Opt-out class action allowed to coincide with opt-in collective action
Just when you thought wage-hour issues couldn’t get any tougher for employers, the Seventh Circuit has added another wrinkle. In Ervin v. OS Restaurant Services, Inc.pdf, that Court decided that including Rule 23 opt-out classes with Section 216(b) Fair Labor Standards Act (FLSA) collective action opt-in classes in one lawsuit is not per se impermissible, thereby striking down the so-called “incompatibility” argument.
Under Federal Rule of Civil Procedure 23 (and similar state rules), an employee who is part of a class is automatically included in class litigation unless that employee notifies the court that he or she does not wish to be included. In other words, employees must affirmatively act if they want to be excluded from the case. Therefore, Rule 23 class actions typically include a high percentage of possible class members for one simple reason: no one bothers to opt-out.
Collective actions under Section 216(b) of the FLSA, however, include only those employees who notify the Court that they wish to participate in the case – i.e., those who opt-in. As a result, collective action classes tend to include a lower percentage of possible class members.
In recent years, many employee classes have combined non-FLSA state law claims with federal FLSA claims – a potentially confusing circumstance involving both opt-in and opt-out classes. When confronted with such a case in Ervin, the trial court refused to certify the Rule 23 opt-out class. In so doing, the trial court reasoned that combining Rule 23’s opt-out provisions with Section 216(b)’s opt-in provisions meant that class treatment under Rule 23 was not a superior way to structure the case due to the confusion that would ensue. On appeal, the Seventh Circuit ruled that such a per se approach was inconsistent with both Rule 23 and Section 216(b).
The Seventh Circuit’s decision makes it more difficult for employers to avoid large, state-law wage-hour class actions even if the state-law claims are combined with FLSA opt-in claims. Future trial courts – and employers – that wish to avoid the case management nightmares inherent in such combined classes will, therefore, need to provide detailed, evidence-based reasons why the strict Rule 23 requirements cannot otherwise be met. Evidence and arguments regarding the lack of predominance of common issues related to the state-law claims will be more important than ever. As a result, a strategic pretrial plan and detailed understanding of all of the claims and defenses being raised in the case will be key to helping trial courts reach a more favorable outcome.
