April 17, 2013

Overtime Collective Actions Dealt A Major Blow By The U.S. Supreme Court

Yesterday, the U.S. Supreme Court found that a plaintiff could not maintain a collective action under the Fair Labor Standards Act (FLSA) when her former employer had offered her full monetary relief in an offer of judgment under the Federal Rules of Civil Procedure.  In a surprising 5-4 decision in Genesis HealthCare Corp. v. Symczyk, the Court rejected the plaintiff’s arguments that the employer’s tactics allowed employers an unfair means of “picking off” named plaintiffs to defeat collective actions.

A bit of background.  Unlike Calfiornia state law, the FLSA does not allow for class actions where class members are presumed to be “in” unless they “opt out,” but rather only permits a “collective action” where “similarly situated” employees “opt in” after notice.  In this case, the plaintiff claimed that she and a group of similarly situated employees were not paid for time that they worked during meal breaks.  Ordinarily in a collective action under the FLSA, the court must determine that there are “similarly situated” employees before sending out an “opt in” notice.  In this case, before doing so, the employer made an Offer of Judgment to the single named plaintiff of the full amount of damages she had individually.

In federal court, offers of judgment under Rule 68 operate very much like they do in state court under Cal. Code of Civ. Pro. 998.  Specifically, the rule allows defendants to make offers to have judgment in a certain amount entered against them and exposes a non-accepting plaintiff to exposure for certain post-offer costs.  The plaintiff here, however, rejected the offer, but the trial court still entered judgment on the case, effectively extinguishing the possibility of a continued “collective action”

The U.S. Supreme Court approved of the lower court’s action.  It found that there was no “actual controversy” because the individual named plaintiff had been offered full relief which made her whole.  As a result, she no longer had a “personal stake” in the litigation and could not pursue it on behalf of the “similarly situated” employees.

To be sure, that is an amazing ruling.  And it required some sleight of hand to get there.  In reaching that decision, the majority skirted the issue of whether the case had been made “moot” by virtue of the unaccepted offer of judgment.  Instead,the Court specifically declined to reach the issue and found that the plaintiff had waived it by not challenging the lower court’s ruling that the issue was moot.  Having said that, the majority did cite to a number of decisions which have found just that and the dissent even acknowledged that “a court has discretion to halt a lawsuit by entering judgment for the plaintiff when the defendant unconditionally surrenders.”

This decision potentially gives employers a powerful tool to combat collective actions under the FLSA.  But, argulably, it leaves more questions unanswered than answered.  For example, what effect, if any, will the decision have on class actions where it may be argued that a potential class of employees have a stake in the outcome?  Likewise, if the plaintiff seeks injunctive relief will that operate as a bar to an offer of monetary judgment that would otherwise make her whole?

Undoubtedly, the courts will answer these and other questions in the coming years.  We will keep you posted on those developments.



Category: Class Actions, Wage-Hour,