Last week, the United States Supreme Court confirmed what we informed readers of in our Employment Class Action Blog on February 21, 2011, "A timely and properly worded offer of judgment may moot a collective action and potentially result in no recovery to the Plaintiff." In Genesis Healthcare Corp. v. Symczyk, Case No. 11-1059 (Apr. 16, 2013), the Court found that the defendant mooted the collective action by its timely and properly worded offer of judgment, and the plaintiff received no recovery. This decision confirms the availability of an important strategic option for employers facing potentially expensive and time-consuming FLSA collective actions.
In Symczyk, the plaintiff brought FLSA claims challenging the employer's use of an "auto-deduct" policy for meal periods. Along with its answer, the defendant made a Rule 68 offer to the plaintiff of judgment for $7,500, plus attorney fees and costs to be determined by the court. The offer, by its terms, was open for 10 days. When the plaintiff did not respond to the offer, the defendant moved to dismiss the case. The district court dismissed the FLSA claims on the basis of Rule 68 and remanded the remaining state law claims. The Third Circuit, however, in its August 2011 decision, reversed, citing its concern that a defendant could improperly "pick off" named plaintiffs in FLSA collective cases by using Rule 68.
The Supreme Court reversed the Third Circuit finding that the district court correctly dismissed the case. The Constitution requires that litigants have standing (i.e., the existence of a live legal dispute in controversy) in order for the federal court to decide a case. If, after a case is filed, the legal dispute no longer exists, the federal court generally must dismiss the case as moot. Here, the court focused on the fact that the plaintiff failed to contest that her own personal claim would have been satisfied by the offer. The court thus assumed that the offer did indeed moot her individual claim even though the Plaintiff failed to accept the offer. This is a significant assumption because, as noted by the dissent, not all circuits agree that an unaccepted offer, as opposed to one the plaintiff does accept, will moot a plaintiff's claim. Finding the claim moot, the court concluded that Plaintiff lacked any personal stake in the outcome of the remainder of the case. It further found that there was no basis to have claims of other future opt-ins "relate back" because, at the time the employer filed its Rule 68 offer, no motion to certify a class was pending. The court concluded that an offer of judgment under Rule 68 that satisfies the representative plaintiff's claims moots a putative collective action under the FLSA.
The court specifically rejected the argument that the district court should disregard the offer of judgment to prevent a defendant from "picking off" plaintiffs. The Plaintiff argued that her would-be representation of other similarly situated employees was a sufficient personal interest for the case to continue. However, the court was not persuaded that the so-called "picking off" of the named plaintiff frustrated the goals of collective actions. The court stated that Rule 23 actions are fundamentally different from FLSA collective actions. The court likewise rejected the Plaintiff's reliance on a line of cases from the class action context. The Plaintiff contended that the court should permit the case to run its course because the Defendant's conduct would otherwise avoid court review. The court found that the Plaintiff's concerns could only arise in specific types of cases under Rule 23, such as certain Constitutional claims involving injunctive relief, in which the relief sought was "transitory" or "fleeting." In addition, claims under the FLSA are not "fleeting" because they involve monetary damages and because other employees preserve the right to file separate suits if they choose.
The dissent asserted that after the offer of judgment expired by its own terms without acceptance, it became a legal nullity with no operative effect. Thus, the Plaintiff retained a personal stake in the case, according to the dissent.
As we noted before, courts have been less than receptive to offers of judgment. Decisions like that of the Third and Ninth Circuits, which presume an improper motive on the part of the defendant, ignore the fact that FLSA collective action litigation is unduly expensive and time-consuming even for employers that have complied with the statute. As with the issue of arbitration and the Supreme Court's decision in AT&T Mobility v. Concepcion, 563 U.S. ____(2011), it may be that this decision will start a thaw in the courts' reluctance to enforce Rule 68's provisions. In Symczyk, the court stated that nothing in the nature of FLSA actions precludes satisfaction—and thus the mooting—of the individual's claim before the collective-action component of the suit has run its course. With this opinion, offers of judgment may become a more viable means for employers to cut off FLSA collective actions brought by individual disgruntled employees before undertaking the substantial cost of their defense.
Offers of judgment, however, are still not a panacea for collective action woes. First, to make such an offer, one must agree to pay the amount of the claim and attorney fees. The amount of the claim may not be ascertainable and, with a potential three-year statute of limitations and liquidated damages, the amount in many cases may be substantial. If, for example, a well-compensated employee complains of having been misclassified and of working 10 hours per week of overtime, the number may fall into the tens of thousands of dollars. The employer who makes such offer may lose the right to demonstrate that the number of hours worked was far lower or, for that matter, its defense on the merits. The employer who makes such an offer also takes on an unknown quantity of attorney fees and may have to incur the cost of litigating the meaning of a reasonable fee. If there are state law Rule 23 claims at issue, the offer may be of lesser utility, although this issue is unsettled. The employer who makes such an offer must be prepared also to accept the consequences of a public court judgment that may be argued as reflecting a violation of the law. Moreover, there remains a split in the circuits as to the effect of such an offer if the plaintiff rejects it, as well as the serious skepticism with which some courts have greeted Rule 68 offers in the past. As we indicated to blog readers in 2011, offers of compromise will not be of benefit to employers in every case but are a tool that should be considered on a case-by-case basis as part of an overall strategy.
This case demonstrates the importance of appellate advocacy in employment law. The procedural context of the case before it reaches the Supreme Court may be outcome-determinative, as it was in this case with the Plaintiff's failure to contest the unaccepted offer in the lower courts. And, at other times when the parties do not present the Supreme Court with what it views as proper predicate questions, the court may reframe the questions presented as it did recently, for example, in another 5-4 employment law decision, Gross v. FBL Financial Services, Inc., 557 U.S. 167 (2009). Here, the dissent argued that the court should have instead resolved what it called the predicate question of the unaccepted settlement offer instead of basing its decision on the procedural context. That question has been saved potentially for another day.