predominate over any common issues and, moreover, individualized defenses revealed in discovery made continued certification inappropriate.  Specifically, the plaintiffs reported to over 200 supervisors and performed divergent nursing duties on different shifts; the number of meals they allegedly missed varied greatly; the rate at which they canceled the deduction varied widely; the methods of reporting a missed meal varied by department; the defendant’s knowledge of missed meals varied by Plaintiff; and whether missed meals actually resulted in overtime varied by Plaintiff.

The facts of Camilotes are very similar to those in a number of cases brought around the country by the same (and other) plaintiffs’ class action counsel.  The Camilotes decision is especially significant for employers -- both in the health care setting and in other industries -- for a number of reasons.

First, Camilotes contains an employer-friendly recitation of the standard for certification of a class action under Rule 23 in wage and hour cases.  It does not cite the Seventh Circuit’s decision in Ross v. RBS Citizens, which is the first and, to date, only federal appellate court decision to assess the application of the Supreme Court’s Wal-Mart Stores, Inc. v. Dukes case in the wage and hour class context.  In Ross, the Seventh Circuit held that Dukes had no impact on a district court’s decision to certify under Rule 23(b)(3) a class of 1,100 individuals, most of whom claimed that they worked off the clock.  The Seventh Circuit found that Dukes’ broad language regarding Rule 23’s commonality requirement has no application outside the case’s exceptional facts -- a class of millions asserting discrimination claims that required proof of individual intent.  That court also concluded, in a footnote, that the due process concerns described in Dukes apply only to 23(b)(2) classes, not (b)(3) classes.  Not only does Camilotes not cite to Ross, or incorporate its reasoning, but it cites instead to Dukes, albeit only for recitation of the standard for class certification.  See previous blog discussion of Dukes and Ross.

Second, Camilotes delivers a significant setback to automatic meal period deduction cases, ruling that it would be “impractical and unfair” to proceed to trial as a collective action.  The facts relied on and legal analysis in Camilotes seem to signal that so-called “meal break” cases are not sustainable as class cases.  Although in Camilotes there were huge differences in the Plaintiffs’ experiences (for example, the class covered 8 different hospitals), most of the facts that the Court found compelling present in virtually every hospital setting.  Accordingly, it appears that courts may be sending the message that automatic meal period deduction cases are difficult to try on a class-wide or collective basis.  The Sixth Circuit’s decision decertifying an FLSA collective action in Frye v. Baptist Memorial Hospital, Inc., No. 11-5648 (6th Cir. Aug. 11, 2012), also suggested the same.

Third, Camilotes is yet another illustration of the burden on employers imposed by the very lenient standard for initial collective action certification adopted by many courts, a phenomenon discussed frequently in this blog.  Although the parties in Camilotes stipulated to initial certification, courts often grant, sometimes as a matter of course, hotly-contested motions for conditional FLSA certification.  While employers have a very good chance of eventually getting the FLSA class decertified and defeating Rule 23 certification (as illustrated by Camilotes), these victories come at a great cost and often only after countless months and dollars are spent on litigation of the case, including burdensome discovery.  In a case like Camilotes, where ultimate certification is unsustainable, it makes little sense for a court to grant initial certification,  allow notice to the purported class, and engage in full discovery.  Nonetheless, courts often hold that they cannot look to the merits or apply the more stringent second-stage standard on a motion for conditional certification.  Accordingly, extensive resources are often spent on these cases, only to have them ultimately fail as class or collective cases.

This case is certainly a victory for Resurrection and, hopefully, a promising sign for other employers faced with automatic meal period deduction claims.  It also serves, however, to illustrate the high cost of litigation inherent in the collective action mechanism as it currently is interpreted by most courts.

A Dutiful Result: Finding Differences in Management Duties, Federal Court Decertifies Nationwide FLSA Collective Action Brought By Dollar Tree Store Managers

N.D. Ala.gifCo-authored by Brett Bartlett and Kevin Young

Any employer that has faced a putative FLSA collective action in Florida, Georgia, or Alabama since 2008 should be aware of Morgan v. Family Dollar Stores, Inc., a case in which the Eleventh Circuit upheld a $35 million trial verdict against the Family Dollar chain and refused to reverse a pretrial decision to allow the store manager misclassification case to proceed collectively in the first place.  Plaintiffs have since rung the Morgan bell often and indiscriminately, likening their cases to Morgan because of perceived similarities among the employees in their cases and those who sued Family Dollar.  An employer decided to classify all individuals in a position as exempt?  “That happened in Morgan, too!”  The employer had a manual describing its expectations of the employees in its stores?  “So did Family Dollar!”  Morgan, these plaintiffs have exclaimed, has required that employees like these must be “similarly situated,” the key requirement to proceed collectively.  After all, the Eleventh Circuit upheld the multi-million dollar verdict against Family Dollar.

But could they be wrong?  Would a district court in the Eleventh Circuit ever again decertify a store manager misclassification case?  The answer is yes.  The latest example surfaced early last week, arising from the very district court from which Morgan arose.  In a 21-page ruling, The Honorable Scott Coogler, of the Northern District of Alabama, decertified the conditionally-certified class in Knott et al. v. Dollar Tree Stores, Inc., which included 260+ Store Managers of various Dollar Tree stores who urged the court to deny decertification in their case because it was “nearly identical” to Morgan

It all began six years ago, when Susie Knott, a former Store Manager of a Dollar Tree in Tuscaloosa, Alabama, filed an FLSA collective action alleging that Dollar Tree misclassified her and all of its other Store Managers as overtime-exempt.  She alleged that the Store Managers—who, as the highest-ranking employees at their respective stores, were classified as exempt managers—were misclassified because their managerial duties were in fact “non-existent or extremely minimal.”  Each store’s management, she alleged, “was left to the District Manager[s],” not to the Store Managers themselves.  In 2007, she convinced the court to conditionally certify her alleged class and to authorize her attorneys to distribute notice of the lawsuit to Dollar Tree’s Store Managers across the country.

After what Judge Coogler described as “a war” between the parties over discovery, Dollar Tree moved to decertify Knott’s conditionally certified collective action.  The company argued that the evidence developed during discovery proved that Store Managers were not similarly situated because their duties varied significantly across the class, and that the duties that varied were the very ones that would ultimately dictate whether Dollar Tree properly classified each as overtime-exempt.  For example, Store Managers’ involvement in adjusting employees’ pay rates, evaluating them, training them, disciplining them, and securing the store would eventually be the duties examined to determine whether each was exempt, and the evidence showed—according to Dollar Tree—clear variation from manager to manager. 

Knott simply could not sustain her burden to establish that she and those managers who opted into her case were similarly situated despite all of the evident variations among them.  She argued that every Dollar Tree store was controlled tightly and identically, and that Store Managers like her spent over half of their time on non-management tasks (e.g., sweeping the parking lot, running the cash register, stocking shelves).  She also argued that the company could not possibly prevail at decertification because they had in fact classified everyone the same, as if everyone performed the same duties.  Judge Coogler didn’t buy it.

In granting Dollar Tree’s decertification motion, the court found that Knott and the other Store Managers failed to establish that they were similarly situated.  The evidence revealed too many differences in their management duties.  While some “may have performed uniform tasks mandated by a corporate manual, others routinely exercised their independent judgment and the amount of time they spent performing managerial duties is a matter of individual inquiry.”  “While the differences in the amount of time spent on any individual act of ‘management,’ such as training associates, might not seem material,” the judge explained, “as a whole [they] could … lead to differing conclusions as to each employee’s ‘primary duty.’”  Morgan could not save the class, even though Knott argued that her case was “nearly identical” to the one that sparked that lightning-rod ruling.

On that point, Judge Coogler’s sage ruling speaks volumes.  He recognized that the Eleventh Circuit in Morgan did not hold that the district court in that case got it right.  Rather, the appellate court “simply decid[ed] that the district court had not abused its discretion by finding the multiple plaintiffs similarly situated.”  In other words, the Eleventh Circuit held only that the district court had not gotten it completely wrong—it had not committed clear error when it denied Family Dollar’s motion to decertify.  The point?  Even in a case “nearly identical” to Morgan, provable differences in management duties across a class will justify decertification.

Given the landscape of FLSA litigation in the Eleventh Circuit and across the country, it would not be shocking to see Knott appeal this ruling, be it in the weeks to come or after her claims are resolved.  As many courts considering the case have noted, however, Morgan does not require a collective action trial of every misclassification case with arguably similar facts.  And if the Eleventh Circuit were to apply the same abuse-of-discretion in Knott’s case as it did in Morgan, Dollar Tree—and employers that take heart in its decertification victory—almost certainly will not be disappointed.

Hard Day's Night for Late Shift Janitors: Third Circuit Sets a Higher Standard for Certification of FLSA Collective Actions and Upholds Decertification of Claims Against Wal-Mart

Cleaner.jpgCo-authored by David Kadue and Abad Lopez

For janitors cleaning Wal-Mart stores after business hours, the differences among members of the proposed class doomed their FLSA collective action.  Although the janitors worked for Wal-Mart’s cleaning contractors, the janitors claimed that they were also employees of Wal-Mart and sued for unpaid wages.  Zavala v. Wal Mart Stores, Inc. The Third Circuit’s decision delineates the two-part test for FLSA collective actions, which it recently adopted in Symczyk v. Genesis Healthcare Corp., a case that will be reviewed by the Supreme Court next term, as we reported in a blog post last June.

At the first stage, the Third Circuit affirmed its prior ruling that, to meet the conditional certification standard of making a “modest factual showing,” the named plaintiffs are required to present evidence “‘beyond pure speculation,’ of a factual nexus between the manner in which the employer’s alleged policy affected [them] and the manner in which it affected other employees.”  At the second stage—final certification—the district court must determine whether the plaintiffs who have opted-in are in fact “similarly situated” to the named plaintiffs.

Until now, the Third Circuit had left “specifically unresolved” the “exact test” for final certification of an FLSA collective action.  The Third Circuit articulated that test in Zavala, holding that final certification depends on a factual finding—made in light of the claims and the defenses and “all the relevant evidence”—that the proposed plaintiffs are “similarly situated.”  By adopting this standard, the Third Circuit endorses the “ad-hoc approach,” adopted by all other circuit courts to decide this issue, which considers such factors as whether the plaintiffs work in the same department, whether they advance similar claims, whether they seek substantially the same relief, and whether they have similar circumstances of employment.  As to this finding, the plaintiff has the burden of proof by a preponderance of the evidence.  Individualized defenses, the Third Circuit found, may result in a finding of dissimilarity. 

The Third Circuit also expounded upon the appellate standard for reviewing a district court’s certification decisions.  Although courts have used “abuse of discretion” to describe the appellate standard, the Third Circuit clarified that an FLSA final certification actually has two components:  (1) selecting the right legal standard to see whether the proposed plaintiffs are similarly situated, and (2) applying that standard to make the required factual finding.  The standard of review for a district court’s selection of a legal standard is de novo, as a pure issue of law, while the district’s factual finding is reviewed only for clear error.  As to the impact of the factual finding, the Third Circuit concluded, “We do not believe that the statute gives the district court discretion to deny certification after it has determined that plaintiffs are similarly situated.”

In applying these standards, the Third Circuit upheld the district court’s decertification of the janitors’ claims because, although Wal-Mart had a maintenance manual that specified cleaning procedures, and some Wal-Mart employees directed cleaning crews in their work, the janitors worked at 180 stores in 33 states for 70 cleaning contractors.  In addition, the individuals worked varying hours and for different wages depending on the contractor.  Moreover, the district court noted that Wal-Mart had different defenses available, including that Wal-Mart was not the individual janitors’ employer under the FLSA and that Wal-Mart paid cleaning contractors an adequate amount to support an appropriate wage for the cleaners.  The Third Circuit reasoned that “common links are of minimal utility in streamlining resolution,” because “[l]iability and damages still need to be individually proven.”  The court explained that similarly situated does not mean “simply sharing a common status” such as an illegal immigrant.  Rather, similarly situated means that proposed plaintiffs were subjected to “some common employer practice that, if proved, would help demonstrate a violation of the FLSA.”  The Third Circuit concluded:  “The similarities among the proposed plaintiffs are too few, and the differences among the proposed plaintiffs are too many.”  

This lawsuit was an overzealous exercise on behalf of thousands of janitors, claiming they were illegal immigrants, against an entity that was not their formal employer but rather was the company contracting with the cleaning companies for which the janitors worked.  The lawsuit also featured creative theories of liability, including civil RICO and false imprisonment claims, both of which were dismissed.  The FLSA claim faced the hurdle of proving that Wal-Mart—the principal of the cleaning contractors who employed the janitors—was an employer of the janitors.  Proving employment status on an agency theory or a joint-employer theory depends on multiple factors that could hardly be the same across a purported class comprising the employees of 70 cleaning contractors at almost 200 stores. 

If the lawsuit was doomed to failure from the outset, it did provide the Third Circuit with an excellent opportunity to clarify its standards for FLSA certification.  Notably, the Third Circuit did not opine on how the Supreme Court’s decision in another Wal-Mart case, Wal-Mart Stores, Inc. v. Dukes, relates to the Third Circuit’s singular focus on whether proposed plaintiffs are “similarly situated.”  Nonetheless, like Dukes, the Third Circuit struck another blow to plaintiffs seeking expansive relief against the world’s largest private employer. 

California Judge Issues Tentative Ruling Dooming Meal And Rest Break Class Based On Brinker

Blog-CalSupCt.bmpCo-authored by Jon Meer and Brandon McKelvey

On Tuesday, a California trial court judge in Los Angeles issued a tentative ruling denying class certification in a proposed meal and rest period class action relying on the Supreme Court's recent decision in Brinker. This appears to be the first court in California to deny class certification in a proposed wage-hour class action following Brinker. If the tentative ruling is upheld, this may be a good signal for employers as to how courts will analyze class certification in meal and rest period cases following Brinker.

The lawsuit alleged that a proposed class of engineers working on cellular telephone cites throughout California were allegedly misclassified as independent contractors and not provided with meal and rest periods. Plaintiffs sued Telecom Network Specialists ("TNS"), and a variety of staffing agencies who provided engineers to TNS were also named in the suit. Seyfarth Shaw represents one of the staffing agencies named in the suit and opposed class certification along with attorneys for TNS.

At the hearing on plaintiffs' class certification motion, the Honorable John Shepard Wiley, a Los Angeles County Superior Court complex litigation judge, issued his tentative ruling denying the class certification motion and appeared inclined to adopt the tentative ruling as the final ruling. Relying heavily on Brinker, the court found that class treatment for meal and rest breaks is inappropriate based on evidence in the record showing no uniformity of policy or circumstance. The court explained that, "There is no single way to determine whether TNS is liable to the class for failure to provide breaks.  Some workers did not get breaks.  Other workers were on their own and at complete liberty to take breaks as they pleased, with no time or management pressure."  The court indicated that it would take "hundreds of witnesses" to sort this out and determine whether there was or was not liability for improper breaks.  The court went on to say, "This is not a practical trial. It is unworkable. The proposal to analyze these disputes as a class matter does not make common sense."

The court also rejected plaintiffs' reliance on the concurrence in Brinker. The court said, "[plaintiff] repeatedly cites the Brinker concurrence. The concurrence commanded only two votes. It is not the law."  This may be a good initial sign for employers who wondered how trial courts would interpret the Brinker concurrence, which seemed to suggest a lower bar for class certification in meal period cases than was provided by the actual unanimous decision.

Seyfarth Shaw will provide an update on this blog once the decision is final.

IBM Lawsuit Must Proceed Individually, Not Collectively

IBMBlogImage2.jpgAuthored by Robert Whitman

Charles Seward is “an IBM’er.”  And in his wage-hour lawsuit against the company, no other IBM’ers will be joining him.

That’s the upshot of the March 9, 2012 ruling of Judge Vincent Briccetti of the Southern District of New York in Seward v. IBM.  Judge Briccetti affirmed a decision to decertify a class of call center representatives at IBM’s facility in Atlanta.

The lawsuit, filed in 2008, alleges that call center representatives were not paid for time spent booting up their computers at the start of their shifts.  A different District Judge in 2009 granted Seward’s motion for conditional certification of his FLSA claim, and 39 other plaintiffs later opted in.

Following discovery, IBM moved to decertify the class.  Magistrate Judge Paul Davison recommended that IBM’s motion be granted.  He first found that Seward did not show that “he shares common factual and employment settings with all of the opt-in plaintiffs . . . given the many differences in specific job duties, team functions and structures, managerial expectations, and individual experiences and understandings among the plaintiffs.”  The Magistrate Judge also found that IBM’s potential defenses would be highly fact-specific and depend on testimony of individual plaintiffs and their managers, concluding that “fairness requires that this collective action be decertified given the various individualized issues presented in the case.”

Seward’s sole objection to that recommendation was that the case should proceed on behalf of a sub-class of about half the opt-ins, who, like Seward, were alleged to have been required to be “call ready” at the start of their shifts.  In his March 9 ruling, Judge Briccetti rejected that objection.  He held that Seward had failed to present the argument to the Magistrate Judge and that IBM had objected to it in response to questions from the bench during oral argument.

Judge Briccetti also held that IBM would be prejudiced by the certification of such a sub-class.  In light of conflicting testimony on the “call ready” point and IBM’s fact-specific defenses to that claim, the court held that a sub-class would be inappropriate “without the issue being raised and fully heard” by the Magistrate Judge.

Seyfarth Shaw "Writes the Book" on Wage-Hour Litigation

law-book-271x300.jpgAuthored by:  Noah Finkel, Brett Bartlett, Andrew Paley and Richard Alfred

Members of Seyfarth Shaw's Wage and Hour Litigation Practice Group have authored Wage & Hour Collective and Class Litigation, the first-of-its kind treatise on wage and hour litigation. Published by American Lawyer Media's Law Journal Press, the 912-page volume is the most comprehensive guide published to date that focuses on litigation strategy through all phases of wage and hour lawsuits, the area of high-stakes litigation that, as readers of this blog well know, has plagued employers in recent years.  Indeed, wage and hour lawsuits have outpaced all other types of workplace class actions in recent years, and have surged by more than 325% since the early 2000s.

The book blueprints the mechanics of wage and hour cases, examines how employers in multiple industries are targeted for wage and hour lawsuits, and provides substantive procedural and practical considerations that determine the outcome of such actions in today’s courts.  Principally designed to assist employment litigators and in-house counsel, Seyfarth’s book should also prove useful to senior management seeking to fend off wage-hour actions before they strike.

The guide has already received praise from the Honorable Elaine L. Chao, the 24th U.S. Secretary of Labor, who stated: “Given the recent explosion of wage and hour litigation, both management- and plaintiff-side attorneys will find this publication to be an invaluable reference. With its painstaking attention to the law and procedure, this treatise will certainly be the go-to resource when practitioners ponder questions of strategy and substance in the context of wage and hour cases.”

The book was authored by Noah Finkel, Brett Bartlett and Andrew Paley, who practice in the firm’s Chicago, Atlanta and Los Angeles offices respectively. Richard Alfred, Boston-based chair of  Seyfarth’s national Wage & Hour Litigation Practice, served as senior editor.  More than 70 other Seyfarth attorneys, many of them regular contributors to this blog, contributed to the book, which will be updated regularly.

Wage & Hour Collective and Class Litigation takes up 27 chapters and covers the complex rules surrounding all types of wage and hour lawsuits. These include claims under the Fair Labor Standards Act, claims under state wage and hour laws, or hybrid cases involving both, as well as special issues involving government contractors. It advises employers on:  how to respond to a wage and hour complaint; what to consider when deciding whether to remove a case to federal court; how to assess the particular merits of a claim; whether to settle; how to oppose plaintiffs' motion to facilitate notice for conditional certification; what kinds of affirmative defenses are best; and how to tilt the odds in favor of the defense.

Among topics covered by the book:

  • The certification process and the impact of conditional certification
  • Decertification and its sometimes unexpected consequences
  • Defending against state law wage and hour class actions brought under Federal Rule of Civil Procedure 23
  • Discovery issues and strategies in class and collective actions
  • Special considerations under California law, one of the country’s leading venues for wage-hour cases
  • Issues raised by ERISA claims in wage and hour cases
  • Coordinating or consolidating multiple simultaneous class actions
  • Meeting the duty to preserve information, including electronically stored information
  • The pros and cons of arbitration
  • Motions for summary judgment and the optimal time to file
  • Civil remedies, including calculation of unpaid overtime and liquidated damages
  • Actions by the Secretary of Labor to recover unpaid wages and overtime
  • Defending  "independent contractor"  cases
  • Calculating the  "regular rate"  for purposes of the FLSA

Wage & Hour Collective and Class Litigation can be purchased from Law Journal Press by clicking here.  Readers of Seyfarth's Wage & Hour Litigation blog can use discount code 2128982 at checkout to obtain a special discounted introductory price of $195 for the print & online access bundle or $163 for online access only. The purchase price includes a one-year long subscription to all updates.

 

Certification of Call Center Class Given the Boot

USDCSDNY.jpgAuthored by Loren Gesinsky

On January 20, 2012, Magistrate Judge Paul E. Davison of the Southern District of New York recommended decertifying the off-the-clock FLSA claims of 40 current and former IBM call-center representatives in Seward v. IBM.  While noting “the scarcity of cases within the Second Circuit” addressing this type of motion, he relied heavily on Zivali v. AT&T Mobility, in which Judge Jed S. Rakoff of the same Court, eight months earlier, decertified off-the-clock claims of over 4,100 retail-store employees.

As the sole named plaintiff, Seward failed to meet his burden of proving he was similarly situated to the 39 opt-in plaintiffs in relation to the three key factors identified in Zivali

  1. common or disparate factual and employment settings of the individual plaintiffs;
  2. defenses available which appear common to all plaintiffs or individual to each plaintiff; and
  3. fairness and procedural considerations.

For the first factor, the Court found that IBM’s timekeeping system and overtime policies were legal because, although time entries were pre-populated electronically, plaintiffs could add — and some opt-in plaintiffs were directed by their supervisors to add — boot-up time outside regular hours.  The Court also found that “the many differences in specific job duties, team functions and structures, managerial expectations, and individual experiences and understandings among the plaintiffs” prevented Seward from proving a sufficiently uniform and pervasive policy requiring him and all the opt-in plaintiffs to engage in system-boot-up activities off the clock.  For example:

  • answering incoming calls was not the primary function of many opt-in plaintiffs;
  • 27 opt-in plaintiffs worked for at least one manager who did not expect or require pre-shift work;
  • several managers organized their teams’ schedules into staggered, overlapping shifts so that there would always be phone coverage, even at the start of a particular opt-in’s shift;
  • some opt-ins arrived at the office early for personal reasons and then engaged in personal activities (eating, drinking, socializing, browsing the internet, etc.) rather than boot-up activities;
  • badge-swipe data regarding office entry indicated that 2 opt-ins did not arrive early enough to engage in booting-up activities prior to their shifts; and
  • 1 opt-in’s shift started an hour before telephone lines were even open.

The same facts supported IBM’s claim that its defenses will be individualized.  These defenses will depend on evidence rife with disparities regarding whether pre-shift work was necessary or expected, whether plaintiffs actually engaged in such work (and, if so, how much time they spent booting up), and whether managers knew or should have know that plaintiffs were engaging in this work.  Other than actual boot-up time, all of this evidence relates to liability and therefore could not be resolved simply by bifurcation.

The Court then stated that the third-factor determination of fairness and procedural questions “appears largely to depend on the Court’s analysis under the first two factors of the test.”  While recognizing that representative testimony might be appropriate on some issues such as management requirements or the functions of different teams, the Court found that such testimony would be inappropriate on the rest of the factual issues, thus making continued certification through trial unwieldy and unfair.

Additionally, the Court recommended full rather than partial decertification, in part because neither party requested partial decertification and IBM specifically objected to it during oral argument.

The parties have 14 days from service of the Report and Recommendation to serve and file objections with District Judge Vincent L. Briccetti.  We intend to report on the resolution of any such objections and other developments of note in this case.

Dollar Tree Class Whittled Down to Nothing

gavel.jpgAuthored by Brandon McKelvey

Relying on the Supreme Court's recent decision in Dukes v. Wal-Mart, a federal judge in California decertified a class of Dollar Tree store managers claiming they were misclassified as managers under California law.  The Supreme Court's decision in Dukes, as well as recent Ninth Circuit decisions in employment class action cases, persuaded the court that the class he had previously certified could not proceed to trial as a class action because of "unmanageable difficulties." 

 Over the course of two years plaintiffs saw what was once a certified class slowly whittle away in the wake of Ninth Circuit and Supreme Court decisions denying class action treatment in employment cases.  In May 2009, the court initially certified a class of 718 store managers based on Dollar Tree's practice of having the store managers answer "yes" or "no" on a weekly payroll certification form that asked whether they spent the majority of their time performing management duties.  In September 2010, however, the court partially decertified and narrowed the class to the 273 managers who answered "no" on the weekly payroll certification in response to the Ninth Circuit's decisions in Vinole v. Countrywide Home Loans, Inc. and In re Wells Fargo Home Mortgage Overtime Pay Litigation. 

 After the court's partial decertification order, both parties presented evidence that the payroll certification forms were not reliable, including testimony from class members under oath that the certifications were not truthful.  Based on this testimony plaintiffs revealed that at trial they would rely on individual testimony as opposed to the payroll certification forms.  The court found that plaintiffs' proposed plan to try the case based on representative testimony from a handful of class members, while questionable under prior law, was untenable in light of the Ninth Circuit's decision in Marlo v. UPS and the Supreme Court's decision in Dukes.  The court pointed out that both Marlo and Dukes required class action plaintiffs to produce common proof of class-wide liability and that the plaintiffs had failed to produce such proof by relying solely on the testimony of individual class members.  The court concluded that without the common element of the certification form responses, there was no "glue" holding all of the individualized experiences of the class members together and thus continued class treatment was inappropriate.   

 The court's decertification of the class is consistent with rulings from the Supreme Court and Circuit Courts denying class action treatment in employment class action cases, particularly those involving misclassification claims.

If At First You Don't Decertify, Try, Try Again

Co-authored by Noah Finkel and Rachel Urquhart

images1.jpgDespite rejecting all prior opposition to collective and class action certification of a class of 2,300 cable installation technicians, on the eve of a June 6, 2011 trial, U.S. District Judge Barbara Crabb of the Western District of Wisconsin decertified both the collective and class action because the plaintiffs’ proposed trial plan revealed that the class was simply not manageable at trial.  Decertification can difficult to achieve when addressed in the abstract at the decertification stage, particularly where, as in Espenscheid v. DirectSat USA, the plaintiffs couch their claim as a “common” challenge to “a set of uniform policies and practices.”  But this case demonstrates that, when viewed in the practical light of trial management, substantial variations in how individual plaintiffs responded to numerous common policies and practices can preclude effective and efficient management of a collective trial. 

In her initial denial of DirectSat’s decertification effort, Judge Crabb concluded that the great variations in class members’ employment experiences and theories of liability could be alleviated by creating three subclasses: (1) plaintiffs denied overtime due to underreported hours between the first and last service of the day; (2) plaintiffs denied overtime for work performed before the first or after the last service of the day; and (3)  plaintiffs whose wages for nonproductive work were calculated improperly. But when later faced with plaintiffs’ trial plan to present representative testimony from 42 plaintiffs to prove the claims of 2,300 individuals, the court balked and seized on the reality that the individualized  issues bearing on claims of absent class members could not be fairly addressed through representative testimony.  The court thus departed from its earlier rulings and concluded that the case was too difficult to manage collectively. 

The court’s concerns arose in the context of a motion for reconsideration of an order denying an earlier motion to strike plaintiffs’ expert report.  In its May 12 Order granting reconsideration and striking the expert damages report, Judge Crabb noted that without an expert, plaintiffs could not establish class-wide damages.  Perhaps more significantly, plaintiffs failed to address concerns raised in the court’s May 6, 2011 order denying the motion to strike, namely that plaintiffs had not proposed any reliable method to prove that absent class members and opt-in plaintiffs performed work for which they were not properly compensated.  Plaintiffs’ failure in this regard doomed both collective and class treatment of their claims.  

Convincing a judge that a collective action should be decertified can, in some cases, be a difficult hurdle to clear.  But when presented in the more practical light of how trial will proceed, an employer may stand on much stronger ground.  In many cases, a trial by representative evidence simply is not feasible, yet the decertification review of “similarly situated” plaintiffs and fairness and procedural considerations often does not do justice to these practical concerns.  In Espenscheid, the structure developed  by Judge Crabb to allow the case to proceed collectively ultimately collapsed.  The plaintiffs repeatedly failed to develop and present a workable trial plan that would allow an efficient proceeding without depriving DirectSat of its right to litigate individualized issues essential to its defenses.   

For employers, the Espenscheid decision highlights two important points.  First, whether a case can proceed collectively depends to a significant extent on manageability, particularly manageability of trial.  Focusing on defenses and issues that will require individualized proof and/or testimony at trial and bringing those defenses to the forefront early in the litigation may cause a court to question the manageability of a case even at the conditional certification stage.  Second, even if a case is ultimately certified, an employer should not be resigned to continued certification.  When viewed from a distance the prospect of a messy and time-consuming trial may not motivate a court to deny conditional certification or even decertify a class, but as jury selection draws nearer, the practical realities of trying a collective action may cause the court, like the Espenscheid court, to change course.  In Espenscheid, DirectSat won the war through its persistent reminders to the court that collective treatment of plaintiffs’ claims was not possible and it did this even though it lost the battle at every stage along the way.   

Although the result in Espenscheid was the right one, the path to that result was far from ideal for the parties or the court, because it caused the parties to expend considerable resources.  Espenscheid and Johnson v. Big Lots Stores, Inc., 561 F.Supp.2d 567, 586 (E.D. La. 2008) (in which decertification occurred after trial evidence confirmed the class was not similarly situated) both provide compelling examples of why courts should focus on the practical implications of collective treatment at trial earlier in the life of a putative collective action.  Indeed, what may appear as “a just balance of equities” at the decertification stage may crumble when considered in the context of presenting trial evidence.  

What Can Brown Do For You? A Lot in Breaking Up a Class Action

9thCircuitSeal.jpgAuthored by Dana Fleming

The Ninth Circuit recently affirmed a district court decision to decertify a class of full-time supervisors employed by United Parcel Service, Inc. (“UPS”) where the only basis for class-wide treatment was UPS’s uniform policy treating all of its supervisors as exempt from overtime pay and meal- and rest-break requirements.  A common strategy of plaintiffs’ counsel is to base their class certification argument on the argument that the mere existence of a uniform policy or practice treating a challenged job in a misclassification case as exempt suffices to obtain class certification for Rule 23 purposes.  In Marlo v. UPS, a case decided recently by the Ninth Circuit, the court rejected that argument.

Marlo sued UPS in 2003 on a class basis, claiming that UPS misclassified its full-time supervisors as exempt under California law.  The district court initially certified a class of approximately 1,200 full-time supervisors.  The following year, the district court granted summary judgment for UPS, but Marlo appealed, and the Ninth Circuit reversed and remanded. 

On remand, the district court decertified the class, concluding that the existence of a uniform policy classifying all supervisors as exempt was insufficient to proceed on a class-wide basis.  The court also concluded that California law requires a week-by-week showing that the work actually performed by employees will qualify them for exemption. 

Marlo proceeded to trial on an individual basis, and the jury returned a partial verdict in his favor. UPS and Marlo both appealed.

The Ninth Circuit affirmed both the district court’s decision to decertify the class and (unfortunately for UPS) the $1.4 million jury verdict for Marlo.  After reviewing the district court’s reasoning in the case, the Ninth Circuit found no abuse of discretion and concurred that Marlo had failed to satisfy his burden to establish predominance because he had only submitted evidence of UPS’s centralized control and its uniform policies and practices.  In the Ninth Circuit’s own words:  “The fact that UPS expects supervisors to follow certain procedures or perform certain tasks does not establish whether they actually are ‘primarily engaged’ in exempt activities during the course of the workweek.

To maintain class certification, the court ruled, Marlo had to do more than point to a few general corporate policies about the exempt status or general duties of UPS supervisors.  He had to provide some “common proof” that all full-time supervisors at the company were actually engaged in nonexempt work.  This, the Ninth Circuit concluded, Marlo had failed to do. 

The Ninth’s Circuit decision in Marlo is consistent with recent rulings from the U.S. Supreme Court and Circuit Courts, which suggest closer scrutiny of certification decisions and a possible trend away from large-scale class action treatment.  Of course, the much anticipated Supreme Court decision in Dukes v. Wal-Mart will provide further guidance on this issue. (See Seyfarth Shaw's March 29, 2011 Management Alert for additional information in Dukes v. Wal-Mart.)

Seyfarth Shaw’s Wage & Hour Litigation Blog is a resource for employers to stay current on developments in wage and hour law, including recent court decisions, legislative updates, and Department of Labor compliance, rule-making and enforcement activities...

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