Third Circuit Limits Ability to Certify Wage/Hour Class Actions – Making “Off-the-Clock” Matters Difficult to Certify and Likely Increasing Litigation of Wage/Hour Claims Against New Jersey Employers in State Courts

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On Christmas Eve, the Third Circuit issued a decision restricting certification of wage/hour classes for off-the-clock cases and increasing the threshold for other wage/hour matters. See Ferreras v. American Airlines, Inc. (Dec. 24, 2019). While this decision may reduce the number of wage/hour class actions certified in the Third Circuit (which covers Pennsylvania, New Jersey, Delaware, and the Virgin Islands), it is predicted to cause an increase in the number of wage/hour class action filings in New Jersey state courts. As discussed in our previous legal alert, the recently enacted New Jersey Wage Theft Act by itself will undoubtedly spark an increase in New Jersey state court filings because of the significant increase in damages and lower burden of proof compared to the federal Fair Labor Standards Act (FLSA). The Third Circuit’s decision will likely result in even more state court wage/hour class action filings.

While the federal class certification standard (Rule 23) and the New Jersey state court standard (Rule 4:32-1) apply the same criteria, the federal and New Jersey courts differ greatly in terms of the evidence needed prior to a court certifying a class. In New Jersey “[a] court must certify a class unless there is a clear showing that it is inappropriate or improper.” Wilson v. Lipari Landfill (N.J. Super. Ct. Jan. 20, 2000). In Ferraras, the Third Circuit reinforced the higher standard required for class certification in federal court, holding that certification is only appropriate where, after a rigorous analysis, the plaintiffs prove by a preponderance of evidence that they have met every requirement of Rule 23, and there are no conflicts of fact related to the evidence presented. The Third Circuit also explained what is needed to meet the commonality and predominance requirements of Rule 23. Commonality requires plaintiffs’ allegations to be resolved by common answers in response to the proposed questions underlying the request for class certification. Assuming there were common answers, then predominance would require that the issues raised by the common answers be resolved through common evidence applicable to the class as a whole and not particularized evidence dependent on individualized inquiries.

Analysis

In Ferreras, the Third Circuit held that the lower court failed to apply the proper standard for class certification, which is conducting a rigorous analysis to determine whether each requirement of Rule 23 is met by a preponderance of evidence. Instead, the lower court incorrectly applied a pleading or initial evidence standard relying on mere allegations and initial evidence to certify the class. The Circuit further held that it was an error for the lower court to certify a class without resolving all conflicts of evidence and to assume that these conflicts would be addressed during subsequent discovery.

The Circuit Court went on hold that two of Rule 23’s requirements, commonality and predominance, could not be met in this matter under this heighten burden. The District Court certified the class to proceed based upon two common questions: 1) whether hourly paid employees were being paid for all hours worked under New Jersey law; and 2) whether there was a policy that discouraged employees from seeking exceptions for time worked outside their scheduled hours, resulting in violations of the New Jersey Wage Hour Law. The Third Circuit held that neither question could generate “common answers apt to drive resolution of the litigation.” The first question required the plaintiffs to prove that each individual worked overtime hours, and required a determination that the individual’s compensation was less than required under law. This proof could only be established through individual inquiry and evidence. The second question, the Circuit Court held, also required individual inquiry into hours worked and whether an employee requested an exception under the policy. Accordingly, since there was no yes or no answer to either question that would establish liability for the entire class, the Circuit Court held there was no commonality.

The Circuit Court also held that a failure to show commonality meant that predominance could not be established, since predominance is a much more demanding requirement. To meet predominance, plaintiffs must prove the common evidence presented will answer the questions presented on behalf of the entire class, and individualized inquiries would not be required. Specifically, the court held that “any claim that an employee was working off-the-clock would require an individualized inquiry as to when and to what extent that happened. There is no easy measure, like the time clock, to which the parties can turn to determine the amount of time an employee may have been working. Accordingly, plaintiffs would again need to provide particularized evidence to show when employees were working, so common issues do not predominate over individual ones.”

Take Away

In sum, the Ferraras decision undoubtedly will make it more difficult to obtain certification of wage/hour class actions in the Third Circuit, incentivizing plaintiffs to file such actions in a more favorable forum, including state courts. New Jersey’s burden for certifying class actions is the initial pleading standard that was expressly rejected by the Third Circuit, making it a very favorable alternative to federal court. Buttressed by the newly enacted Wage Theft law that provides a six-year statute of limitations, triple damages, a presumption of retaliation and an increased burden for employers whose records are inaccurate, it is predicted that there will be an unprecedented number of wage/hour filings within New Jersey state courts. Employers who rely on the Class Action Fairness Act (designed to discourage forum shopping) to remove these matters to federal court may be surprised at how easy it is for a well-pled complaint to meet one of the Act’s many exemptions and return the matter to state court.

Other than the ease of certifying a class in New Jersey courts, employers should also note that: 1) discovery is much more liberal in New Jersey state courts – no limit of depositions or interrogatories, 2) judges rarely grant dispositive motions, 3) in the majority of counties, juries and judges are more likely to rule in the employee’s favor, especially in wage/hour matters, 4) discovery of pay records may lead to a subsequent pay equity class action, 5) New Jersey state courts are more liberal in awarding attorney fees than federal courts, and 6) New Jersey courts are not as experienced, or equipped, to handle a large increase in class actions, which is likely to result in increased litigation costs and timelines. To potentially decrease liability, employers should consider arbitration agreements containing class action/jury trial waivers or should conduct an audit of New Jersey worksites for wage/hour issues and attempt to perfect any good faith defenses under New Jersey law.

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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