FLSA Collective Actions - Dream or Nightmare?

An FLSA collective action can be an employee's dream come true, but an employer's worst nightmare.

In an FLSA collective action, employees sue their employers under the Fair Labor Standards Act for alleged violations of federal wage and hour law. If you are a big enough employer, it is possible that the resultant lawsuit could have plaintiffs in every state. The possibility for common issues rendering employees similarly situated is substantial in FLSA cases, because companies typically have centralized payroll practices and policies, even where they have multiple worksites throughout the country.

Why A Dream Come True?

In recent years, FLSA collective actions have risen in popularity due primarily to the relative ease of getting class certification. Unlike traditional class actions, FLSA collective actions are governed by Section 16(b) of the Fair Labor Standards Act. Class certification under Section 16(b) is significantly easier than traditional class certification because plaintiffs need only prove that they are similarly situated.

The FLSA contains a two-step process for class certification. During the first stage — the notice stage — the court determines whether a class should be certified for purposes of allowing notice of the class action to be given to potential members. At this stage, the employee plaintiff need only demonstrate the potential class members are similarly situated. Upon provisional certification, notice is distributed to potential class members who may opt in to the class through written consent. The opt-in provision of the FLSA differs from traditional class action’s opt-out provision and allows for less stringent requirements for provisional class certification at the notice stage. Following discovery, the second stage of class certification occurs upon a defendant's motion to challenge the class certification. The court considers whether it should decertify the class or restrict certain members because they are not, in fact, similarly situated.

The "similarly situated" standard articulated in FLSA is significantly less stringent than the requirements for traditional class certification. Accordingly, unlike plaintiff employees in Title VII class actions, plaintiff employees in FLSA collective actions need not prove participation numbers, common issues, typical job functions and adequacy of representation. They need only prove that class members raise similar legal issues in similar factual settings. This proves relatively easy for many plaintiffs because the same company policy or practice that results in one employee's being underpaid or improperly classified under the FLSA, will likely have ramifications for several other similar employees. Differences in work schedules, wages due, and hours involved generally don't matter

Why A Nightmare?

Between 2004 and 2006 alone, the number of federal wage and hour cases increased by 86 percent. With an estimated 80 percent of employers out of compliance with federal and state wage and hour laws in 2007, the number of cases is sure to remain high. Unfortunately, FLSA collective actions can prove very costly for employers. Courts routinely award liquidated damages equal to the amount of back pay owed. With plaintiff employee classes reaching the thousands in FLSA collective actions, judgments can easily reach millions of dollars.

What An Employer Can Do

The only sure-fire way for an employer to avoid a costly judgment in an FLSA collective action is to ensure compliance with the wage and hour laws. Employers must understand and comply with the overtime exemptions allowed under the FLSA, ensuring that employees classified as exempt truly meet the exemption criteria. Exemption status generally rests on the actual job duties of the employee rather than the employee's job title or salary alone. Therefore, employers must evaluate the duties of each position carefully when making the exemption determination.

Apart from overall compliance, employers might also consider developing internal processes and policies to ensure that non-exempt employees are recording their time accurately, and that they are compensated for all time worked. Internal policies may also provide a forum to answer employees' questions and handle potential employee complaints.

When faced with an FLSA collective action, an employer can reduce exposure in a number of ways. First, at the notice stage, the employer should seek to reduce the size of the provisional class. Provisional class members may be excluded in the absence of a nationwide policy or governing practice where individual managers implement local procedures and policies.

Once a class is provisionally certified, the employer should challenge how notice is given to potential class members. Delays in notice can reduce employer liability where the employer has corrected any deficient practices by allowing the statute of limitations to run against claims based on past practices. Furthermore, an offer of settlement may effectively bar claims of potential plaintiffs before they opt in to the collective action.

At stage two, the employer must move to decertify the provisional class appealing to the court’s stricter standard. The employer should focus on what differentiates employees to persuade the court to decertify. Key differences include differences in work sites, management practices and lack of an overall company policy or plan. Of course, all this will help. But really your best defense is a good offense. Make sure you are in compliance and ensure that if you do get sued you will be able to defend and avoid costly damage awards and having to pay plaintiffs’ attorneys' fees.

Who Can Help?

An employer is wise to assume a comprehensive approach with regard to FLSA compliance. Compliance with the FLSA will reduce the likelihood of a collective action and create a strong record for trial in the event of such an action. FLSA collective actions are popular among employee plaintiffs, costly to employers, and well worth avoiding. If you would like assistance in ensuring your company's compliance with the FLSA, or if you require assistance defending against a collective action, please contact any member of the Warner Norcross & Judd Human Resources Practice Group.