By: Howard M. Wexler, Kyle D. Winnick, and Kimberly I. Garcia

Seyfarth Synopsis: The Third Circuit held that Section 216(b) of the FLSA does not prohibit the release of FLSA claims in an opt-out class-action settlement.

Settling “hybrid” cases in the Third Circuit just became easier for parties asserting claims under both federal and state wage-and-hour laws.

By way of background, the FLSA provides, in relevant part, that “[n]o employee shall be a party plaintiff to [a FLSA action] unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.”  29 U.S.C. § 216(b).  Thus, similarly-situated employees do not become plaintiffs in a FLSA case unless they file a consent in writing affirmatively agreeing to become a party-plaintiff.  In contrast, in a certified class action under Rule 23 of the Federal Rules of Civil Procedure, class members are part of the class unless they opt out of the litigation. 

The opt-in requirement of the FLSA has led some district courts to conclude that, while state wage-hour claims may be released pursuant to Rule 23’s opt-out procedures (and, thus, typically a large portion of the relevant employee population will be bound by the settlement, because people tend not to opt out of class-action settlements), FLSA claims cannot be released through an opt-out mechanism. Rather, only those individuals who affirmatively opt into the litigation may be bound by a settlement agreement.  In the settlement context, this usually results in fewer employees releasing their FLSA claims because far fewer employees tend to opt into the settlement than opt out.      

In Lundeen v. 10 West Ferry Street Operations LLC, the Third Circuit addressed whether the FLSA’s opt-in requirement prohibits named-plaintiffs in a class action from settling prospective class members’ unasserted FLSA claims as part of an opt-out class settlement under Rule 23(b)(3). The Third Circuit held that the FLSA does not forbid such settlements.

The plaintiff in Lundeen filed a hybrid class and collective action alleging violations of the FLSA and the Pennsylvania Minimum Wage Act. The parties reached a settlement that included compensation for both opt-in collective members and opt-out Rule 23 class members.  Importantly, the settlement provided that all the putative class members who did not opt out of the settlement released not just their Pennsylvania law claims, but also their FLSA claims. The plaintiff then filed a motion seeking preliminary approval of the settlement.

The district court denied preliminary approval, finding that the settlement was “neither fair nor reasonable” because it conflicted with the FLSA’s opt-in requirement, which provides that no employee shall be a party to an action without written consent.

The plaintiff appealed, arguing that section 216(b) of the FLSA does not restrict employees from releasing FLSA claims in a class settlement. Both parties agreed that the district court had misinterpreted the statute.

The Third Circuit reversed. The court emphasized that section 216(b) governs litigation, not settlement, and began its analysis with the plain language of the statute. It rejected the district court’s categorical prohibition on releasing FLSA claims in an opt-out settlement, noting that the Fifth and Ninth Circuits have enforced similar releases under the doctrine of res judicata.

The Court further explained that Congress added the opt-in requirement in 1947 to reduce duplicative litigation, not to protect employees from settling claims. The court concluded that the district court misconstrued the provision’s purpose. The Court reiterated that courts “must not revise legislation to better serve its supposed purpose.”

By allowing for FLSA claims to be released through a Rule 23 mechanism, at least where both FLSA and state law claims are asserted and settled, Lundeen allows employers within the Third Circuit (and hopefully beyond) to structure class-action settlements in a way that will offer them greater protection from future FLSA lawsuits. 

Seyfarth Synopsis: The Fifth District Court of Appeal reaffirmed its earlier holding in CRST Expedited, Inc. v. Superior Court that plaintiffs can bring “headless” PAGA actions—claims seeking civil penalties solely for Labor Code violations suffered by other employees.

In Galarsa v. Dolgen California, LLC, the Fifth District revisited the permissive language in the pre-reform version of PAGA. Specifically, the Court examined the phrase “on behalf of himself or herself and other current or former employees” and found it ambiguous when paired with the permissive verb “may.” This ambiguity, the Court explained, justified applying the “exceptional rule of construction,” interpreting “and” to mean “and/or.” As a result, the Court concluded that pre-reform PAGA allows plaintiffs to pursue (1) claims for violations they personally suffered, (2) claims for violations suffered only by others, or (3) both. This interpretation, the Court reasoned, best promotes PAGA’s purpose of maximizing Labor Code enforcement.

The Fifth District’s reaffirmation of headless PAGA actions applies only to claims brought under the version of PAGA in effect prior to the July 1, 2024 reforms. With a split in appellate authority still unresolved, trial courts retain discretion to adopt the statutory interpretation they believe best reflects legislative intent. The California Supreme Court will weigh in when it decides Leeper v. Shipt, Inc., which could settle the debate over whether headless PAGA actions remain viable under pre-reform law.

By: Hillary Massey, Kyle A. Petersen, and Molly C. Mooney

Seyfarth Synopsis: The federal government has now shutdown as of midnight on Wednesday, October 1, 2025 with no money flowing to fund non-essential services. Private-sector employers with federal contracts may need to consider cost-saving measures, such as temporary furloughs, reductions in hours, or reduced pay.

With government funding turned off, private sector employers with federal contracts may need to consider cost-saving measures during the government shutdown. Employers should bear in mind the potential wage and hour implications when implementing these changes.

Non-Exempt Employees: Reductions in Hours and Hourly Rate. Because non-exempt (overtime eligible) employees do not need to be paid for time when they are not working, employers can reduce their scheduled hours, as well as their hourly pay without implicating wage and hour laws. Such changes should be prospective and, of course, the hourly pay must still satisfy the federal and state minimum wage. When reducing rates of pay, it is important to check state law on how far in advance you must tell an employee their hourly rate is going down. It is also important to continue paying workers on time.

Exempt Employees: Full-Week Reductions in Hours and Salary. Frequent readers of this blog should know that exempt employees are subject to the salary basis test, which means they generally must be paid the same minimum weekly salary regardless of how many or few hours they work each week. (Federal law currently requires a minimum weekly salary of $684 but some states impose higher thresholds). Reductions in that weekly salary could jeopardize the employee’s exempt status. This means that employers cannot implement partial week furloughs for exempt employees. Full-week furloughs are permitted, so long as the employee performs no work during the week. And, yes, that includes abstaining from responding to email, taking phone calls, and other activities that could constitute hours worked.  Given that many employees are constantly “plugged in,” ensuring compliance with this requirement is essential yet challenging.

Exempt Employees: Partial-Week Reductions in Hours and Salary. As you might have surmised, partial-week reductions in salary are generally not permitted without risking an employee’s exemption. For example, employers generally cannot pay exempt employees 80% of their salary for working four-day workweeks instead of five at the employer’s request. A narrow and delicate exception is that employers can implement a fixed reduction in future salaries and base hours due to a bona fide reduction in the amount of work. While the FLSA and federal regulations do not specifically address furloughs, the Department of Labor’s opinion letters (to the extent they still have sway) and courts have (almost) unanimously concluded that employers may make prospective decreases in salary that correspond to reduced workweeks, so long as the practice is occasional and due to long-term business needs or economic slowdown. How frequently an employer can furlough its exempt employees is not settled, but federal courts have held that salary reductions twice per year are infrequent enough to be bona fide.

Another option is to use accrued leave. Employers can reduce an exempt employee’s salary and substitute paid leave (subject to state law), as long as the employee receives their regular salary in any week they perform work. While this doesn’t immediately reduce payroll costs, it can help reduce accrued leave liabilities and minimize the financial burden to impacted employees.

Once the budget crisis passes and employees return to work, caution is still warranted in returning furloughed employees to work.  As always, when dealing with these issues, be sure to contact your wage and hour counsel.

Seyfarth Synopsis: A federal district has parted company with two appellate circuits in holding that computer boot-up time is non-compensable under the FLSA.

An all-too-common fact pattern in wage-hour litigation is the non-exempt employee who (i) turns on or wakes up their computer; (ii) enters their username and password; (iii) if they are remote, accesses a VPN and or dual-authentication application for themselves; and then (iv) open the timekeeping system before clocking in. Such boot up time before clocking in, Plaintiffs’ lawyers argue, is compensable time but isn’t captured in the timekeeping system and therefore isn’t paid.

A U.S. Department of Labor fact sheet and decisions from the 9th Circuit (Cadena v. Customer Connexx LLC) and 10th Circuit (Peterson v. Nelnet Diversified Sols.) have supported that theory.  And because some courts have been reluctant to apply the de minimis defense, employers have not fared as well as hoped when facing claims for back overtime pay for boot-up time.

Earlier this month, however, the United States District Court for the Southern District of Ohio held that boot up time generally is non-compensable under the FLSA in Lott v. Recker Consulting LLC. Going back to basics, the court began with the premise that compensable time is an employes’ “principal activity or activities” and those that are an “integral” or “intrinsic element” of those activities. Merely requiring an employee to engage in an activity does not render it compensable.

When viewed through that lens, boot-up time for an employee who uses a computer to handle calls and inquiries is neither an employee’s principal activity or intrinsic to it. Yes, the computer is necessary for the employee to do their job. But according to the court, “the question is whether the activities of merely turning the computer on and logging in are integral to the employees’ duties” (as opposed to whether a given tool is integral). The court held that such activities are not integral because “turning on a computer and logging in merely opens up an innumerable realm of possible uses and functions for the user. Some of those activities are work-related, others are not” (such as “playing Soduku online, perusing Reddit, or reading an article on CNN.com”).

Disagreeing with the 9th and 10th Circuits, the court held that “the workday starts at the moment a remote worker opens and begins operating a program or application they use as part of the principal work activities they are employed to perform” (emphasis added).

Notice the presence of the word “remote” in the court’s holding. This case does indeed involve employees who work from home, and the introduction to the court’s opinion featured facts common to a work-from-home scenario. But make no mistake: the court’s reasoning applies to workers both remote and who come into an office or call center.

The court’s decision and persuasive reasoning will help employers limit and potentially defeat similar boot-up time claims (whether by remote or office-based workers), at least outside the 9th and 10th Circuits.

Employers need to be mindful, however, that not all boot-up case cases necessarily will go the same way. Not only may such cases be filed in the 9th or 10th Circuits, but they could be filed in another jurisdiction that could choose to follow those circuits rather than Lott. The claims could include theories under state law (such as California’s, most notably) that define compensable time differently than the FLSA. An employer could engage in a rounding practice that might complicate the analysis, or there could be activities for which an employer did not pay (such as opening up other applications that are intrinsic to an employee’s principal activities). 

Regardless, Lott is a persuasive authority that should be adopted by other courts and ultimately can reduce employers’ risks in how they pay computer-based employees at the start of their shifts.

Seyfarth Synopsis: The Seventh Circuit has joined the Fifth and Sixth Circuits in establishing a higher bar for employees to clear before courts may authorize “notice” to potential members of an FLSA collective action. Although the Seventh Circuit declined to adopt either the Swales or Clark standards, employers now will be given an opportunity to demonstrate, through their own evidence, that the proposed collective members are not sufficiently similar to one another to justify collective litigation. The new standard asks courts to consider whether, after viewing both sides’ evidence, there is a “material dispute” about similarity—and even then to still exercise restraint before authorizing notice.

The FLSA allows “similarly situated” employees to collectively sue employers. In much of the country, employees can obtain court-authorization to send notice to potentially similarly situated collective members under a “lenient standard” that courts often noted involved making only a “modest showing” to clear a “low burden.” This often is referred to as the Lusardi standard. But now, in the Seventh Circuit (Illinois, Indiana, and Wisconsin), plaintiffs who seek to distribute that notice will need to clear a significantly higher bar. That’s because in Richards v. Eli Lilly & Co., the Seventh Circuit rejected that “modest factual showing” as contrary to the text of the FLSA and Supreme Court precedent.  It joins two other circuits (the Fifth and Sixth) in doing so.

Guided by three overarching principles it divined from a 1989 Supreme Court decision (Hoffman-La Roche Inc. v Sperling), Richards will require trial courts to conduct a holistic review of the evidence and the issues before authorizing notice to potential collective members. Those principles are: (1) timely and accurate notice; (2) judicial neutrality; and (3) discretion.

Accordingly, before sending notice, courts now will need to consider whether the employee has raised a “material factual dispute as to whether the proposed collective is similarly situated.” This determination involves a burden-shifting exercise and represents a sea-change compared to the “conditional certification” standard it is replacing.

The Richards Burden-Shifting Analysis

To begin with, the employee must come forward with at least “some evidence suggesting that they and the members of the proposed collective are victims of a common unlawful employment practice or policy.”

Next, the employer can respond with its own evidence to rebut this contention and demonstrate that there is not, in fact, a material dispute about similarity. Richards predicts that in most instances this will take the form of “affidavits” and “counter-affidavits.” It may of course also include deposition testimony, especially when the court authorizes pre-notice discovery.

Then, on reply, the employee will be given an opportunity to “engage with opposing evidence.” The court again likely will consider evidence the plaintiff provides in response before determining whether a “material dispute” exists.

Finally, even if the court does find that a “material dispute” exists, Richards urges district courts to use their discretion before authorizing notice. In the Seventh Circuit’s view, courts need to balance the need for “timely and accurate” notice versus “judicial neutrality.” Notice is not always necessary or helpful for resolving the relevant material disputes about similarity—and premature or unnecessary notice can wreak havoc on workforces in ways that do not benefit either side. Pre-notice discovery might resolve key questions relevant to similarity without the need to bother employees.

As the Richards standards gets litigated, courts likely will encounter many fact patterns in which pre-notice discovery can help answer important questions about similarity without costly notice. On the other hand, there will be some cases where similarity cannot be determined without involving the potential collective members. In those cases, Richards urges the courts to not delay notice once the employee successfully establishes that a material dispute about similarity exists. In those scenarios, Richards doesn’t change much: after notice issues, the parties will engage in discovery relevant to the merits and similarity. After discovery closes, the court will make a final decision about “similarity.”[1]  

According to the Seventh Circuit, the Richards standard is intended to be less onerous for an employee than Swales or Clark standards – but more demanding than the Lusardi standard. Under the Fifth Circuit’s Swales standard, similarity must be proven by a preponderance of the evidence before notice goes out. And under the Sixth Circuit’s Clark standard, notice may only issue where the plaintiffs can show a “strong likelihood” that employees are similarly situated. Nonetheless, this new “material dispute” standard will significantly level the playing field for employers, who often were precluded from introducing their own rebuttal evidence at the notice stage before. It should be viewed as a very welcome decision for employers and should present ample opportunities to curb abusive litigation tactics.

Takeaways: Employers Facing Collective Actions in the Seventh Circuit Must Act Quickly to Present Rebuttal Evidence to Oppose Requests for Court-Authorized Notice

Although this is a very welcome decision, the Seventh Circuit did not place as high of a burden on employees to prove similarity prior to court-authorized notice as have the Fifth and Sixth Circuits. This means that, while employers in the Seventh Circuit will have the opportunity to present evidence to the court about dissimilarity that may have been ignored in previous cases, they cannot sit on their hands and just hope that employees will not be able to meet their initial burden. A well-prepared group of employees may very well be able to achieve notice by moving quickly with a modest amount of self-serving affidavits that a flat-footed employer struggles to timely rebut.

Instead, in order to gain the most benefits from this new Richards standard, employers in the Seventh Circuit facing collective actions will want to prepare the requisite evidence to challenge any request for conditional certification they encounter. This will require the marshalling of evidence sufficient to demonstrate that the relevant collective is not similarly situated. What that evidence needs to look like will depend on the nature of the case.

Although some of this evidence may be developed through a “pre-notice discovery period,” employers will generally need to look inward to identify the sources of evidence that they can use to show a lack of similarity. Additionally, because Richards suggests that district courts may be allowed to toll the statute of limitations for putative collective members in certain cases during pre-notice discovery under the right circumstances, employers will want to think strategically before reflexively agreeing to any prolonged discovery periods.

Richards is a welcome decision. To fully take advantage of it, employers must continue to respect collective actions as high stakes cases and think carefully about how they can develop a defense against the highly disruptive requests for court-authorized notice.

[1] As an interesting aside however, the Richards majority suggests (in dicta) that it should be Plaintiffs who initiate a “final certification” review. Traditionally, in most circuits (including the Seventh), it has been the employer’s responsibility to initiate the final review of similarity through a “Motion for Decertification.” Regardless of who initiates, the Richards majority makes clear that it is the plaintiff’s burden to establish similarity by a preponderance of the evidence.

Seyfarth Synopsis: The U.S. Department of Labor has officially revived its Payroll Audit Independent Determination (PAID) program. Designed to help employers proactively resolve FLSA issues—and now, for the first time, certain FMLA violations—the renewed program offers potential benefits but comes with conditions and risks that require careful navigation.

On July 24, 2025, the DOL’s Wage and Hour Division (WHD) announced the re-launch of the PAID program. Originally rolled out in 2018 under the first Trump Administration (and discontinued by the Biden DOL a few years later), PAID aims to encourage employers to self-identify and correct compliance issues under the FLSA and FMLA.

This move is part of a broader WHD shift toward cooperative enforcement. PAID is merely the latest step in a series that has also included, for example, the return of opinion letters and a pullback on liquidated damages in administrative cases.

The DOL’s message seems clear: Proactive compliance efforts are encouraged and will be rewarded.

But as always, the details matter.

How the PAID Program Works

PAID is a voluntary program through which employers conduct a self-audit, disclose findings to WHD, and—if accepted into the program—resolve potential violations. The steps generally include:

At its core, PAID is a voluntary program designed to help employers resolve potential minimum wage and overtime violations under the FLSA, as well as certain potential violations under the FMLA. At a high level, the process envisioned by WHD works as follows:

  • Self-audit. The employer reviews compliance assistance materials; identifies the potential violations and impacted employees; calculates back wages owed, if applicable; and specifies any other FMLA remedies that are necessary for compliance.
  • Report to WHD. The employer contacts WHD to discuss their findings. They must also submit a concise statement of the scope of the potential violations for inclusion in a release of claims, and certification that the employer meets all the program’s requirements (more on that below).
  • WHD Review. WHD evaluates the submission and provides guidance on next steps, including any additional information required to review the back wages and other remedies due for the identified compensation and leave practices.
  • Resolution. The employer pays back wages or remedies within 15 days of receiving a summary of unpaid wages and provides proof of payment and documentation of other remedies to WHD.

For employers, the program provides a potential avenue to correct mistakes without inviting the threat of fines, litigation, or plaintiffs’ attorney fees (though, as noted below) not all exposure necessarily disappears). For employees, of course, the program offers a path to receive back wages or other remedies promptly and without the burden of litigation.

Who Can Participate?

Participation is not for all employers, and even for qualified employers it is not automatic. Employers who wish to participate in the program must certify, among other things, that:

  • No prior violations or pending litigation. Neither WHD nor a court of law has found within the last three years that the employer has violated the FLSA, nor is the employer party to any litigation asserting such violations.
  • No current investigation. To the best of the employer’s knowledge, WHD is not currently investigating the practices at issue.
  • No undisclosed complaints. The employer has informed WHD of any recent complaints by its employees or their representatives concerning the practices at issue.
  • No recent involvement in PAID. The employer has not participated in PAID within the last three years to resolve potential FLSA minimum wage or overtime violations.
  • No impact on state/local laws. The employer must acknowledge that participating in the program does not cut off employee rights under other state or local laws.

Importantly, even employers that meet the program’s conditions must apply and receive WHD approval before initiating a self-audit under PAID. As WHD notes on its PAID website, “potential participants are examined on a case-by-case basis.”

What Else is in the Fine Print?

The revived PAID program includes several enhancements and limitations that employers should keep in mind:

  • Expanded scope. Employers may now self-audit certain FMLA violations, though procedures for non-wage remedies (e.g., leave restoration) remain under development.
  • The DOL will require employers to disclose their names upfront. As part of the early certification process, employers will need to disclose their name (including the name of the person reaching out, and the name of their company).
  • The process will include form settlement documents. The DOL will issue settlement forms for each employee and require employers to confirm payment within 15 days.
  • Releases are limited in nature. While employees who accept payments will release their claims, WHD explains on its website that “releases are limited to the identified violations articulated in the PAID Acceptance Letter and the time period for which the employer is paying the back wages or providing other remedies.” WHD notes, further, that it “may not supervise payments or provide releases for state law violations.”

Practical Considerations for Employers

The return of PAID presents a welcome change for employers, but employers considering participating must also appreciate the program’s nuance and proceed thoughtfully.

The plus side is obvious. PAID offers a structured way to correct technical or inadvertent compliance mistakes, potentially reducing exposure, making employees whole easier and faster, and reinforcing a culture of compliance. Coupled with opinion letters, DOL and WHD are offering avenues to ostensibly ease compliance woes both prospectively and retrospectively.

That said, participation should be approached with appreciation for potential benefits and risks alike. For example, as noted above, PAID releases will be limited in scope; in some states, an employee who receives a payment and releases their claims could conceivably turn around and file a state law claim concerning the same core facts. Also, because participation in PAID isn’t guaranteed even for employers that meet eligibility requirements, some may worry that if WHD declines participation, they will have brought attention to practices they hoped to quietly correct.

What Employers Should Do Now

The re-launched PAID program underscores WHD’s more-carrot / less-stick compliance mindset. For many employers, the program could be a useful tool, no different than the resurrected opinion letter program.

But these programs are rich with nuance and hardly a free pass. Whether PAID makes sense for a particular employer will turn on the nature of the potential violation, the state/local jurisdictions involved, the employer’s risk tolerance, and many more factors.

Employers considering participating should work with trusted legal counsel to evaluate eligibility, structure a compliant self-audit, and navigate communications with the DOL. Thoughtful planning on the front end can help to ensure that PAID serves as the effective, proactive compliance tool it is intended to be, while avoiding potentially costly missteps.

By: Phillip J. Ebsworth and Paul J. Leaf

Seyfarth Synopsis: The Fifth District Court of Appeal held that under pre-reform PAGA, headless PAGA actions in which plaintiffs seek civil penalties only on behalf of other employees and not for violations they personally experienced are permitted.

The Fifth District Court of Appeal considered the meaning of pre-reform PAGA language stating that a PAGA action “may” be brought “on behalf of [the PAGA plaintiff] and other current or former employees.” As the Court of Appeal framed it, “[t]he question is whether this text authorized [a PAGA plaintiff] to bring a lawsuit that seeks to recover civil penalties imposed for Labor Code violations suffered only by other employees,” also known as a “headless PAGA action.”

When initiating the lawsuit in 2019, the PAGA plaintiff sought civil penalties on behalf of himself and all other aggrieved employees. But in 2024, the PAGA plaintiff dismissed his individual PAGA claim, leaving only a request for civil penalties for harm suffered by other employees. The Court of Appeal recognized that the PAGA plaintiff strategically abandoned his individual PAGA claim “to avoid arbitrating [it] under the Federal Arbitration Act, as interpreted by Viking River.” The employer filed a motion for judgment on the pleadings, contending that the PAGA plaintiff lacked standing to pursue the nonindividual PAGA claims, because he had dismissed his individual PAGA claim which the trial court denied.

After conceding that the word “and” is  “usually … interpreted as a conjunctive that means ‘also’ or ‘an additional thing,’” the Court of Appeal held that “[i]n exceptional situations, however, it is sometimes ‘fair and rational’ to construe [the word] and disjunctively.” As support that the word “and” actually means or in the pre-reform PAGA statute, the Fifth Appellate District found that “PAGA is not an ordinary statute, the problems it attempts to remedy are unusual, and Viking River drastically altered the legal landscape in which PAGA is applied.” As such, the Court of Appeal held that under pre-reform PAGA, a plaintiff may bring a PAGA action seeking civil penalties (1) for the Labor Code violations suffered only by the plaintiff, (2) for the Labor Code violations suffered only by other employees, or (3) both.

Ultimately, the reach of the Fifth District’s opinion is limited. The Court specifically stated that it was “not decid[ing] whether a headless PAGA action can be brought under the [amended] version of PAGA that has been in effect since July 1, 2024.” Moreover, there is a split of authority among the Courts of Appeal on this issue, with Leeper and Williams reasoning that a PAGA claim is necessarily comprised of both an individual and nonindividual component.  

By: Shannon Cherney and Lennon Haas

Seyfarth Synopsis: The Ninth Circuit’s decision in Harrington v. Cracker Barrel underscores the growing importance of personal jurisdiction in limiting the scope of FLSA collective actions.  The court held that employees with no connection to the forum state may not be able to join a lawsuit filed there, even if they share similar claims.  This ruling offers employers a strategic tool to challenge nationwide wage and hour claims and contain litigation risk in multi-state operations.

When a group of employees sues a large company like Cracker Barrel, one of the first questions the court has to answer is not about wages or hours—it’s about where the lawsuit is happening and who the court has power over.  This issue – personal jurisdiction – played a key role in the Ninth Circuit’s recent decision, Harrington v. Cracker Barrel.

Personal jurisdiction determines whether a court has the authority to make decisions about a particular person or company.

There are two types of personal jurisdiction:

  1. General jurisdiction: A court has broad authority over a person or business that is “at home” in the state. For corporate defendants like Cracker Barrel, that typically means the state in which the defendant is incorporated or has its principal place of business.
  2. Specific jurisdiction:  A court can hear a case if the events in the lawsuit are sufficiently connected to that state.

If a court does not have personal jurisdiction, it cannot hear the case—even if everything else about the lawsuit is valid.

In this case, a Cracker Barrel employee in Arizona sued the company, claiming it violated the federal Fair Labor Standards Act by underpaying tipped workers.  She wanted to send notices to other employees across the country so they could join the lawsuit and become part of an FLSA collective.  Many of those employees, however, didn’t work for Cracker Barrel in Arizona, didn’t live in Arizona, and had no connection to Arizona at all.  

The district court preliminarily certified a collective, which allowed the case to move forward in the aggregate.  In so doing, it approved sending notices to other potential plaintiffs across the country—even those with no apparent connection to Arizona.

The Ninth Circuit granted Cracker Barrel’s petition for an interlocutory appeal of this issue, along with two other issues unrelated to the personal jurisdiction question.  Cracker Barrel claimed that the district court should not have allowed nationwide notice without first checking whether it had personal jurisdiction over each potential plaintiff’s claim.  

The Ninth Circuit agreed in part.  It held that before a court can authorize nationwide notice in an FLSA collective action, it must first consider whether it has specific personal jurisdiction over each potential plaintiff’s claim.  Cracker Barrel is incorporated and has its principal place of business in Tennessee, so it was undisputed that Cracker Barrel was not subject to general personal jurisdiction in Arizona.

The Ninth Circuit joined the Third, Sixth, Seventh, and Eighth Circuits in holding that the Supreme Court’s decision in Bristol-Myers Squibb applies in FLSA collective actions in federal court.  The Supreme Court in Bristol-Myers Squibb held that the due process clause of the Fourteenth Amendment prohibited a California state court from exercising specific personal jurisdiction over the mass tort claims of the nonresident plaintiffs against the nonresident defendant.  It emphasized that courts cannot hear claims from out-of-state plaintiffs unless there is a meaningful connection between the forum state and the claims.  The applicability of the Bristol-Myers Squibb decision to Harrington’s FLSA collective action means if someone worked for Cracker Barrel in, say, Georgia, and has no connection to Arizona, they might not be able to join the Arizona lawsuit.

The district court mistakenly assumed that participation of a single plaintiff with a claim arising out of Cracker Barrel’s business in Arizona was sufficient to establish personal jurisdiction over Cracker Barrel for all claims in the collective action.  Because the district court abused its discretion by authorizing nationwide notice on this basis, the Ninth Circuit vacated the district court’s authorization and remanded for further proceedings.

This decision is a positive development for employers, particularly those with operations in multiple states.  It reinforces the importance of monitoring where lawsuits are filed and who is being included.  The court’s emphasis on personal jurisdiction in the context of FLSA collective actions has meaningful implications for litigation strategy and risk management:

  • Early Challenges to Collective Scope Are Now More Viable.  Employers may have stronger grounds to challenge the inclusion of out-of-state employees in FLSA collective actions filed in a single state.  If a court lacks personal jurisdiction over claims brought by employees with no connection to the forum state, those claims may be excluded from the case.
  • Forum Shopping by Plaintiffs May Be Curtailed.  The decision reinforces limits on plaintiffs’ ability to file in jurisdictions perceived as favorable while attempting to include employees from across the country.  Courts are now more likely to scrutinize whether the forum has a sufficient connection to each claim.
  • Nationwide Notice Is No Longer Assumed.  The ruling makes clear that courts should conduct a jurisdictional analysis before authorizing nationwide notice in FLSA cases.  This could reduce the number of employees who receive notice and ultimately join the action.

The legal landscape around collective actions and jurisdiction is evolving quickly.  Those with questions about the effects of this decision should feel free to contact a member of Seyfarth Shaw LLP’s wage and hour team.  

Seyfarth Synopsis: The freshly enacted “One Big Beautiful Bill” introduces two above-the-line tax deductions for tips and overtime wages. While these deductions offer potential savings for eligible workers, they come with new compliance obligations and nuanced legal considerations that employers will need to navigate carefully.

With Sharpie in hand and military jets overhead, President Trump marked Independence Day by signing H.R. 1, best known as the “One Big Beautiful Bill,” or “OBBB”—into law. Among the bill’s myriad provisions are two long-promised pledges: no tax on tips, and no tax on overtime.

Starting with the 2025 tax year, OBBB will allow workers below certain income thresholds to deduct up to $12,500 in “qualified overtime compensation” ($25,000 for on a joint return), and $25,000 in “qualified tips.” To emphasize the benefit for impacted workers, the White House has launched a calculator on its OBBB website, which calculates estimated tax savings based on user inputs for weekly base wages, tips, and overtime.

Of course, these provisions’ full impact lies in the details. The OBBB reflects nuance about which workers are eligible for deductions, and what amounts they may deduct. For employers, the new law may require updated wage tracking and reporting capabilities, and it could cause a shift in an already shaky wage-hour litigation landscape.

No Tax on Qualified Tips

For 2025 tax returns, the OBBB will allow an above-the-line deduction of up to $25,000 in “qualified tips” for workers in “traditionally tipped occupations.” The deduction is available in full for workers with adjusted gross income (“AGI”) under $150,000 ($300,000 for a joint return), and phases out by $100 for every $1,000 over the AGI threshold.

So who qualifies as “traditionally tipped”? Per the OBBB, the Treasury Secretary has until October 2, 2025 (90 days post-enactment) to publish an official list. The statute clarifies that roles not “customarily and regularly tipped” as of the end of 2024 are excluded. In other words, this isn’t an opening to recast untipped roles as tipped to seize a deduction.

As for “qualified tips,” they must be voluntary, customer-determined, and non-negotiated. And of course the tips must be reported. Tips earned through a tip-sharing arrangement count, but service charges and other mandatory fees do not.

FICA and income tax withholding still apply. Employers must continue reporting tips as before.

Moreover, employers  will now be required to track and report “qualified” tips for W-2 reporting. For the 2025 tax year, employers may rely on a “reasonable method” approved by the Treasury Secretary for estimating qualified tips, but exact reporting will be required starting in 2026.

No Tax on Qualified Overtime

The OBBB allows a deduction of up to $12,500 in “qualified overtime compensation” ($25,000 for a joint return), with the same AGI thresholds and phase-out as the tipped wage deduction.

Critically, this only applies to overtime pay required by the FLSA, and only the premium portion above the “regular rate.” For an oversimplified example, an employee who earns nothing more than a base rate of $10/hour and $15/hour for each overtime hour could only deduct the $5/hour overtime premium (subject to the income limits noted above).

As written, it appears that overtime premiums paid pursuant to state law (e.g., daily overtime in Alaska, California, Colorado, or Nevada), a collective bargaining agreement, or employer policy would not qualify for deduction. The deduction is reserved for overtime premiums as defined by the FLSA.

As with tips, employers will need to record and report qualified overtime compensation on the Form W-2. To do this, they must be able to isolate overtime premiums required by the FLSA. For 2025, similar to reporting for tips, the OBBB permits reporting “approximate” qualified overtime compensation pursuant to a “reasonable method” specified by the Treasury Secretary.

What it Means for Employers

While these tax benefits apply to employees, some administrative burden falls on employers. With these changes taking effect for the 2025 tax season, preparation should begin now. Employers should consider the following action items:

  • Review payroll and reporting systems. Employers will need to consider whether system changes are needed to comply with new Form W-2 reporting rules and support employees in calculating their deductions. Systems will need to be able to distinguish qualified tips as well as qualified overtime compensation.
  • Assess exempt job classifications. It’ll be more important than ever to ensure confidence when classifying a job as exempt from overtime. Employees classified as exempt may may be more likely to challenge that status when the financial benefits of overtime compensation increase through this deduction.
  • Educate employees. In some scenarios, employers may need to manage their employees’ expectations. For example, it may warrant emphasizing that these changes present tax deductions, not raises, and workers won’t see the benefit until they file their 2025 tax returns in 2026.
  • Assess tipping protocols and practices. Mandatory charges like automatic service charges don’t qualify for deduction, nor do unreported tips. Employers may need to reinforce tip-reporting protocols and educate employees on tipped wage practices. Given the publicity around these changes, employers may also need to consider how they will field customer questions about tipping practices, service charges, and the like. 
  • Monitor regulatory guidance. We will see Treasury guidance on, at a minimum, qualifying tipped occupations and acceptable reporting methods. This is important to watch.

The Bigger Picture

Beyond tax season, the OBBB may have broader impacts for employers.

These changes may make tipped roles more attractive. The same is true for overtime shifts. In some industries, this could impact talent recruiting and retention. Employers may also need to evaluate staffing and compensation models as they are pushed to emphasize tipped and overtime wages.

Increasing the value of tips and overtime earnings could also impact employment litigation. At least in theory, employees should be more cognizant than ever of the tipped and overtime wages they bring home. They may, as a result, be more likely to pursue litigation concerning the same. And in settlements of employment litigation, plaintiffs’ attorneys may focus more intently on how back wages are allocated, impacting how agreements are structured and payments reported.

While these deductions are hardly the only newsworthy items to extract from the OBBB, they are important and will require careful consideration and planning.

Seyfarth Synopsis: The DOL’s Wage and Hour Division just scrapped its policy of seeking liquidated damages (double damages) in FLSA investigations. Why? Because it probably didn’t have the statutory authority in the first place, and doing so slowed down resolutions. Going forward WHD investigators are no longer allowed to demand liquidated damages in administrative settlements.

The U.S. DOL‘s Wage and Hour Division is the administrative division responsible for enforcing the FLSA’s minimum wage, overtime pay, and child labor provisions. The Division employs just over 600 investigators—about 25% less than a few years ago—to oversee and enforce the compliance of more than 6.2 million U.S. employers. By the numbers alone, the investigators have their work cut out for them.

Of course, doing more with less has been a well-known focus of the Trump Administration. That focus is shared—whether out of philosophy, necessity, or both—at WHD. Less than six months into the new term, the Division’s leadership has placed a greater emphasis on proactive education—ensuring that employers and employees understand their legal obligations and rights—and efficiency.

Take, for example, the DOL’s re-launch of its opinion letter program. This initiative provides an avenue for WHD to proactively address sometimes murky questions of how the FLSA applies in specific scenarios. In addition to providing clear answers for those who request an opinion letter, the process allows the Division to provide guidance to the broader regulated community.

But with just 600-ish investigators and an anticipated reduction in its discretionary spending budget, the question remains: How might the Division do more with less? WHD provided another answer to this question late last month.

On June 27, 2025, the Division issued Field Assistance Bulletin (FAB) No. 2025-3, marking a significant policy shift in its enforcement of the FLSA. WHD investigators are no longer authorized to seek liquidated damages during pre-litigation administrative investigations or resolutions.

This is a big deal. Recall that, in private litigation, liquidated damages (i.e., damages equal to any back wages owed) are presumed to be owed unless the employer proves to the court that the underlying FLSA violation was committed despite the employer’s good faith efforts to comply with the law. (You may be thinking (like we are) that WHD’s prior authority—now undone—to impose liquidated damages in an investigation looks like a presupposed conclusion that an employer did not act in good faith—and with no judge to consider evidence of that employer’s good faith.)

To some who deal with these issues every day, liquidated damages should never have been appropriate in WHD investigations. Aside from seeming to be a consequence of WHD usurping a determination typically reserved for a judge, they could have been perceived by the skeptics to be a punitive and sometimes political tool rather than a device meant to make employees whole and guide an employer toward compliance. So this development is somewhat of a corrective measure, so to speak.

But back to efficiency. Aside from being right under the law, FAB No. 2025-3 will streamline the resolution of FLSA claims determined as the result of a WHD investigation.

So What Happened?

FAB 2025-3 takes the place of prior bulletins that authorized WHD investigators to levy liquidated damages (including FABs 2020-2 and 2021-2). It reaffirms that the WHD’s relevant authority is limited to supervising the payment of unpaid minimum wages and overtime compensation—not to imposing liquidated damages.

This view stems from Section 16(c) of the FLSA, which empowers the Secretary of Labor to take enforcement action against employers under the Act and to supervise the payment of back wages. It’s the source for WHD’s power to investigate compliance. That’s different from  Section 16(b), which provides the private right of action for an employee to file an individual or collective action brought on behalf of herself and others similarly situated to recover back wages and liquidated damages.

Based on the statute itself, liquidated damages are only available through judicial enforcement under Section 16(b) or through settlement of pending litigation.

That’s the Law, Now What About Efficiency?

Beyond legal (and, fine, nerdy) underpinnings, the FAB reflects WHD’s observation that seeking liquidated damages during administrative settlements delayed case resolutions by an average of 28%. Presumably that delay came from employers and their advisors rightly pushing back, and WHD investigators having to respond.

So, to eliminate that waste, WHD’s goal for FAB 2025-3 is to:

  • Accelerate recovery of wages for affected employees;
  • Reduce friction in settlement negotiations; and
  • Allow more efficient use of WHD enforcement resources.

What Does This Mean in the Short-Term and the Long-Term?

If you’re an employer who agreed to pay liquidated damages as the result of a WHD investigation, and you finalized the agreement to do so before June 27, 2025, there’s probably not much you can do to get out of the agreement. The FAB is not retroactive.

If you’re in the midst of an investigation in which violations resulting in back wages may be found, you should not be asked to pay liquidated damages—and if you are, you should be ready to push back. While no investigator should try to slip that one by in light of the FAB, the DOL is a big place and WHD investigators are busy people—sometimes it takes a while for those in the field to learn about changes made in Washington, D.C.

Longer term, it’s worth doing a little tea-leaf reading. With so few investigators relative to the number of employers comprising our thriving U.S. industries, we expect WHD to continue to focus on initiatives meant to educate and guide employers to comply with the law. It simply won’t be feasible for the Division to enforce the law predominantly through investigations. Does this mean a return of the so-called PAID Program (Payroll Audit Independent Determination program), or other initiatives like it? Time will tell.

Of course, this does not mean that employers should disregard their obligations to pay employees lawfully. Indeed, it’s quite possible that, as WHD investigations diminish in number, the plaintiffs’ wage and hour bar will intensify their efforts to file suit across the states. It’s also possible that we will see increased enforcement activity at the local and state level (if you’re in California, think DLSE).

Instead of looking at this as some sort of lessening of WHD’s power, we encourage employers to consider whether the Division’s focus on education, guidance, and efficiency might open a door to permit a more conciliatory and collaborative approach in how employers interact with WHD. Consider whether it might be worthwhile to request an opinion letter regarding nuanced practices, where the law might not be so clear. And consider negotiating a resolution—without liquidated damages—if you happen to face a WHD investigation. After all, employees who receive back wage payments under WHD supervision (under Section 16(b)) can typically structure the process to achieve a release of claims that could have instead been pursued in litigation (under Section 16(c)). And if we’re right that private litigation will increase as WHD investigations diminish, closure through WHD could be a great thing to have.

Conclusion

FAB 2025-3 reflects a recalibration of WHD enforcement authority. By narrowing administrative settlements to actual back wages, the WHD is aligning more closely with its statutory limits while also seeking more efficient resolutions.

This change limits WHD to what the law actually allows, and it creates a path for faster, more predictable resolutions. Employers should stay compliant, stay alert, and consider whether WHD’s shift opens new doors for proactive engagement.