No "Categorical" Prohibition Against "Combined" FLSA Collective and Rule 23 Class Actions
The Seventh Circuit ruled yesterday in Ervin v. OS Restaurant Services, Inc., Case No. 09-3029 (Jan. 18, 2011), that “there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA. In reaching this decision the Court addressed only the narrow issue of whether these two forms of collective and class actions are so incompatible “that plaintiffs trying to pursue both options in a single proceeding will never be able to demonstrate superiority required by Rule 23(b)(3). In a ruling of less significance than the plaintiffs’ bar is likely to argue, the Court answered this question in the negative. This is the first and only court of appeals to reach this issue, and the district courts in the Seventh and other circuits are divided on the result.
In ruling on the plaintiffs’ motion for conditional certification under the FLSA and class certification under Rule 23 on the Illinois state wage and hour claims, the district court adopted the recommendation of the magistrate judge and decided that, as a matter of law, plaintiffs’ could not meet their burden of persuasion in establishing superiority under Rule 23(b)(3) where an FLSA collective action has been certified. The Seventh Circuit, contrary to the lower court, found that the FLSA’s opt-in procedure, as distinguished from Rule 23’s opt-out mechanism, does not necessarily “rule out any chance of finding that class treatment under Rule 23(b)(3) is a superior way to structure the case.”
The Court based this finding on several factors. First, the Court rejected the district court’s application of congressional intent and, instead, focused on the text of the FLSA, which it decided does not suggest a conflict between an FLSA collective action and a Rule 23 class action. The absence of express language in the federal statute combined with the Savings Clause and the Seventh Circuit’s view of legislative history, led the Court to the conclusion that “[t]here is ample evidence that a combined action is consistent with the regime Congress has established in the FLSA.” Second, the Court rejected Outback’s argument that a combined opt-in FLSA notice and opt-out class notice is confusing to class members. The Seventh Circuit explained: (1) requiring potential participants to make two discrete choices is not asking “too much” of them; (2) there is no actual evidence that a combined notice is confusing; and (3) two separate lawsuits in two separate forums would be far more confusing.
Finally, distinguishing this case from DeAsencio v. Tyson Foods, 342 F.3d 301 (3d Cir. 2003) (holding that in a combined action, the district court should not have exercised supplemental jurisdiction over parallel state wage and hour law claims), the Seventh Circuit ruled that supplemental jurisdiction over state law claims is proper in cases like this, where the state law claims are closely related to the FLSA collective action and “the disparity between the number of FLSA plaintiffs and the number of state-law plaintiffs is not enough to affect the supplemental jurisdiction analysis.”
While employers surely would have preferred a different result, the Ervin decision does not dramatically impact the defense of “combined” lawsuits. In the Seventh Circuit, employers are unlikely to prevail on a motion to dismiss a Rule 23 state-law claim supplementing an FLSA collective action. However, the narrowness of the Court’s ruling does nothing to lessen the plaintiffs’ burden under Rule 23(b)(3) of establishing that a class action is a superior method of adjudication. In the context of a parallel FLSA collective action, defendants should continue to argue aggressively that plaintiffs cannot meet that burden. On remand, the Court of Appeals has left open this issue, allowing the defendant to do just that.