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.