Judge Jones’ rulings, along with a small number of oft-cited (by employers) decisions – almost exclusively within the Third Circuit – offered a glimmer of hope for employers aiming to challenge a federal court’s ability to maintain jurisdiction over hybrid class actions at the outset. This was especially true in light of the fact that most other courts, including four courts of appeal, had rejected the “inherent incompatibility” theory, often emphatically. See, e.g., Shahriar v. Smith & Wollensky Rest. Grp., Inc., 659 F.3d 234, 247-49 (2d Cir. 2011); Ervin v. OS Rest. Servs., Inc., 632 F.3d 971, 976-79 (7th Cir. 2011); Wang v. Chinese Daily News, 623 F.3d 743, 760-61 (9th Cir. 2010); Lindsay v. Gov’t Emps. Ins. Co., 448 F.3d 416, 424 (D.C. Cir. 2006).

On March 27, 2012, in Knepper v. Rite Aid Corp., 11-1684, a unanimous panel of the Third Circuit overturned Judge Jones’ decisions and joined the Second, Fourth, Ninth and D.C. Circuits in ruling that plaintiffs can bring both FLSA (opt-in) claims and state law (opt-out) claims in the same action without forfeiting federal jurisdiction over the state law claims. The Third Circuit rejected Rite Aid’s various arguments in support of inherent incompatibility and against federal jurisdiction, and held, among other things:

  • The plain text of § 216(b) of the FLSA provides no support for the concept of inherent incompatibility, because it only applies to the FLSA and makes no reference to causes of action for relief under state employment law (indeed, Rule 23, including its opt-out procedure, did not even exist at the time that the FLSA went into effect);
  • The FLSA’s discouragement of “representative actions” was not intended to eliminate or distinguish so-called “class” actions, but was in fact intended to prohibit unions (i.e., representatives) from maintaining class actions on behalf of its members;
  • The FLSA’s opt-in procedure cannot preempt the opt-out procedure of a state law class action, because the opt-out procedure is provided not by state law, but by a more recent federal law (i.e., the Class Action Fairness Act) and/or Rule 23 of the Federal Rules of Civil Procedure, neither of which can be preempted or overturned by the FLSA;
  • The Rules Enabling Act does not bar certification of a Rule 23 opt-out class action based on state employment-law claims paralleling the FLSA, because the Supreme Court has already ruled that Rule 23’s opt-out mechanism is purely procedural and does not implicate the Rules Enabling Act (which only applies to rules that are substantive in nature and that in turn abridge or modify other substantive rights); in addition, the FLSA’s opt-in mechanism and bar on “representative actions” are also procedural and therefore cannot be implicated.

With its decision, the Third Circuit has effectively closed the door on the “inherent incompatibility” argument and means that dual-filed or “hybrid” class actions are here to stay. While it remains possible that this issue could eventually make its way up to the Supreme Court, there will likely need to be a clear circuit split for this to happen, and we do not foresee this occurring any time in the near future.