By: Kevin Young and Noah Finkel
Seyfarth Synopsis. Businesses familiar with FLSA litigation are aware of the frustrating ease with which some courts have turned single-plaintiff cases into large-scale collective action proceedings. But the tides are shifting, as the Sixth Circuit Court of Appeals has joined the Fifth Circuit in rejecting the “lenient standard” for collective action certification and demanding that plaintiffs do more to unlock the gears of mass litigation. The decision—which may be the most important wage-hour decision of the year—marks a critical development for all employers facing FLSA litigation.
Litigation under the Fair Labor Standards Act has soared for years. A leading factor driving this trend is the near-reflexive ease with which many courts have historically “conditionally certified” FLSA collective actions and authorized distribution of notices and invitations to join to their members. Simply stated, individual skirmishes have morphed early and easily into big lawsuits. And big lawsuits mean higher stakes; which means greater settlement pressure; which means more lawsuits.
For many years, district courts labored under the view that this approach is required. Many declined to consider well-founded arguments about whether it makes sense, whether it works, or even whether it is supported by the FLSA’s text. But the tides are changing, as evidenced most recently by the Sixth Circuit’s May 19, 2023 decision in Clark v. A&L Homecare and Training Center, et al.
The Low Bar of Lusardi
The concept of conditional certification was created by federal district courts to manage wage and hour litigation. And because there’s sparse appellate guidance on the issue—and even fewer Supreme Court decisions—the result is a hodgepodge of district court decisions that rely on shifting standards with diverse (and sometimes contradictory) outcomes.
A little history first. In 1989, in the seminal Hoffmann-La Roche, Inc. v. Sperling decision, the Supreme Court held that courts have discretion (within limits) to send notice of a collective action to potential opt-in plaintiffs. But the Court also cautioned that “intervention in the notice process” cannot devolve into “the solicitation of claims.” Further, the Court instructed district courts to “avoid even the appearance of judicial endorsement of the merits of the action.” Since Hoffmann-La Roche, the Supreme Court hasn’t provided further guidance on the issue.
Without guidance from the text of the FLSA or higher courts, district courts have searched for the right approach. Historically, most settled on the Lusardi ad hoc approach (from the District of New Jersey’s 1987 decision in Lusardi v. Xerox Corporation).
Under the Lusardi approach, courts apply a two-step “ad hoc” process to determine whether FLSA plaintiffs are “similarly situated” under the FLSA. At stage one—conditional certification—the court looks at whether the proposed collective members are sufficiently “similarly situated” to receive notice. This stage is often based solely on the pleadings and some affidavits. Some courts refuse to even consider the evidence a defendant-employer might present in the name of not diving into the “merits.” Those courts call it a “lenient standard” under which the plaintiff must make only a “modest showing” to clear the “low burden” necessary to send notice.
As a result, the vast majority of motions for conditional certification result in a collective action notice being issued to eligible current and former employees advising them of how they can join the case. Even when defendant-employers set forth persuasive, substantiated explanations on why those employees are not similarly situated, district courts often respond: “That may be a good argument about why this case ultimately should not be a collective action, but that’s appropriate for consideration after notice goes out, notice recipients ‘join ‘opt in’ to the case, and discovery takes place.” Of course, that later stage is often years down the line, after considerable expenditures of time and money.
In theory, stage two of the Lusardi approach—decertification—takes place after discovery has been completed. At that point, the defendant may move to “decertify” the collective, and the court applies a stricter test to assess whether the named and opt-in plaintiffs are sufficiently similarly situated to proceed together as a collective at trial. Many cases don’t reach decertification, however, because of the settlement pressure created by a conditional certification decision.
Living With Lusardi
The onslaught of FLSA litigation has been fueled, in part, by the low standard for obtaining conditional certification under Lusardi. Unlike traditional “opt out” Rule 23 class actions, plaintiffs’ attorneys have been able to obtain conditional certification before much if any discovery takes place and without the need for expert witnesses. In 2020, for example, the plaintiffs’ bar won a staggering 84% of conditional certification motions (231 out of 274).
Once certification is granted, there are real consequences for employers. Court-sanctioned notice must be sent to past and current employees advising them of their right to join the case. In addition to potential business disruptions, this can create significant potential exposure. As a result, employers face enormous settlement pressure early in these cases.
But nothing in the FLSA requires any of this. Certification, conditional or otherwise, isn’t mentioned in the Act—the concept is judge-made. Rather, the FLSA permits employees to sue for unpaid minimum wage and overtime compensation, and it states that the lawsuit may be brought “by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.” It also requires that each plaintiff who joins the case file a written consent to join.
Swales Enters the Chat
All of this started to change in January 2021, when the Fifth Circuit rejected Lusardi and announced a new approach Swales v. KLLM Transport Services, LLC.
In the first-ever appellate-level, head-on consideration of the Lusardi framework, the Fifth Circuit found that the two-step approach “frustrates, rather than facilitates, the notice process,” “has no universally understood meaning,” and, though reduced to common practice, was not based on valid precedent. Swales explained that refusing to consider the “merits” before the distribution of notice ignores the FLSA’s requirement that plaintiffs be “similarly situated.”
Accordingly, the Fifth Circuit rejected Lusardi and set out a new approach for handling FLSA collective actions. Under the Swales approach, a court must: (1) decide what facts and legal questions will be material to the “similarly situated” analysis early in the case; (2) authorize preliminary discovery directed toward these issues; and then (3) analyze all of the evidence available to determine whether the putative collective is similarly situated.
While Swales left some important questions open—e.g., how high is the bar that a plaintiff must clear—it marked a victory for employers. That is certainly true in the Fifth Circuit, where the Swales standard rejects rubber-stamping collective actions early in a case’s life without a balanced consideration of whether its members are in fact similarly situated. And Swales also has proven valuable outside the Fifth Circuit, as it has caused some other courts to take a closer look at whether Lusardi is appropriate.
The Sixth Circuit Joins In
In the first appellate level decision to directly confront the issue since Swales, the Sixth Circuit joined its sister circuit in rejecting Lusardi as unwarranted and improper. In fact, Clark rejects the Swales approach too, adopting yet a third approach.
In Clark, the Sixth Circuit endorsed a two-step process, like Lusardi, while raising the bar for the showing a plaintiff needs to make in order for notice to be issued. Gone is the “lenient standard,” “modest showing,” and “low burden” that Lusardi endorsed. Instead, within the Sixth Circuit, a plaintiff wishing to unlock the gears of collective litigation now must show a “strong likelihood” that those to whom they seek to send notice are similarly situated to the plaintiffs themselves. Doing so commonly will require discovery, acknowledged the court.
What Does This Mean?
Clark marks a welcome development for employers facing FLSA litigation in the Sixth Circuit, and a potential watershed moment even for those fighting in other jurisdictions.
In the Sixth Circuit, the impact is clear: individual plaintiffs seeking to pursue collective actions must first engage in discovery. Through that discovery, they must show a “strong likelihood” that they are similarly situated with the individuals they desire to round up for their litigation. The days of issuing notice without discovery or consideration of a defendant-employer’s evidence regarding the “similarly situated” question are seemingly over.
But we think that Clark, particularly when combined with Swales, could stand for something much greater. In the apt words of Swales, while the Lusardi approach “may be common practice[,] practice is not necessarily precedent.” In two recent federal appellate matters, defendants have now challenged the practice of Lusardi and won. The ground on which the “lenient standard” rests is shakier than ever before.
Simply stated, Clark provides employer-defendants in all FLSA litigation—not just in the Sixth Circuit—renewed motivation and increased ammunition to challenge application of the Lusardi approach and rushed attempts to convert individual cases into collective actions. The bar is rising, and the timing for an employer community facing a continued torrent of FLSA litigation and the settlement pressure it so often inflicts couldn’t be better.