United States: Third Circuit Reverses Rule 23 Certification In ‘Off The Clock' Case

Ruling also touches upon FLSA conditional certification order

Many wage and hour cases filed today try to name popular targets and to rely upon tried and true allegations. Unfortunately for employers, this is at times a successful playbook, particularly when settlement is the primary goal. That approach, however, doesn't always work, particularly if the district court doesn't employ the appropriate rigorous analysis under Rule 23, as a case decided on New Year's Eve demonstrates. That case also addresses conditional certification under the Fair Labor Standards Act (FLSA) and the interplay between Rule 23 standards and those under FLSA Section 16(b), reflecting or possibly casting doubt on the ambivalent approach taken by many courts.

In Reinig v. RBS Citizens, N.A., Case No. 17-3464 (3d Cir. Dec. 31, 2018), the plaintiffs made claims for unpaid overtime under the FLSA and state law for alleged off-the-clock work performed by mortgage loan officers working for a bank in 10 different states. There was nothing remarkable about any of the claims, the defendant or the positions in dispute. The bank, as is usual in these cases, had policies prohibiting off-the-clock work and had procedures to report such time if and when it was worked. Faced with no illegal formal policy, the plaintiffs went for the tried and true and asserted that there was a uniform "policy to violate the policy," pointing to other company policies such as those providing discipline for the performance of unauthorized work, labor budgets and management oversight over the use of overtime. Analytically, none of these should be sufficient. The Department of Labor's position for decades with respect to unauthorized overtime has been that the employer should pay the employees but may discipline them, and thus doing so is not illegal. Similarly, virtually every responsible employer has a labor budget and monitors the use of overtime. It is not surprising that when tested under a reasonable standard, many such claims fail, as we've noted before. ( September 21, 2018 and April 9, 2018).

Undaunted by the inherent long-term weakness of such claims, the district court conditionally certified the claims under the FLSA. After the parties had agreed to the use of a special master to review motions relating to certification, the district court followed the special master's report and granted Rule 23 certification under state law. The employer then filed a request for interlocutory appeal under Rule 23(f), which the Third Circuit granted.

As to the Rule 23 certification, the Third Circuit was highly critical of the district court's order, in large part for failing to conduct the requisite "rigorous analysis" required for such decisions. It first found that the district court had not made any coherent class definition but had simply summarily granted the plaintiffs' motion and created equally undefined subclasses for the different states. The court rejected the notion that an order could define a class by forcing the defendants and others to "cobble together" other documents inside and outside the record.

The court next looked to whether a class should have been certified at all, focusing (as most courts do in this context) on Rule 23(b)(3)'s predominance requirement. It directed its analysis to whether there was sufficient classwide evidence that (1) there was a common policy to violate the policy in all 10 states and (2) the employer had actual or constructive notice of that conduct. The plaintiffs, for their part, argued that they had presented sufficient representative evidence for both, relying on testimony from approximately two dozen putative class members. The defendant, as you would expect, argued that they had not, pointing to differences among the experiences of these individuals and of others. But here was the problem: The district court's explanation of its analysis (much of which done by the special master by agreement of the parties) contained conclusions but scarce details on how they were reached. The district court similarly failed to account for or analyze evidence that would tend to undermine the plaintiffs' allegations of a classwide illegal policy. Nor did it address the different accounts given by the representative plaintiffs of how overtime was handled at their particular location. The court of appeals ultimately expressed misgivings over whether the showing was sufficient, but it remanded the district court to conduct the examination that appeared wanting in its initial order.

The court then turned to the FLSA conditional certification order, noting correctly that the FLSA is not governed by Rule 23 and has no provision equivalent to Rule 23(f) permitting interlocutory review. Although it conceded that there were important areas of overlap between the areas of inquiry under Rule 23 and FLSA Section 16(b), it declined, largely on policy grounds, to find the two sufficiently intertwined as to allow interlocutory review.

The decision in Reinig is important for two reasons, despite the garden-variety claims and fact pattern. First, the court clearly admonished the district court to engage in a deep and meaningful review of the record, a pronouncement refreshing to any practitioner who has received a perfunctory order reciting the standard and then granting certification with only superficial analysis. Second, the court joined others in finding that Rule 23 standards do not apply under the FLSA. It will be interesting to see whether these holdings will be allowed to ripple into discovery and whether more courts will permit FLSA 16(b) plaintiffs to be treated like the parties the statute says they must be.

The bottom line:

It may be easy for a court to certify a wage and hour case raising run-of-the-mill allegations, but it still must conduct the requisite rigorous analysis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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