Seyfarth Synopsis: In an important decision for employers, the Fifth Circuit Court of Appeals rejected the all-too lenient but commonly accepted Lusardi standard for conditional certification under the FLSA. In its place, the court adopted a more practical, common sense approach in deciding whether trial courts should send notice to past and current employees advising them that a lawsuit against their employer has been filed and that they have the right to join or "opt into" the lawsuit. Instead of Lusardi's modest factual showing that other employees are "similarly situated" to the plaintiff, the court held that before allowing notice to be sent, a trial court should (1) decide what facts and legal questions are material to the "similarly situated" analysis; (2) authorize preliminary discovery on these issues; and (3) analyze all available evidence to determine whether the employees and the plaintiff are similarly situated, including "merits-based" evidence (which under Lusardi courts typically do not consider). This case marks an important win for employers and is a must read for anyone facing an FLSA collective action in the Fifth Circuit (or elsewhere).
On January 12, 2021, the Fifth Circuit issued a significant opinion in Swales v. KLLM Transport Services, L.L.C. that drastically alters the landscape of wage and hour litigation in the Fifth Circuit. The two-step Lusardi approach, which ignores the "merits" of the case at the conditional certification stage, no longer applies. Instead, courts must initially determine the facts and legal questions material to the "similarly situated" analysis early in the case and allow discovery directed towards these issues, including "merits-based" issues. The court may then analyze those "merits-based" issues in reaching a determination as to which potential opt-in plaintiffs are similarly situated to the plaintiff. This is significant because it counters the oft-used mantra from plaintiffs' counsel that the "merits" of the case are irrelevant to conditional certification. In other words, the Swales decision gives employers the ammunition to fight back at the conditional certification stage.
Setting the Stage
The onslaught of collective actions against employers under the FLSA, which continues to grow, has been fueled in part by the relatively low standard for obtaining conditional certification under Lusardi. Unlike opt-out class actions under Rule 23 of the Federal Rules of Civil Procedure, plaintiffs' counsel often are able to obtain conditional certification before any discovery takes place and without the need for expert witnesses. In fact, in 2020, the plaintiffs' bar won 84% of conditional certification motions (231 out of 274), a higher percentage of successful conditional certification motions than in any of the past 15 years. Thus with the Lusardi standard, Plaintiffs' counsel are able to pursue lucrative cases with little up-front investment.
Moreover, once certification is granted, there are real consequences for employers. Court-sanctioned notice of the case must be sent to past and current employees advising them of their right to join the case, which, given the relative size of the population to be notified, can be very disruptive in addition to creating significant exposure. As a result, employers face enormous pressure early in wage and hour cases to reach a settlement—before a case is conditionally certified and before notice goes out.
But nothing in the FLSA requires that conditional certification be so routine. In fact, nothing in the FLSA mentions conditional certification (or certification for matter) at all; the entire concept is a court-creation. Rather, the FLSA permits employees to sue for unpaid minimum wage and overtime compensation, and it states that the lawsuit may be brought "by any one or more employees for and in behalf of himself or themselves and other employees similarly situated." It also requires that each plaintiff who joins the case file a written consent to join. There is no mention of conditional certification or mailing notice of the case to putative collective members.
The Lusardi Framework
So where did conditional certification come from? It was created by federal courts to manage wage and hour litigation. And because there are few appellate court decisions on the issue—and even fewer Supreme Court decisions—the result is a hodgepodge of district court decisions that rely on shifting standards with predictably diverse (and sometimes contradictory) outcomes.
A little history: in 1989, in the seminal Hoffmann-La Roche, Inc. v. Sperling decision, the U.S. Supreme Court held that courts have discretion (within limits) to send notice of a collective action to potential opt-in plaintiffs. But the Court also cautioned that a district court's "intervention in the notice process" cannot devolve into "the solicitation of claims." And the Court instructed district courts to "avoid even the appearance of judicial endorsement of the merits of the action." Since Hoffmann-La Roche, the Supreme Court has not provided additional guidance on the issue.
Without guidance from the text of the FLSA or higher courts, district courts have searched for the right approach. They have largely settled on two general approaches: the Lusardi ad hoc approach (from the District of New Jersey's 1987 decision in Lusardi v. Xerox Corporation) and the Shushan approach (from the District of Colorado's Shushan v. University of Colorado decision). The overwhelming majority of courts—including most courts in the Fifth Circuit—have used some form of the Lusardi approach.
Under the Lusardi approach, courts apply a two-step "ad hoc" process to determine whether FLSA plaintiffs are "similarly situated" under the FLSA. At stage one, i.e., conditional certification, the court looks at whether the proposed collective members are similarly situated enough to receive notice. This stage is often based solely on the pleadings and some affidavits, and courts typically require nothing more than "substantial allegations that the putative [collective] members were together the victims of a single decision, policy, or plan." Courts also take great pains not to delve into the merits and routinely credit plaintiffs' assertions, even when those assertions are not based in evidence. As a result, conditional certification is often granted.
Stage two of Lusardi approach typically takes place after discovery has been completed. At that point, the defendant may move to "decertify" the collective, and the court applies a stricter test to determine whether the named plaintiff and opt-in plaintiffs are sufficiently similarly situated to proceed together as a collective at trial. If the court decides the plaintiffs are not similarly situated, it dismisses the opt-in plaintiffs leaving only the original named plaintiff's claims.
The second test (the Shushan test) borrows concepts from class actions under Rule 23 and looks at numerosity, commonality, typically, and adequacy of representation when deciding whether to certify the collective. As mentioned above, the majority of district courts across the country have adopted some version of the Lusardi approach (rather than the Shushan test); although the actual application differs from court-to-court and even judge-to-judge.
The Fifth Circuit's Decision
Over the years the Fifth Circuit has taken great pains not to endorse (or reject) the Lusardi framework. This changed with the Fifth Circuit's recent decision in Swales v. KLLM Transport Services, L.L.C. In a lively and engaging opinion, the Court went through the history of conditional certification, examined the text of the FLSA, and analyzed the Supreme Court's Hoffmann-La Roche decision. After doing so, the Court rejected the Lusardi approach (and the Shushan approach) and set out a new test.
First, the Court explained that "Lusardi frustrates, rather than facilitates, the notice process." And the Court pointed out that "[t]he use of 'Lusardi' or even collective-action 'certification' has no universally understood meaning." Accordingly, the approach provides district courts with little guidance.
Second, the Court concluded that Lusardi does not comport with the text of the FLSA. The FLSA says nothing about "conditional certification," and the Fifth Circuit refused to read the Lusardi approach into the FLSA. The Court explained:
Two-stage certification of § 216(b) collective actions may be common practice. But practice is not necessarily precedent. And nothing in the FLSA, nor in Supreme Court precedent interpreting it, requires or recommends (or even authorizes) any "certification" process. The law instead says that the district court's job is ensuring that notice goes out to those who are "similarly situated," in a way that scrupulously avoids endorsing the merits of the case. A district court abuses its discretion, then, when the semantics of "certification" trump the substance of "similarly situated."
The Court explained that the refusal to look at the "merits" under the Lusardi approach ignores the requirement under the FLSA that plaintiffs be similarly situated and leads courts to certify collective actions of putative collective members that are not similarly situated. The Court stated:
Considering, early in the case, whether merits questions can be answered collectively has nothing to do with endorsing the merits. Rather, addressing these issues from the outset aids the district court in deciding whether notice is necessary. And it ensures that any notice sent is proper in scope—that is, sent only to potential plaintiffs. When a district court ignores that it can decide merits issues when considering the scope of a collective, it ignores the "similarly situated" analysis and is likely to send notice to employees who are not potential plaintiffs. In that circumstance, the district court risks crossing the line from using notice as a case-management tool to using notice as a claims-solicitation tool. Hoffmann-La Roche flatly forbids such line crossing.
Accordingly, the Court rejected the Lusardi approach and set out a completely different test for conditional certification:
[A] district court should identify, at the outset of the case, what facts and legal considerations will be material to determining whether a group of "employees" is "similarly situated." And then it should authorize preliminary discovery accordingly. The amount of discovery necessary to make that determination will vary case by case, but the initial determination must be made, and as early as possible.
And the Court made clear that a district court should consider all of the evidence available when deciding whether and to whom notice should be issued. In short, the Fifth Circuit set out the following framework: (1) courts should decide what facts and legal questions will be material to the "similarly situated" analysis early in the case; (2) courts should authorize preliminary discovery directed toward these issues; and (3) the court should then analyze all of the evidence available to determine whether the putative collective is similarly situated. If the proposed group is "too diverse" to be similarly situated, the court may decide the case cannot proceed on a collective basis.
The new test represents a sea change in the conditional certification framework, and the case is a welcome decision for employers. The decision should curtail some of the success the plaintiffs' bar has enjoyed of obtaining conditional certification early in FLSA cases on little more than allegations alone. Although it may result in increased discovery costs early in the case, it promises to provide an avenue for employers to meaningfully oppose conditional certification; especially in misclassification, joint employment, "off-the-clock," and similar-type FLSA cases where plaintiffs have had success in pushing back "merits" arguments at stage one of the Lusardi test. In short, this decision is required reading for all employers facing wage and hour litigation in the Fifth Circuit (Louisiana, Mississippi, and Texas), and even employers outside of those jurisdictions.
Moreover, employers who are currently in pending FLSA litigation may want to ask the court to reconsider a prior ruling on a motion for conditional certification that is inconsistent with Swales. To the extent the case has not reached the conditional certification stage, or if the conditional certification briefing is pending, employers should immediately apprise the court of this significant decision.
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