By Rob Wolff
Nearly 2,000 collective actions under the FLSA were filed in the federal courts in 2010, many against healthcare providers. In most instances, courts have applied a lenient standard to “conditionally certify” these cases, allowing them to proceed as collective actions. The landmark Supreme Court decision in Dukes v. Wal-Mart Stores, Inc. may, however, turn the tide and provide support for employers seeking to challenge the current procedure for conditional certification of FLSA collective actions. Although Dukes was decided under Rule 23, and the substantive claim arose under Title VII of the Civil Rights Act, this significant decision may also apply to the FLSA collective actions that have been filed against hospitals and other healthcare providers.
Two principles underlying the Dukes decision apply to all aggregate litigation, including FLSA collective actions, in order to achieve the overarching goals of efficiency and due process. The first is “commonality,” which requires the identification of at least one common question that will generate common answers “apt to drive the resolution of the litigation.” Second, the Supreme Court disapproves of “Trial by Formula,” a phrase that encompasses trial plans, specifically those based upon sampling methodologies, that prevent a defendant from litigating its statutory defenses to individual claims.
In deciding who should receive notice of the right to join a collective action, most courts use a two-stage inquiry to address whether proposed co-plaintiffs are “similarly situated” for the purposes of the statute’s requirement, with the initial stage employing a relaxed standard. Although 29 U.S.C. §216(b), the statute governing collective actions under the FLSA, does not define who is “similarly situated,” in the first stage courts routinely conditionally certify a class if the named plaintiffs can “make a modest factual showing” that they and potential plaintiffs were subject to a common policy. However, this common law procedure, which was developed by lower courts and not mandated by the statute or the Supreme Court, is inconsistent with the framework established by the Federal Rules of Civil Procedure for aggregate litigation, specifically Rule 20 for joinder of claims and Rule 23 governing class actions. In place of the requirement under Rules 20 and 23 that courts identify common questions, and Rule 23(b)(3)’s requirement that courts assess whether common questions predominate, the two-stage procedure applied to FLSA collective actions permits classes to be conditionally certified, and voluminous discovery to ensue, without these assessments.
The current two-stage inquiry is inconsistent with Dukes and the principles of efficiency and due process on which the decision is based. The pre-Dukes case of Frye v. Baptist Memorial Hospital exemplifies the inefficiency that results from deferring the inquiries mandated by Rules 20 and 23. In Frye, as in the numerous recent FLSA collective actions against hospitals, plaintiffs alleged that because of an automatic deduction for meal periods they were not paid for instances when they worked through their meal periods. The plaintiffs moved for conditional certification. Although the hospital urged the court to consider the prevalence of individualized issues, the district court declined to do so and ruled that the hospital’s “arguments about the individualized nature of some of Plaintiff’s claims may raise valid concerns, [but] those arguments are better addressed at the second stage of the similarly situated inquiry.”
More than two years later, at the close of discovery, the district court in Frye granted the hospital’s motion to decertify the class because, among other things, the court found that “Plaintiffs’ disparate factual and employment settings would present significant manageability problems.” These disparities surely can be discerned at the inception of a case and, in accordance with Dukes, should preclude certification under the FLSA from the outset. The district court in Frye also decided that decertification was appropriate on the grounds that, if the case proceeded to trial, the employer would be entitled to assert numerous individualized defenses, defeating the purpose of a collective action. This argument against collective treatment also was readily apparent when plaintiffs moved for conditional certification and should have prevailed but did not because of the lenient standard for conditional certification in the first stage of the two-stage process. Thus, applying the common-law two-stage process with a lenient first-stage standard for “conditional certification,” in derogation of the Federal Rules of Civil Procedure and in contrast to the standards set forth by the Supreme Court in Dukes, resulted in a two-year delay, and a waste of the court’s and the parties’ resources, in decertifying a class on grounds that should have precluded conditional certification in the first place.
Fortunately, district courts are beginning to recognize and acknowledge the significance of Dukes in FLSA collective actions. For example, in Spellman v. American Eagle Express, Inc., although the court denied a defendant’s request to reconsider conditional certification in light of Dukes, the court recognized that at least at the second stage Dukes’ analysis of what constitutes a “common question” would be persuasive to the court in determining whether an FLSA collective action should be certified. Perhaps more significantly, in Macgregor v. Farmers Ins. Exchange, the South Carolina District Court denied certification in an FLSA collective action pointing out that, as in Dukes, where there is “decentralized and independent action by supervisors that is contrary to the company’s established policies, individual factual inquiries are likely to predominate and judicial economy will be hindered rather than promoted by certification of a collective action.”
Hopefully, if the right arguments are made, courts will continue to recognize the relevance of the Federal Rules and adopt the reasoning of Dukes in adjudicating collective actions.