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.