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FLSA Class Actions: Recent Seventh Circuit Decision Points To Merger Of Certification Standards

By Kevin M. McGinty

A significant recent Seventh Circuit decision, written by noted Judge Richard Posner, affirmed decertification of an FLSA collective action, essentially on the ground that the collective action could not satisfy the predominance standard under Fed. R. Civ. P. 23(b)(3).  You read that correctly.  In Espenscheid v. DirectSAT USA LLC, No. 12-1943 (7th Cir. Feb. 4, 2013), Judge Posner opines that the only material distinction between FLSA collective actions and Rule 23 class actions is that the former requires opt-in participation by class members, whereas the latter provides for automatic class member participation, subject to the right to opt out of classes seeking money damages.  In all other respects that collective actions and class actions serve the same purposes – efficient resolution of disputes of the claims of similarly-situated plaintiffs.  Therefore, Judge Posner reasons, there is no reason why the standard for certification of FLSA collective actions seeking money damages should differ from the standard for certification of a class to seek money damages under Rule 23(b)(3).  Judge Posner finds that common issues of fact and law do not predominate for the Espenscheid class because entitlement to overtime compensation or failure to be paid minimum wage could not be established through proof common to the class as a whole.  Accordingly, Judge Posner rules that the district court appropriately decertified the collective action to pursue FLSA claims.

Espenschied is unlikely to have a significant impact on motions to decertify FLSA collective actions, as courts already tend to apply something like the test applied there when deciding whether a case may continue to go forward as a collective action.  What remains to be seen is whether the current convention of permitting conditional certification of FLSA collective actions based on a low standard of proof will survive.  The conditional certification rule in FLSA cases is a judge-made principle not present in the text of the statute.  If other courts follow Judge Posner, it is likely that collective action procedures would be revamped to eliminate near-automatic conditional certifications (which have been eliminated in Rule 23 practice) and require instead a rigorous set of proceedings, imposing a more stringent burden of proof on the plaintiffs, aimed at determining early in the dispute whether the action is appropriately maintained as a collective action.

Deciding certification of FLSA collective actions under Rule 23(b)(3) principles would mean that recent Rule 23 decisions that have greatly curtailed the ability of plaintiffs to certify money damages class actions would also apply in the FLSA context.  This development would greatly reduce FLSA plaintiffs’ success at the certification stage and likely discourage some plaintiffs from even pursuing collective action remedies.  As Judge Posner suggests, the net result may be actions aimed primarily at seeking injunctive relief to eliminate improper employee pay practices, rather than collective actions seeking back pay.  Ultimately, imposing a heightened burden for certification of collective actions could finally stem the tide of FLSA collective action litigation that has swamped employers over the past 10 years.

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Martha Zackin