On February 4, 2013, the Seventh Circuit Court of Appeals (includes Indiana, Illinois and Wisconsin) issued an Opinion authored by Judge Richard Posner that is very favorable to employers.  The Court ruled that employees cannot sue for unpaid overtime as a group unless they can propose a rational way to calculate damages without engaging in a specific factual inquiry for each employee.  Espenscheid v. Directsat USA, LLC 2013 U.S. App. Lexis 2409.

In Espenscheid, the District Court initially certified a class of 2,341 plaintiffs who claimed they did not receive overtime wages in violation of the FLSA.    However, the employees were paid on piece rate basis, meaning that many of the employees worked fewer than forty hours and many may have worked substantially more than forty hours.  The Seventh Circuit decertified the class and ruled that the case could not continue as a collective action because there would have to be an individual factual inquiry for each employee regarding his or her damages.  The Court held that the collective action could not go forward because each separate evidentiary hearing would have “swamped” the District Court.

The Plaintiffs attempted to avoid the individual inquiry by stating that there could be 42 representative class members.  The Seventh Circuit rejected  that approach because the plaintiffs could not present a logical explanation for how the selected 42 plaintiffs accurately represented the class.

This ruling provides an opportunity for employers to argue at the outset of FSLA collective action classes that the potential class should not be certified because there will need to be an individual inquiry for damages.  An employer who is able to prevent a class from being certified will save a significant amount of attorneys’ fees, and not be forced into settling a claim that has little to no merit.  The Opinion recognized this fact when it stated that class counsel cannot be permitted to force settlement by refusing to agree to a reasonable method of calculating damages at trial should settlement negotiations fail.

The Seventh Circuit also stated that there was no need to certify the collective action because the employees could complain to the United States Department of Labor which could bring a lawsuit of its own on behalf of the class.   Employers operating in the Seventh Circuit now have an opportunity to defeat certification solely on damages grounds, which may significantly restrict the amount of FLSA collective actions that are certified by District Courts.  A full copy of the opinion is attached in this link.