Supreme Court Will Decide If Offer of Judgment Moots FLSA Collective Action

by Ballard Spahr LLP
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The U.S. Supreme Court has agreed to decide whether a collective action filed under the Fair Labor Standards Act is rendered moot if the defense makes an offer of judgment in the full amount of the representative plaintiff’s individual claim.

The justices’ ultimate decision in Genesis HealthCare Corp. v. Symczyk will dictate how courts should handle offers of judgment under Rule 68 of the Federal Rules of Civil Procedure in collective actions and may also affect Rule 23 class actions.

In the district court, the defendant served the plaintiff at the outset of the case with a Rule 68 offer of judgment equal to “$7,500.00 in alleged unpaid wages, plus attorneys’ fees, costs and expenses.”

The plaintiff conceded that the offer would have fully satisfied her individual claim, but refused to accept it. In response, the defendant moved to dismiss the entire case, contending that since the plaintiff rejected the offer of judgment, she “no longer had a personal stake or legally cognizable interest in the outcome of this action, a prerequisite to this Court’s subject matter jurisdiction under Article III of the United States Constitution.”

The plaintiff argued that the defendant’s motion was a “strategic attempt to ‘pick off’ the named plaintiff before the court could consider her ‘certification’ motion.”

The District Court sided with the defendant, dismissing the FLSA claim with prejudice and holding that the Rule 68 offer had mooted the collective action and deprived the court of subject matter jurisdiction. But on appeal, the Third Circuit Court of Appeals reversed.

In its August 2011 decision in Symczyk v. Genesis HealthCare Corp., the Third Circuit looked to its prior decision in the Rule 23 class action context that had rejected the defendant’s use of a Rule 68 offer of judgment prior to the filing of a class certification motion to attempt to moot the claims of the class representative.

Even though there are significant differences between Rule 23 “opt-out” class actions and collective actions under the FLSA—which bind and benefit only those employees who affirmatively “opt-in” to the case—the Third Circuit held that Rule 68 offers of judgment should not be allowed “to undercut the viability of either type of representative action.”

In its petition to the Supreme Court, Genesis demonstrated that, in the FLSA context, the federal circuit courts are divided on the question of whether Rule 68 offers of judgment to the representative plaintiff may be used to moot a collective action. The petition also demonstrated that in both the FLSA and Rule 23 class action contexts, the circuits courts are split as to whether the “relation back” doctrine applies to prevent defendants from “picking off” the representative plaintiffs with Rule 68 offers of judgment before a motion for certification is filed.

The Supreme Court’s decision in this case thus may have a significant impact not only on FLSA collective actions, but also class actions under Rule 23.

Ballard Spahr’s Labor and Employment Group advises clients on wage and hour compliance, and defends FLSA collective actions as well as class actions brought under state wage and hour laws. The Consumer Financial Services Group is nationally recognized for its work on class action cases, its guidance in structuring and documenting new consumer financial services products, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

For more information, please contact Consumer Financial Services Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Labor and Employment Practice Leader David S. Fryman at 215.864.8105 or fryman@ballardspahr.com, Burt M. Rublin at 215.864.8116 or rublin@ballardspahr.com, Alexandra Bak-Boychuk at 215.864.8123 or bakboychuka@ballardspahr.com, or Daniel J.T. McKenna at 215.864.8321 or mckennad@ballardspahr.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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