As many readers of this blog know, the Fair Labor Standards Act (FLSA) allows employees to sue for overtime and minimum wage violations on behalf of themselves and those “similarly situated” in a “collective action.” FLSA collective actions often present significant exposure for employers because of the potentially large number of plaintiffs involved. FLSA collective actions use an “opt in” procedure in which potential plaintiffs must consent in writing to join the case. But in order to opt in, employees need to be told about a case so they can choose whether or not to join.
For approximately 30 years, courts have used a plaintiff-friendly two-stage collective action certification process. First, the plaintiff asks for “conditional certification” which can result in the circulation of a notice to potential opt-in plaintiffs. Then, after other potential class members have opted-in and discovery has been conducted, the defendant can argue that the opt-in plaintiffs aren’t actually similarly situated and thus that the court should “decertify” the class and dismiss the opt-in plaintiffs.
On January 12, 2021, in Swales v. KLLM Transport Services, L.L.C., the U.S. Court of Appeals for the Fifth Circuit (covering Texas, Mississippi and Louisiana) upended this procedure and instructed courts to “rigorously scrutinize” whether the plaintiffs and potential opt-in plaintiffs are sufficiently similar at the initial certification stage, before the putative class of potential opt-in plaintiffs is sent notice of the FLSA action. The Fifth Circuit said that courts should authorize limited, preliminary discovery on issues related to the question of whether potential opt-in plaintiffs are similarly situated and then make their initial certification decision based on that record.
This may seem like a small change, but it has potentially significant consequences for FLSA litigation and the potential settlement value of cases. With a lenient initial stage of certification, plaintiffs’ counsel sometimes can grow the size of a case quickly. Under the new Fifth Circuit rule, employers will have a better chance to defeat certification and prevent the number of claimants in a case from multiplying.
Additionally, the discovery costs for employers after conditional certification are significantly more onerous because of the number of employees involved. By giving employers a better a chance to defeat certification up front, employers have an opportunity to resolve the case with only engaging in the limited discovery permitted by the new Fifth Circuit procedure.
For now, this decision only applies to cases in the Fifth Circuit. We will have to wait to see if any other courts follow this new approach.