Fifth Circuit Requires "Rigorous Scrutiny" Before District Courts Authorize Notice in FLSA Collective Actions

In Short

The Situation: A district court in the Fifth Circuit granted conditional certification under the Fair Labor Standards Act ("FLSA") to a class of allegedly misclassified truck drivers, analyzing certification using the widely used and rarely reviewed two-step Lusardi approach. However, the court sua sponte certified its decision for interlocutory appeal given the inconsistencies in how district courts have evaluated collective action treatment under the FLSA.

The Result: On review, the Fifth Circuit rejected the two-step Lusardi approach to evaluating collective action certification, holding instead that district courts must "rigorously scrutinize the realm of 'similarly situated' workers … at the outset of the case[.]" Swales v. KLLM Transportation Services, L.L.C., --- F.3d ---, 2021 WL 98229, at *2 (5th Cir. Jan. 12, 2021).

Looking Ahead: Following Swales, district courts in the Fifth Circuit likely will take on a stricter gatekeeping role before certifying collective actions, and litigants outside the Fifth Circuit should consider the persuasiveness of Swales when developing strategy for the defense of putative collective actions.

Issuing Notice in FLSA Collective Actions

The FLSA authorizes employees to sue for minimum wages or overtime compensation "for and in behalf of … themselves and other employees similarly situated." 29 U.S.C. § 216(b). Section 216(b) neither defines "similarly situated" nor sets out procedural requirements for proceeding collectively, and the Supreme Court has provided limited guidance. As a result, federal district courts largely have been left to define the contours of collective action proceedings with limited circuit court review; such certification orders are not final orders subject to immediate review, and such cases often settle before final judgment. 

Two predominant methods of assessing collective action certification have emerged. An overwhelming majority of courts follow the two-step approach announced in Lusardi v. Xerox Corp., 118 F.R.D. 351, 359 (D.N.J. 1987). During the first step—the so-called "notice" step—the court performs a very lenient "similarly situated" review early in the case, often based only on pleadings and (sometimes) limited affidavit evidence, to determine whether the named plaintiffs have shown they are similar enough to the putative collective action members that notice should issue inviting members of the putative collective action to opt in to the litigation. If the named plaintiff(s) clear the first step's hurdle, the court authorizes notice to all putative collective action members with instructions on how to opt in to the litigation. The second step—the "decertification" step—occurs after putative collective action members have opted in to the litigation and discovery has concluded, and requires the court to conduct a more exacting review as to whether all plaintiffs who have opted in are similarly situated enough to maintain a collective action.

A minority of courts follow the approach announced in Shushan v. Univ. of Colo., 132 F.R.D. 263 (D. Colo. 1990). That approach requires the court to perform the four-factor analysis found in Federal Rule of Civil Procedure 23(a)—analyzing numerosity, commonality, typicality, and adequacy of representation—before certifying a collective action.

The Swales Decision

Until recently, the Fifth Circuit had not adopted either test; district courts within the circuit primarily followed the Lusardi approach. In 2019, the Fifth Circuit noted that it had "carefully avoided adopting" Lusardi, perhaps a signal of its willingness to reject that approach should the opportunity to do so arise. In re JPMorgan Chase & Co., 916 F.3d 494, 500 n.9 (5th Cir. 2019).

That opportunity presented itself in Swales v. KLLM Transportation Services, L.L.C., --- F.3d --- , 2021 WL 98229, at *2 (5th Cir. Jan. 12, 2021). There, a group of truck drivers engaged as independent contractors by KLLM Transportation Services, LLC ("KLLM") sued the company, alleging they were misclassified under the FLSA and owed unpaid overtime premiums. After conducting initial discovery limited to the issue of collective action treatment, plaintiffs moved for conditional certification under the first step of the Lusardi two-step standard. The district court grappled with the appropriate level of review, particularly because the parties had conducted some discovery, but ultimately granted certification in accordance with the Lusardi approach. Believing it was forbidden from considering "merits" issues when evaluating whether to issue notice, the court declined to evaluate whether the highly individualized inquiries called for by the economic realities test, which would be used to evaluate whether independent contractor status was appropriate, would impact whether the litigation could proceed collectively. Citing the unsettled issue of the proper certification standard and, particularly, how that standard should apply where some discovery has occurred, the court sua sponte certified its order for interlocutory appeal to the Fifth Circuit.

Rather than clarifying the application of the Lusardi method, the Fifth Circuit rejected Lusardi outright. The court rooted its holding in the text of the FLSA and Supreme Court jurisprudence. The court noted that Section 216(b) of the FLSA sets forth an undefined, imprecise standard for collective litigation: whether plaintiffs and potential opt-in participants are "similarly situated." The court highlighted that the Supreme Court has not clarified that standard, but instead only commanded district courts not to "signal approval of the merits" of a case "or otherwise stir up litigation" in the process of facilitating notice to putative class members. Swales, 2021 WL 98229 at *2 (quoting Hoffman La Roche, Inc. v. Sperling, 493 U.S. 165, 169 (1989)). "These bedrock rules, not Lusardi, define and delimit the district court's discretion." Id. With these principles in mind, the court denounced the Lusardi approach as lending itself to an ad hoc approach to collective litigation, especially in cases like Swales where some discovery occurred before the motion for conditional certification. The court likewise rejected the Shushan approach as improperly construing the FLSA based upon inapplicable Rule 23(a) factors.

In issuing its ruling, the Fifth Circuit emphasized a district court's responsibility to ensure that notice be distributed only to those who are actually similarly situated and to avoid endorsing the merits of the case. To fulfill this responsibility, the court explained, district courts must (i) "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 (ii) "authorize preliminary discovery accordingly." Swales, 2021 WL 98229 at *7. The court offered an example: a donning and doffing case generally involves employees working in the same job and a challenge respecting the same aspect of the job, and therefore little discovery would be needed to make the notice determination. 

On the other hand, the Fifth Circuit contrasted the facts before it as requiring more extensive discovery. The economic realities test presented a threshold inquiry respecting whether the truck drivers were independent contractors or employees. The court also shunned the previous practice of avoiding an inquiry on the merits: "it's improper to ignore evidence of other threshold matters, like whether the plaintiffs are 'employees' such that they can bring an FLSA claim." Swales, 2021 WL 98229 at *7. Accordingly, the court remanded the case to the district court to determine whether it could apply the economic realities test collectively or whether doing so would require too many individualized inquiries. Swales, 2021 WL 98229 at *8. If the latter, "the collective action would quickly devolve into a cacophony of individual actions" and could not proceed collectively. Id. 

The Impact of Swales

The Swales decision's impact is likely to ripple through district courts in the Fifth Circuit and beyond, and the ruling arms employers facing collective litigation with leverage to oppose certification with the benefit of a factual record that more accurately reflects whether employees are similarly situated.

To date, few circuit courts have determined what standard applies in evaluating whether to authorize notice to collective action members. Indeed, those circuits that have addressed the collective action standard have taken up the issue almost exclusively in the context of a decertification motion filed by the defendant after expensive and burdensome discovery. See Swales, 2021 WL 98229 at *6 (citing Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11th Cir. 2008) (endorsing Lusardi following a jury verdict); Campbell v. City of Los Angeles, 903 F.3d 1090, 1117 (9th Cir. 2018) (rejecting Lusardi on review of a decertification decision as "improperly sanction[ing] the decertification of collective actions the district court finds procedurally challenging.") (internal quotations omitted)). 

Given the limited circuit authority, district courts outside the Fifth Circuit will face choices when deciding whether to issue notice to a collective class, including whether to: (i) adopt the reasoning in Swales; (ii) decline to follow Swales and continue to apply existing standards; or (iii) like the district court in Swales, certify the issue for circuit review. Should additional circuit courts wade into the analysis, there may be a sea change in collective action standards, with circuits adopting the approach in Swales or a split of authority ripe for Supreme Court input. 

Against this backdrop, employers defending against collective action claims have new authority—however persuasive—in their FLSA toolkits to establish, through early discovery, the disparate employment circumstances of putative class members. Courts that follow the reasoning in Swales will conduct a more thorough vetting of a putative class, providing employers with a meaningful opportunity to challenge collective litigation before defense costs compound. 

Finally, Swales may have an impact beyond wage and hour litigation, as the FLSA's "similarly situated" standard also applies in collective litigation brought under the Age Discrimination in Employment Act ("ADEA"). Courts generally have applied the same approach to collective action litigation arising under the ADEA as those arising under the FLSA. See Hipp v. Liberty Nat'l Life Ins. Co., 252 F.3d 1208 (11th Cir. 2001). Therefore, the ripple effect of Swales may also surface in class age discrimination litigation.

Three Key Takeaways:

  1. The Swales ruling presents a new paradigm for district courts in the Fifth Circuit—and potentially beyond—when evaluating collective action proceedings. It directs district courts to abolish the lenient, first-stage notice process and to permit discovery over key issues related to proceeding collectively before a court authorizes notice to putative collective action members. 
  2. Employers in the Fifth Circuit can expect more upfront discovery and in-depth analysis on collective action certification issues, rather than application of the lenient first-step Lusardi standard that frequently results in conditional certification that exists in many district courts now. 
  3. To the extent relevant to whether to issue notice, courts will consider merits issues previously deemed untouchable when evaluating collective certification, presenting additional opportunities to thwart collective litigation before costs spiral and settlement pressure increases.
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