The Wage and Hour Litigation Blog

Co-authored by Richard Alfred and Patrick Bannon

Did the Supreme Court’s decision last month in Comcast v. Behrend make it harder for plaintiffs to pursue wage and hour claims as class actions?  An early consensus says “Yes.” 

As we reported previously [read here], the Supreme Court itself, in Ross v. RBS Citizens, N.A., immediately applied Comcast to a wage and hour case, instructing the Seventh Circuit to reconsider whether off-the-clock work claims under Illinois law could be pursued as a class.

Since then, four federal district courts have considered the impact of Comcast on state law wage and hour class certification.  One court denied class action status to two of the plaintiffs’ three claims.  The other three courts refused to allow any class action at all.  All four judges interpreted Comcast to mean that cases requiring significant individualized proof of damages -- as most wage and hour cases do -- should not proceed as class actions. 

In Martins v. 3PD, Inc., issued the day after Comcast was announced, a federal judge in Massachusetts refused to allow the plaintiffs to pursue a claim for alleged unlawful pay deductions or “unjust enrichment” on behalf of a proposed class of more than 66 delivery drivers.  Citing Comcast, the judge noted that calculating what was deducted from whom “would require complex individual inquiries not suited to class-wide litigation.”  The only claim as to which the judge approved a class action was one that the judge found would not require individualized evidence. 

In Roach v. T.L. Cannon Corp., the plaintiffs claimed that a restaurant chain operator had a policy of denying employees extra pay required by state law for work days spanning more than 10 hours and of deducting non-existent rest periods from employee time records.  Relying on Comcast, a federal judge in the Northern District of New York refused to allow a class action, finding that damages could only be proven individually and that individual damages questions would inevitably overwhelm questions common to the class. 

In Smith v. Family Video Movie Club, Inc., a federal district judge in Illinois refused to allow two former employees of a video rental store chain to pursue off the clock work and miscalculation of overtime claims as a class action.  In finding that the plaintiffs failed to satisfy several of the requirements for pursuing damages on behalf of a class, the court noted that Comcast requires that “damages must be susceptible to measurement across the entire class, and individual damages calculations cannot overwhelm questions common to the class.” 

Most recently, on April 17, 2013, in Ginsburg v. Comcast Cable Commun. Mgmt. LLC a district court judge in Seattle relied on Comcast in refusing to allow call center employees to pursue pre-shift work claims under Washington law as a class.  The court  concluded that each employee’s damages would inevitably depend on individualized evidence of his or her pre-shift activities.  Accordingly, citing and quoting Comcast, the judge denied class certification on the grounds (among others) that individual damages issues would overwhelm issues common to the class.

We are not aware of any other wage and hour cases in which courts have interpreted Comcast or any cases that have found Comcast inapplicable to the predominance requirement of wage and hour state law class claims. Thus, an early consensus is forming that Comcast means what it says:  courts must carefully analyze whether the need for individualized proof of damages makes many wage and hour cases unsuitable as class actions.

We will continue to report on the impact of this important Supreme Court decision on wage and hour cases. 

By Noah Finkel and Richard Alfred

We have long argued that the best path for defeating a hybrid state law wage and hour claim is not through a motion to dismiss but by making a strong lack of superiority argument to defeat class certification.

It is therefore not surprising to us that the Ninth Circuit joined several other Circuits last week in finding that the opt-in requirement of an FLSA collective action does not mandate dismissal of a state law opt-out class action.  In Busk v. Integrity Staffing Solutions, Inc., [HERE] a Nevada district court had dismissed a state law overtime class action under Fed. R. Civ. P. 12(b)(6) on the basis of the conflicting mechanisms of the FLSA’s opt-in and Rule 23(b)(3)’s opt-out requirements. But the Ninth Circuit reversed, reasoning that nothing in the FLSA’s text or legislative history suggests that a hybrid state opt-out claim must be dismissed or that permitting such a hybrid state class action would thwart Congressional intent.

Some plaintiffs’ attorneys and even some courts may now believe that hybrid wage-hour lawsuits -- those that are brought under both the FLSA’s collective action mechanism and under state wage-hour laws pursuant to Rule 23 -- may proceed together so long as plaintiffs are able to meet their burden of meeting the Rule 23(a) and 23(b)(3) factors. 

Of course, adding a class claim to an FLSA collective action dramatically increases the exposure for defendants and the settlement value of the case.  This is because FLSA opt-in rates are typically between 10% and 20% of the potential plaintiffs, while the opt-out rates of class members are negligible. The effect of this is that collective members who choose not to opt-in may nevertheless find themselves included in a class in the very same lawsuit unless they take affirmative steps to write and file an opt-out notice.   

Employers defending hybrid FLSA collective and state law class actions have in the past tried to eliminate the state opt-out class claim at the early stages of litigation through a motion to dismiss or to strike, usually arguing that collective and class actions are “inherently incompatible.” Those efforts have met some success, but the Ninth Circuit’s decision in Busk, the fifth Circuit Court to rule similarly, increases the headwinds for the success of such an approach.  This by no means portends clear sailing for plaintiffs asserting hybrid state law class claims.

Enter Rule 23(b)(3)’s superiority requirement.  Under this requirement, a plaintiff must prove that a state class action is “superior to other available methods of the fair and efficient adjudication of the controversy.” The FLSA’s opt-in procedure is just such an “other available method.”  How can a plaintiff argue that including class members by default is superior to allowing those same individuals the free choice to join or not to join the same lawsuit by opting-in?

We view this rhetorically.  In the vast majority of cases it will be very difficult for a plaintiff to demonstrate that an opt-out class action asserting overtime or minimum wage violations is superior to the FLSA’s straight-forward collective action mechanism, especially with the low burden of proof that most courts currently apply in ruling on a plaintiff’s motion for conditional certification/to facilitate notice.  Even in cases where state overtime or minimum wage laws provide additional remedies or a longer limitations period, superiority usually cannot be established because there is nothing that prevents an FLSA opt-in plaintiff, once in the case, from asserting a state law claim in addition to an FLSA claim.  

The only circumstance that may allow for a plaintiff to prove superiority of a class claim is where there is sufficient evidence of actual or threatened retaliation that chills potential plaintiffs from joining the lawsuit.  But, this must be shown with actual evidence not a plaintiff’s frequent unsupported claim of retaliation “in the air.”

As the Supreme Court has repeatedly emphasized, most recently in Comcast Corp. v. Behrend as we have discussed in recent posts [HERE and HERE], a class action is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only” and that Rule 23 “does not set forth a mere pleading standard.”  Rather, Rule 23 must be satisfied through “evidentiary proof” rigorously analyzed by the courts.  This is especially the case for Rule 23(b)(3) class actions, which the Supreme Court has called an “adventuresome innovation” designed for situations in which “class-action treatment is not as clearly called for.” 

Rulings such as Busk that reject an employer’s attempts to dismiss class claims at the pleading stage should not be read as a green light for hybrid wage-hour collective/class actions.  Rather, defendants should focus on the demanding  hurdles for class certification including, in this context, superiority.

Co-authored by Richard Alfred and Patrick Bannon

Is a class action permitted if each class member’s damages would have to be proven separately rather than measured on a class-wide basis?

The Supreme Court’s 5 - 4 majority opinion today in Comcast Corp. v. Behrend raises this fundamental question.  The implications for wage and hour class and collective actions are monumental.

As we have reported previously (read more here), the issue in Comcast was whether the claims of 2 million cable subscribers that Comcast illegally inflated prices were appropriate to litigate together in a class action.  The district court judge and the Third Circuit ruled that class certification was appropriate because common issues of law and fact predominated over issues affecting only individual subscribers.  In particular, the lower courts concluded that the plaintiffs’ expert’s report -- even if flawed --  showed that the amounts subscribers overpaid could be calculated on a class-wide basis.

The Supreme Court reversed the lower courts.  In doing so, the Court ruled that the district and appellate courts should have paid attention to the flaws in the expert’s report because those flaws made it useless as a methodology for calculating class-wide how much the subscribers were allegedly overcharged.  As discussed further in Seyfarth’s Workplace Class Action Litigation blog post on Comcast, the Supreme Court reached this conclusion even though it required an examination of the merits of the case, as allowed by Wal-Mart v. Dukes.

The plaintiffs’ inability to show that damages could be measured on a class-wide basis, the Supreme Court ruled, meant that the case was not a proper class action because “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.”  Even if the expert report had not been flawed, the Court wrote, “it still would not have established the requisite commonality of damages unless it showed that the extent of the [alleged antitrust violations by Comcast] was the same in all counties or  . . . irrelevant to [Comcast’s] ability to charge supra-competitive prices.”  These statements imply that a case cannot satisfy the predominance of common issues requirement of Dukes if each plaintiff’s damages must be proven separately. 

Justices Breyer and Ginsburg, in a dissenting opinion joined by Justices Sotomayor and Kagan, argued that the Court’s opinion should not be so interpreted.  “Recognition that individual damages calculations do not preclude class certification under Rule 23(b)(3),” they argued, “ is well-nigh universal.”  The dissenters did not cite any Supreme Court cases approving a Rule 23(b)(3) class action requiring individualized proof of damages.  That they felt the need to try to minimize the scope of the Court’s ruling only reinforces that it is indeed significant. 

In the almost two years since Wal-Mart v. Dukes, Plaintiff-side lawyers have sought to limit Dukes’ reasoning to the specific type of class action (a Rule 23(b)(2) class) and type of legal claims (discrimination claims) presented in that case, and some courts have agreed.  In Comcast, the Supreme Court made clear that the principles of Dukes are intended to apply to class actions generally, applying them to a Rule 23(b)(3) class action in a very different substantive area.

For employers defending state wage and hour law class actions, which are generally brought under Rule 23(b)(3), Comcast is especially important.

Wage and hour damages usually depend on individualized proof.  For example, in off-the-clock work cases, each potential class member’s damages typically depend on her specific work schedule, routine, activities and other individualized factors.  Likewise, in exempt classification cases, employees often claim to have worked different amounts of overtime in different weeks, and the employer’s evidence of hours worked may vary from employee to employee.  By stating that common issues can predominate only in cases in which damages can be calculated on a class-wide rather than an individualized basis, Comcast gives employers a potent weapon for defeating class certification in Rule 23 wage and hour cases. 

Co-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.

Co-authored by:  Jeremy W. Stewart and Kyle Petersen

On January 10, 2013, U.S. District Judge Barbara Crabb of the United States District Court for the Western District of Wisconsin issued an order denying the plaintiffs’ motion for class and collective action certification of unpaid meal period claims in Boelk, et al. v. AT&T Teleholdings, Inc., et al., No. 3:12-cv-0040-bbc (W.D. Wis. 2013).   This decision is significant for employers because the Court follows the instruction given by the Supreme Court in Wal-Mart Stores, Inc. v. Dukes to perform a “rigorous analysis” to determine if Rule 23(a)’s commonality requirement has been met, and because it provides guidance for defeating conditional certification -- a challenging task -- of a FLSA collective action under 29 U.S.C. § 216(b).

The Boelk plaintiffs are current and former non-exempt, field service technicians who claim that defendants failed to pay them and other field service technicians all wages owed because: (1) the defendants’ restrictions on where technicians take breaks and what they can do during their breaks are such that the breaks are not bona fide, and are therefore compensable, and (2) defendants’ efficiency rating system compels employees to work through meal breaks without reporting the time as hours worked.  Plaintiffs attempted to pursue these claims as a “hybrid” collective action under the FLSA and Rule 23 class action under Wisconsin’s Wage Payment Act.

Plaintiffs argued that their first claim satisfies the commonality requirement of Rule 23(a) because the primary question to be resolved as to all proposed class members is “whether the restrictions limited technicians’ breaks so much that the breaks should have been compensated.”  Judge Crabb held that this “common question” is insufficient because it is not framed in terms of the actual elements of a claim under state or federal law, which is critical because, “as the Supreme Court made clear in Dukes, commonality is not simply a matter of common questions, ‘even in droves,’ but rather, whether the class proceeding can generate ‘common answers, apt to drive the resolution of litigation.’”  Here, the plaintiffs cited no law supporting the proposition that an employer must pay employees for meal breaks because employer restrictions prohibit employees from doing what they want on break, regardless of whether employees are performing work or activities that predominantly benefit the employer.  The failure to properly frame the common question in terms of whether the meal period restrictions result in technicians engaging in activities that predominantly benefit defendants, which is compensable, coupled with a lack of individual or classwide evidence that the restrictions resulted in such activities, doomed the first claim. 

In reaching her decision, Judge Crabb, who also decided Espenscheid v. DirectSat USA (discussed here) and Ruiz v. Serco, Inc., two of the most employer friendly wage and hour decisions in recent memory, distinguished this case from the Seventh Circuit’s decisions in Ross v. RBS Citizens, N.A. (overtime), and McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (race discrimination), by noting that, unlike Ross and McReynolds, the plaintiffs failed to offer proof of companywide policy that resulted in the alleged violation.  Instead, the evidence suggested that local supervisors were charged with significant discretion in the enforcement of meal break restrictions.  Accordingly, the plaintiffs failed to show that common questions could be resolved on a classwide basis using common proof.

Judge Crabb also held that plaintiffs’ second claim – defendants’ efficiency rating system compels employees to work through meal breaks without reporting the time as hours worked – fails to satisfy the commonality requirement of Rule 23.  With respect to this claim, Judge Crabb identified the “crucial question” as “why plaintiffs and other technicians worked through all or part of their meal breaks without reporting their doing so.”  According to Judge Crabb, this question is incapable of resolution on a class-wide basis because the answer turns on fact-intensive, individualized inquiries as to why a technician worked during a meal period on any given day. 

After determining that  Rule 23 class certification was inappropriate for the Boelk plaintiffs’ state law claims, the Court turned to plaintiffs’ FLSA claim.  Because the plaintiffs were seeking conditional certification, they urged the Court to apply the lenient standard typically used by Courts at the first stage of the two-step certification process.  The Court rejected the plaintiffs’ argument because “the parties have conducted significant discovery.”  Specifically, the record contained declarations, all six named plaintiffs had been deposed, two potential opt-ins had been deposed, and plaintiffs had taken a Rule 30(b)(6) deposition.  The Court held that, accordingly, “it is appropriate to apply more scrutiny to plaintiffs’ claim than would normally be applied at the conditional certification stage.”  In doing so, the Court referred to its Rule 23 commonality analysis and concluded that the plaintiffs failed to establish that they and the putative class members “were victims of a common policy or plan that resulted in common injuries.”  Rather, the  “plaintiffs’ experiences with respect to the meal break restrictions were not common and varied depending on their individual practices and particular supervisor.”  Thus, the Court held that plaintiffs were not similarly situated to the putative class they sought to represent and denied plaintiffs’ motion for conditional certification under the FLSA.

This case shows that, despite the so-called lenient standard, courts are willing to scrutinize motions for conditional certification, especially where discovery has been taken.  Employers defending collective actions should consider taking early discovery aimed at identifying individualized issues that may ultimately result in a determination that a common answer(s) cannot resolve the claims at issue.

Co-authored by Richard Alfred and Kevin Young

It has been more than a year since the Supreme Court’s landmark ruling in Wal-Mart Stores, Inc. v. Dukes, and its impact on wage and hour class actions remains hotly debated.  While plaintiffs’ attorneys have argued that the decision is limited substantively to discrimination cases and procedurally to Rule 23(b)(2) class actions, an increasing number of court rulings have endorsed  the application of Dukes’ commonality and due process holdings to wage and hour claims, at least in state law class actions.  The issues were the focal point last Tuesday when the Ninth Circuit heard oral argument in Wang v. Chinese Daily News.  The Ninth Circuit had previously affirmed the district court’s handling of the case––including its certification of a class under Rule 23(b)(2) and its judgment for the plaintiffs following a jury trial––but the Supreme Court vacated that ruling post-Dukes and sent the case back to the Court of Appeals for “further consideration in light of ... Dukes….”  The Ninth Circuit’s ruling this time around will almost certainly impact Dukes’ application in wage and hour class actions.

Wang took a protracted path to last week’s oral argument.  It began over eight years ago, in March 2004, when three employees of the Chinese Daily News filed a hybrid class action in a California federal district court, alleging violations of both the FLSA and California Labor Code  arising from alleged unpaid overtime and meal and rest break violations.  In 2005, the district judge certified a California class of 200 individuals under Rule 23(b)(2), or, in the alternative, 23(b)(3).  (Rule 23(b)(2) class claims seek equitable relief, such as an injunction, while (b)(3) classes seek monetary relief.  Any plaintiff seeking class certification under either provision must show that there are common questions of law or fact among the putative class members, but a plaintiff seeking a (b)(3) class must also show that those questions predominate over individualized questions and that a class action is superior to other methods of adjudication.)

The newspaper suffered a string of defeats in the ensuing years.  In 2006, it tried and failed to decertify the class.  In 2007, a jury returned a verdict in the plaintiffs’ favor, and in 2008, the district judge entered judgment against the newspaper in the amount of $5.2 million.  Finally, in 2010, the Ninth Circuit affirmed the district court’s handling of the case, including its decisions on class certification and judgment. 

But the case took a turn in 2011, as the newspaper petitioned for Supreme Court review at the end of March, and the Court decided Dukes just a few months later.  As we reported, Dukes tightened the standard plaintiffs must meet to satisfy Rule 23’s commonality requirement and made clear that a defendant has a due process right “to individualized determinations of each employee’s eligibility for backpay,” at least under Rule 23(b)(2).  Because this latter holding—which was unanimous—is based on Constitutional principles, defendants have reasoned that it applies to all class claims, not just discrimination class claims brought under 23(b)(2).  We agree and have argued that both holdings in Dukes apply to wage and hour class actions.  In late 2011, the Supreme Court vacated the Ninth Circuit’s ruling affirming Wang and remanded the case for consideration in light of Dukes—thus, Wang is a clear opportunity to address this issue. 

With Tuesday’s oral argument, the Ninth Circuit undertook its further consideration of Wang.  Having no choice but to concede that their class was not properly certified under Rule 23(b)(2), the plaintiffs argued that certification was nonetheless proper under 23(b)(3).  The newspaper argued otherwise in its briefs, urging that the tighter Rule 23 commonality requirement and due process concerns announced in Dukes applied to the plaintiffs’ Rule 23(b)(3) claims and were not satisfied.  At argument, the Ninth Circuit panel focused on three questions:  (i) how Dukes changes the class certification calculus in Wang, (ii) how the California Supreme Court’s decision in Brinker impacts the meal break issue, and (iii) what evidence the district court should use in deciding certification if that issue is sent back to the lower court for a post-Dukes assessment. These questions may signal the panel’s inclination to rely on Dukes to vacate the district court’s decision certifying a Rule 23(b)(3) class and to remand the case.

Of course, how the Ninth Circuit will rule remains uncertain.  The stakes are certainly high.  But if, as we predict, the court rules that the commonality and/or due process concerns addressed in Dukes apply in Rule 23(b)(3) wage and hour class actions, it will provide employers with new ammunition in their defense against such lawsuits.  Over time, it could force those bringing these lawsuits to narrow the scope of their proposed classes to satisfy Dukes-based concerns.  This would reverse the very troubling decade-long trend of forcing employers to defend wage and hour class claims based on insufficient evidence of commonality and grossly unfair and statistically inadequate representative proof of damages.

A ruling by the Ninth Circuit applying Dukes to Wang’s class claims would also create a split with 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 Dukes in the wage and hour class context.  In Ross, the Seventh Circuit found 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.

Coincidentally, RBS filed a petition for certiorari late last week, seeking Supreme Court review.  While Supreme Court review is rarely granted, the likelihood that it will be granted increases dramatically in the event of a circuit split.  While there is no split in the circuits at this time, a Ninth Circuit ruling in Wang applying Dukes to Rule 23(b)(3) wage and hour class actions would change that and enhance the chances that the Supreme Court will intervene.  We will, of course, keep our readers fully informed as developments arise.

Authored by Noah Finkel and Abad Lopez

Last month, a federal district court in Maryland rejected a proposed FLSA settlement as unreasonable based on the amount of the proposed attorney’s fees.  In Gionfriddo v. Zinc, et al., the Court compared the amount the individual plaintiffs were to recover ($15,000.18) to the proposed attorney’s fees ($100,000), and found the disproportionate figures unpalatable.  Review of attorney’s fees provisions in pure-FLSA settlements occurs when settling parties submit their agreement to the court for approval as a “fair and reasonable compromise” of a bona fide dispute.  Without such approval, there is a significant risk that the plaintiff will have been deemed to have never waived their FLSA claims, and thus can sue their employer again even after already having received a payment pursuant to settlement.

In rejecting the proposed settlement, the Court here used the lodestar method to evaluate the plaintiffs’ proposed attorney’s fees.  To determine the reasonable hours expended and a reasonable hourly rate, the Court considered “the amount in controversy and the results obtained in the case.”  In doing so, the Court found that the low recovery for Plaintiffs compared to the high attorney’s fees was improper.  The Court noted that “because the proposed settlement agreement provided a fee award greatly in excess of the amounts to be paid to the individual plaintiffs, that request was likely not reasonable.” 

The Court rejected Plaintiffs’ position that comparing the damages award to the attorney’s fees was improper.  In doing so, the Court adopted the “proportionality” approach to the loadstar analysis.  The Court noted that because Plaintiffs obtained only a partial victory through summary judgment, the proposed fees were unwarranted.  By accepting a small percentage of the maximum available recovery, the Court held that Plaintiffs’ attorney achieved only a limited success.  Therefore, awarding the hours expended for the entire case would be unreasonable.   The Court directed the parties to reassess the proposed fees to account for the degree of success achieved by Plaintiffs or face a hearing on the issue of damages and fees. 

There is good news and bad news for employers in this opinion.  On the one hand, it can help employers negotiate settlements with lower fee amounts -- and thus a lower total payout -- when the plaintiff achieves, or appears headed to achieve, only partial success.  On the other hand, this ruling, if followed by other courts, makes it more difficult to settle FLSA cases because it demonstrates a reluctance to approve relatively early settlements where the payment to the plaintiffs is less than the payments to the attorneys. 

Such reluctance may be misplaced.  Here, the Court applied the stringent standard for approving class action settlements under Federal Rule of Civil Procedure 23.   For class actions under Rule 23, a court may compare the proposed payment to the class with the proposed attorney’s fees.  A disproportionate attorney’s fee award may suggest a “collusive settlement,” which may be rejected.  This serves to protect absent class members.  This concern, however, is nonexistent in FLSA collective actions, because those who did not opt in to the case are not bound by the settlement.  Further, several courts have recognized that whether a compromise of a claim for back pay is a “fair and reasonable” has nothing to do with the amount of attorneys fees in the settlement.  So long as the money received by the plaintiffs is sufficient given the maximum value of their claim and the risks they face, a settlement should be approved as “fair and reasonable,” even if the attorney’s fees are high.

To avoid this situation, employers should ensure that FLSA settlement agreements provide that the underlying agreement is enforceable even if a court rejects or reduces the proposed attorney’s fees, and that plaintiffs’ counsel are obligated to dismiss the case even with a reduced fee amount.  Employers also should consider other creative approaches to avoid a court rejecting settlements due to attorney’s fee agreements that could be considered disproportionate.

Co-Authored by Brandon McKelvey and Sophia Kwan

Yesterday, Federal District Court Judge John A. Kronstadt (Central District of California) denied certification to a proposed class of over 5,000 grocery employees at all WinCo Foods warehouse grocery stores in California.  In Hughes v. WinCo Foods, plaintiffs sought to certify a class of all hourly employees at WinCo stores in California on "late" meal period claims.  Plaintiffs alleged that WinCo failed to provide the grocery employees with meal periods during the first five hours of their shifts.  Citing the recent Supreme Court decision in Dukes, Judge Kronstadt found plaintiffs failed to establish the Rule 23 class certification requirements because WinCo gave store and department managers discretion over the timing and arrangement of meal periods.  As a result, the decision-making with respect to when employees took meal periods varied from store to store and department to department such that the timing of meal periods could not be proven reliably on behalf of the class with evidence in "a single stroke." 

WinCo operates thirty large discount warehouse grocery stores in California.  Each WinCo store has up to fifteen different departments, most of which are managed by hourly employees known as department managers.  Plaintiffs claimed that WinCo required manager permission for employees to take a meal period and therefore had control over the timing of meal periods, which according to plaintiffs distinguished the case from the Brinker decision that is currently pending before the California Supreme Court.  Judge Kronstadt, however, adopted Seyfarth's argument that managers had discretion to manage and arrange meal periods in varying ways in different departments thereby destroying commonality.  Also, because plaintiffs assigned partial responsibility for the alleged meal break violations to their supervisors (fellow hourly employees), and simultaneously sought to represent the same supervisors, the Court found there was a potential conflict of interest that raised concerns about adequacy of representation making the proposed class inappropriate. 

Relying on favorable deposition testimony and declarations obtained by Seyfarth showing wide variability of meal period practices from department to department and employee to employee, Judge Kronstadt concluded that plaintiffs "failed to carry their burden 'affirmatively [to] demonstrate' that the alleged meal period violations were the result of a common policy or practice, or otherwise demonstrate the predominance of common questions."  Because of the substantial individualized inquires that would be necessary to adjudicate plaintiffs' "late" meal period claim, the Court determined that the class action would devolve into hundreds or thousands of "mini-trials" and the superiority requirement was not met.

This case is another example of a federal court using Dukes to support denial of class certification, which is a growing trend previously reported on this blog. 

Co-authored by Brandon McKelvey and Fred Sanderson 

Citing the Supreme Court's recent decision in Dukes v. Wal-Mart, on December 30, 2011, the Ninth Circuit vacated its prior decision reversing a district court's denial of class certification under Federal Rule of Civil Procedure 23(b)(2). The Ninth Circuit's unpublished memorandum in Sepulveda v. Wal-Mart Store, Inc., indicates that the Supreme Court's decision in Dukes compelled the Ninth Circuit to reverse course.

The underlying case sought to certify a class of current and former assistant mangers of Wal-Mart who alleged they were misclassified as exempt from overtime requirements. Plaintiffs sought certification under Rule 23(b)(2) on grounds that class injunctive relief was appropriate, and under Rule 23(b)(3) on grounds that common questions of law and fact predominated on the misclassification issue. In 2006, a judge in the Central District of California denied class certification under both Rule 23(b)(2) and Rule 23(b)(3). As to Rule 23(b)(2), the court held that class certification was not appropriate because the monetary relief was not incidental to the injunctive relief sought, as plaintiffs were primarily seeking monetary relief in the form of overtime payments. On appeal, the Ninth Circuit reversed in part and held that the district court abused its discretion by denying class certification under Rule 23(b)(2) because it relied on the "not incidental test" not followed by the Ninth Circuit at the time. Wal-Mart then filed a petition for rehearing and the Ninth Circuit stayed its decision pending the Supreme Court's decision in Dukes v. Wal-Mart.

Last Friday, the Ninth Circuit vacated its prior order, acknowledging that the Supreme Court in Dukes explicitly adopted the "not incidental" test for certification under Rule 23(b)(2), and clarified that Rule 23(b)(2) "does not authorize class certification when each class member would be entitled to an individualized award of monetary damages." Because the putative class members primarily sought individual overtime payments and fewer than half of the putative class would benefit from injunctive relief, it was not an abuse of discretion for the district court to conclude that the monetary relief sought was not incidental to the injunctive relief.

The Ninth Circuit ruling ends plaintiffs' quest for class certification against Wal-Mart on assistant manager misclassification claims. This decision is consistent with other recent rulings from other district courts in the Ninth Circuit denying class certification based on Dukes in manager-misclassification suits, including similar cases against Dollar Tree and WinCo previously reported on this blog.

Authored by Robert Whitman

“Hybrids” are not just popular with Prius owners.  Plaintiffs’ wage-and-hour lawyers frequently bring collective and class action lawsuits that assert violations of the Fair Labor Standards Act and state wage laws in the same case based on the same basic set of facts – so-called “hybrid” actions.  While the tactic has been prevalent for years, its legal viability has not been definitively resolved.

The Second Circuit has now weighed in, holding that both kinds of claims can proceed together in the same lawsuit, notwithstanding the differences between the FLSA’s “opt-in” mechanism for collective actions and the “opt-out” procedure used for class actions under the New York Labor Law.  In Shahriar v. Smith & Wollensky Restaurant Group (2d Cir. Sept. 26, 2011), the court joined three other Circuits (the Seventh, Ninth and D.C.) in ruling that a District Court hearing an FLSA claim may exercise supplemental jurisdiction over a state law wage claim where the facts underlying both claims “form part of the same case or controversy.”  The Third Circuit has ruled to the contrary.

Shahriar involved tipping practices at the Park Avenue Restaurant in Manhattan.  The plaintiffs are current and former waiters or captains who allege that the restaurant unlawfully required them to share tips with managers and/or employees who do not regularly interact with customers.  They claimed that this practice precluded the restaurant from taking a “tip credit” (i.e., paying an hourly rate less than minimum wage) and violated applicable provisions of both the FLSA and the NYLL.  They also alleged that the restaurant violated the “spread of hours” requirement of the NYLL, which generally requires payment of an extra hour at minimum wage to any employee whose work days exceed 10 hours.

After discovery, the plaintiffs moved for class certification of their NYLL claims.  The District Court granted the motion and retained supplemental jurisdiction over those claims.  The restaurant appealed under Rule 23(f) of the Federal Rules of Civil Procedure.  The appeal attracted amicus curiae participation by the U.S. Department of Labor and the National Employment Lawyers Association, both on behalf of the plaintiffs.  There were no amici on the management side.

Holding that the lower court’s retention of jurisdiction was appropriate, the Second Circuit closely parsed the language of the supplemental jurisdiction statute, 28 U.S.C. § 1367, and concluded, based on the facts presented as reviewed under an abuse-of-discretion standard, that the “conflict” between an FLSA opt-in case and a NYLL opt-out case was not so compelling as to warrant that they be asserted in separate lawsuits.

After resolving the jurisdictional issues, the 2d Circuit went on to affirm the District Court’s class certification ruling under Federal Rules 23(a) and 23(b)(3).  Its decision on that score was unremarkable, save for one notable omission:  no discussion of the Supreme Court’s June 2011 decision in Wal-Mart Stores v. Dukes.  While it is unclear why the court did not discuss the case, we have noted previously that Dukes could have a transformative effect on certification issues in wage-and-hour cases, both at the “conditional” certification stage under FLSA § 216(b) and on class certification, or decertification, at a later stage.

To the extent the legal status of hybrid actions in the Second Circuit was open to question, Shahriar goes a long way toward removing the doubt.  In practice, defendants, for any number of strategic and practical reasons, often choose not to raise any jurisdictional objection to the prosecution of federal and state claims in the same lawsuit.  For those defendants that do seek to assert such a defense, the court’s decision clarifies the legal grounds for doing so.  Going forward, defendants will need to demonstrate significant tension between the pursuit of federal and state wage claims in the same lawsuit in order to limit plaintiffs to FLSA claims in federal court.

Co-authored by Richard Alfred, Lorie Almon, Andrew Paley, Noah Finkel and Brett Bartlett

Today, the U.S. Supreme Court issued its long-awaited decision in Dukes v. Wal-Mart Stores, Inc.  This opinion will transform Rule 23 law and dramatically change how workplace class actions are structured and defended and, in doing so, will also assist employers in defeating certification in wage and hour cases.

The 5 to 4 ruling reverses the Ninth Circuit in holding that class action certification should not have been granted in the case.  The ruling will be significant to employers because it holds plaintiffs in class litigation to a strict  burden under Rule 23(a) of establishing commonality among all putative class members as to the reason for a particular employment decision--the “glue” that holds the alleged unlawful conduct together.  The Court ruled that proof of commonality will frequently overlap with the merits of the case.  This is contrary to plaintiffs’ usual position that it is inappropriate to consider the merits of plaintiffs’ claims at the certification stage of class litigation.  In addition to commonality, the Court severely limited the use of Rule 23(b)(2), pertaining to cases seeking class-wide injunctive and declaratory relief, to back pay, ruling that such money damages may only be awarded under this rule when they are truly incidental to the requested equitable relief.  

Through its decision today, the Supreme Court radically changed the playing field for class action litigation.  See Seyfarth Shaw’s Workplace Class Action blog post for a more in-depth discussion of the Court’s decision.  While this change predictably will be most immediately seen in the way discrimination class claims are now litigated, the Court’s opinion in Dukes will also have dramatic and important consequences for wage and hour class and, by logical extension, collective actions. 

In federal court, plaintiffs’ state law wage and hour class claims are litigated under federal Rule 23, the same rule at issue in Dukes.  Even when litigated in state court, the class action rule applied there is often similar if not identical to Rule 23.  Even in those states, such as California, that technically or more substantively have a different procedure, state courts still look to federal procedural rules in applying their Rule 23 equivalent.  As a result, the Court’s rulings in Dukes strictly applying the rule’s commonality requirement, allowing consideration of the merits along with certification issues at least where there is overlap, and restricting back pay damages under Rule 23(b)(2) only when incidental to the claimed equitable relief will be of substantial help to employers in their defense of state law wage and hour claims. 

Commonality is often an issue in defending against broad nationwide, and even less ambitious wage and hour claims.  Plaintiffs typically contend that a company-wide policy is at play causing the alleged wage and hour violations.  This is almost always so in classification and off-the-clock cases where plaintiffs allege that all putative class-members’ claims raise common issues of law and fact despite the many differences that may exist among them because of the class members’ varied supervisors, departments, facilities, divisions, and regions.  Similarly, plaintiffs’ attempts at certification based on a claimed “policy” that is dependent on an alleged company culture that supposedly encourages off-the-clock work are, as a result of Dukes, now clearly doomed.  This latter attempt at establishing commonality has been especially frequent in off-the-clock claims in settings that include the retail industry, where plaintiffs allege that pressures to control labor costs lead to a culture of unpaid work time, as well as in the ever-popular call center cases, where adherence to productivity goals and required start and stop times are often claimed to lead to unpaid pre- and post-shift work and unpaid break and rest periods.  Under Dukes, evidence of “culture” alone, without specific evidence of legal violations across the entire putative class, will fail. 

The Court also dispelled the oft-repeated argument raised by plaintiffs that the trial court may not consider the underlying merits at the class certification phase.  To the contrary, the Court made clear that the “rigorous analysis” required to determine if class certification is appropriate frequently will overlap with the merits of the underlying claims.  As applied to an off-the-clock case, for example, the critical question is whether employees who claimed that they worked off the clock did so for the same reason.  If the reason for the alleged off-the-clock work is tied to local practices or the conduct of specific supervisors, certification of a class beyond those particular parameters would be improper absent evidence of some unifying unlawful policy or practice.  The same will hold true in misclassification cases, when the duties performed by allegedly similar employees must be examined rigorously notwithstanding the possibility that they could justify a determination that putative class member may be properly classified as exempt.

The Court also ruled, in cases where monetary relief is not incidental to injunctive or declaratory relief, that certification under Rule 23(b)(2) is improper.  The Court made clear that individualized monetary claims, such as back pay, should be analyzed under Rule 23(b)(3) with its attendant due process protections, and not Rule 23(b)(2), which is a mandatory class that provides no opportunity for individuals to opt out.  Under the Court’s reasoning, it is difficult to envision a wage and hour class action that could pass muster under Rule 23(b)(2) because of the inevitable focus on back pay damages.  

Although Dukes is decided under Rule 23, the decision is likely to have significant impact on collective wage and hour litigation brought §216(b) of the FLSA.  Collective actions under §216(b), instead of requiring “commonality,” consist of groups of individuals whose claims are “similarly situated.”  It is generally accepted that at the conditional certification phase, this standard is more lenient than the Rule 23(b)(3) predominance-of-common-issues standard.  Although the case law regarding the meaning of “similarly situated” is not well developed, many courts equate the similarly situated analysis with the commonality standard found in Rule 23(a).  If the claims of the putative class members are not common, it is difficult to envision how they are similarly situated.  Thus, the Court’s decision in Dukes also may influence the evidence trial courts will require for the conditional certification of collective actions.  Additionally, at the decertification phase, many courts rely on a stricter standard akin to that found in Rule 23(b)(3) and require that plaintiffs set forth a trial plan explaining how the claims of the opt-in plaintiffs can be tried by means of collective proof.  Here, the Ninth Circuit believed that a court could conduct a trial in which a sample set of class members would be selected, upon which the percentage of claims found as valid and their associated back pay recovery would be applied to the entire remaining class, all without individualized proceedings.  This “Trial by Formula” -- which some courts endorse in FLSA collective actions under the guise of representative testimony – was rejected by the Court.  The disapproval of such a trial plan may extend to FLSA collective actions as well. 

Authored by Brigitte Duffy

Over the last decade, the Massachusetts food service industry has experienced a pervasive steam of litigation challenging tip pooling practices.  At its root is the Massachusetts Tip Statute, which strictly regulates who may participate in pooled tips and defines what is a “tip” subject to its regulation.  The statute defines a tip as a “sum of money  . . . given as an acknowledgment of any service performed by a wait staff employee” and a wait staff employee as someone who: (1) directly serves food and beverages or clears tables; (2) works in qualifying establishment – such as a coffee shop; and (3) “has no managerial responsibility.”

In Matamoros v. Starbucks Corp., a Magistrate Judge for the federal court in Massachusetts (whose decisions will now be subject to review by a District Court Judge), ruled that Starbuck’s policy of pooling tips left in counter-top tip jars between baristas and shift supervisor violated the Tip Statute because shift supervisors have managerial responsibility.  In doing so, the Magistrate Judge also recommended class certification - leaving Starbucks potentially liable for the tips distributed to shift supervisors, treble damages and twelve percent interest dating back to March 2005.

There was no dispute among the parties in Matamoros that both baristas and shift supervisors serve customers beverages and food and take orders and that shift supervisors spend the vast majority of their time serving customers and performing the same duties as baristas.  That said, Starbucks conceded that shift supervisors have addition responsibilities some of which are supervisory.  Shift supervisor direct partners to various workstations, handle and account for cash, open and close stores (alongside a barista), possess keys to the store, and handle the store’s alarm.  

In its defense, Starbucks argued that: 1) the shift supervisors’ limited supervisory responsibilities did not constitute “managerial responsibility,” and 2) if shift supervisors are not wait staff employees under the statute, then tips left for them are not tips regulated by the statute and could properly be distributed to them.  Interpreting the statute strictly and relying on several trial court decisions that concluded that even modest supervisory responsibilities disqualify an employee, the Court rejected the first argument.  Addressing the second argument, the Court conceded that to customers the barista and shift supervisor are indistinguishable and customers no doubt intended tips to go to the individual who served them, including shift supervisors.  Nonetheless, the Court concluded that because “money left by the customer [also] recognizes service performed by the baristas, the money qualifies as a ‘tip’” which baristas could not be required to share with shift supervisors.

This decision highlights the draconian scheme created by the Massachusetts legislature which ignores the business realities of the food service industry where the prospect of participating in tips motivates employees to both work as a team and provide excellent customer service. 

Authored by Brandon McKelvey

Last year employers were pleased with an order of a Nevada federal court that dismissed a state law class action on the grounds that it was preempted by a federal law collective action brought in the same suit.  In December, however, the court reconsidered and reversed its earlier order allowing both the state class and collective federal action to proceed simultaneously. 

In its earlier order, the court determined that a collective action under the Fair Labor Standards Act (“FLSA”), which requires employees to opt in to participate, was inconsistent with a state law class action under Federal Rule of Civil Procedure 23, which permits employees to participate unless they affirmatively opt out of the action.  Daprizio v. Harrah’s Las Vegas, Inc., Case No. 10-0604 (D. Nev. Aug. 17, 2010). The court dismissed the plaintiff’s state law class action for off-the-clock work on grounds that it was preempted by the FLSA. 

Just over a month after the court issued its order, the Ninth Circuit published its decision in Wang v. Chinese Daily News, 623 F. 3d 743 (9th Cir. 2010).  In that case, the Ninth Circuit held that substantive protections of the FLSA do not preempt state law claims that derive their standards from the FLSA.  Shortly after the Wang decision was issued, plaintiff in the Daprizio case moved for reconsideration of the order dismissing her state law class action. 

In December, the Nevada District Court issued an order reversing and vacating its earlier motion to dismiss the state class action.  Daprizio v. Harrah’s Las Vegas, Inc., Case No. 10-0604 (D. Nev. Dec. 7, 2010).  While the court held that Wang did not directly address the issue of whether the procedural opt in provisions of the FLSA preempt state opt out class actions, the court nonetheless found Wang helpful in resolving the issue.  The court noted that the district court in Wang had not used an opt-in procedure to the exclusion of an opt-out procedure but certified two separate classes allowing one to proceed under the FLSA opt-in procedure and the other to proceed under Rule 23’s opt-out procedure.  The Daprizio court concluded that the “proper way to proceed in this case” was to allow plaintiff to attempt to certify two separate classes - one using the opt-in procedures of FLSA and the other utilizing Rule 23’s opt-out procedures. 

The Daprizio court recognized that another court in the District of Nevada had determined that the procedural requirements of the FLSA preempt class actions based on state law claims.  The Daprazio court did not distinguish the case or squarely address the issue of whether the FLSA opt-in procedure preempts the Rule 23 opt-out procedure.  Instead, the court simply said that its ruling “would allow both the FLSA and state law claims to go forward without creating the sort of procedural conflict about which this Court was initially concerned.”  The court believed that by allowing for the possibility of two separate state law and FLSA classes it could prevent the Rule 23 procedures from standing as an obstacle to the fulfillment of the FLSA and could allow both sets of claims to move forward simultaneously. 

Although the court’s reversal may make it more difficult for employers in the Ninth Circuit to argue preemption in state/federal hybrid class suits, the extent to which procedural opt in provisions of the FLSA preempt state opt out class actions is still an open question.