When a company faces a Fair Labor Standards Act (FLSA) collective action there are two main components to address: (1)whether it will be a collective action or class action versus an individual action and (2) a trial of the merits on whether the FLSA was actually violated. One federal district court decided No. 2 before No. 1 – and it did not go well when it had its papers graded by the appellate court. The Third Circuit recently confirmed that the class certification decision needed to be made before any trial on the merits of an FLSA case. Companies should take some comfort in the decision that potential class claimants will not be permitted to see the outcome of a case before they decide whether to join in.

Background

The case has an extensive history that relates to Mortgage Loan Officers (MLOs) at Citizens Bank who alleged that Citizens had an unofficial policy requiring the MLOs to work off the clock in excess of 40 hours per week without paying overtime, in violation of both the FLSA and  Pennsylvania wage-and-hour law. The plaintiffs moved for and were granted a conditional certification of an FLSA “opt in” collective action in May 2016, which is the initial, less-detailed court determination of whether a collective action can proceed. Shortly after that ruling, however, the district court scheduled a trial in September 2017.

FLSA Collective and Class Certification

The plaintiffs’ counsel provided notice to over 1,000 current and former MLOs, and 351 responded with the requisite consent forms to “opt in” and join the collective action case. In an FLSA collective action, only those individuals who affirmatively opt in are considered part of the collective action and are bound by the ultimate decision in the case. Those who do not opt in can file their own claims if they wish but are not bound by what happens in the collective action.  The plaintiffs later added nine additional named plaintiffs to the lawsuit and then filed a motion to also certify the class action under Federal Rule 23 seeking certification for 10 classes, to account for the 10 states involved. The Rule 23 class action certification follows a different procedure than the FLSA statutory collective action certification because it makes all individuals covered by the class notice members of the class action unless they take specific action to “opt out” of the class. All class members are bound by the ultimate determination in the class action. Citizens opposed the Rule 23 “opt-out” class certification and also sought decertification of the FLSA “opt-in” collective action.

The parties then agreed to the appointment of a Special Master, who ultimately recommended to certify a class for the plaintiffs’ state law claims, deny Citizens’ motion for decertification, and grant plaintiffs final FLSA certification. As part of its objections to the Special Master’s recommendation, Citizens said that the scheduled FLSA trial date needed to be postponed because the putative class had not yet been notified of the class certification decision and had not been given the chance to opt out.

Trial Court’s Approach

The district court adopted the Special Master’s Report in full, certified the Rule 23 state law classes and granted final collective action certification. The court also rejected the Citizens’ objection as to the scheduled FLSA trial that would address whether Citizens had a policy that caused the MLOs to not report all of the hours worked.

First Appeal – Third Circuit Reversal

Citizens appealed the ruling to the Third Circuit, which found numerous flaws in the district court’s decision to certify the Rule 23 class and remanded the ruling back to the district court to reconsider its class certification and be much more thorough in its assessment of class questions.  The appellate court stopped short of reversing the FLSA collective action decision based on some procedural considerations.

Back at the District Court

When the case went back to the district court, the court chose not to address the class certification question and instead planned to press forward with the trial on the FLSA collective action without first deciding whether to certify the Rule 23 class. Citizens objected and moved to stay the trial until the court issued a decision on the class certification. The district court declined the request and characterized the objection as a delay tactic.

Second Appeal – Third Circuit Reversal

Out of options at the district court, Citizens again appealed to the Third Circuit on the grounds that it needed extraordinary “mandamus” relief, less than three weeks before the trial date, to direct that the FLSA collective action trial not occur until the court issued a Rule 23 class certification decision and, if certified, until class members were notified of the opportunity to opt out. Citizens also sought to have the case reassigned to a different district judge and have the trial level case stayed until the appellate court ruled. On the day that the stay relief was granted, the assigned district judge agreed that the case should be reassigned.

Mandamus relief from an appellate court is unusual. But here the Third Circuit granted that relief to Citizens, finding that in the wage-and-hour suit the “District Court refused to meaningfully engage with Citizens’ objections to the Court’s proceeding with trial in the FLSA opt-in collective action without first considering whether to certify the related state-law Rule 23 opt-out class action—even though the planned trial would resolve a fact issue that is central to all the claims.”

The court went on to scrutinize the district court’s approach, stating that even if it was just a Rule 23 opt-out class action without any FLSA collective action “we would view a trial-before-certification approach with the utmost skepticism.” The court found that Rule 23’s history reflects that a “post-trial certification decision is strongly disfavored” because it would allow potential class members to wait for the trial result and then decide if they will join the case (after the winner has already been decided). Rule 23 was specifically amended in 2003 such that members of the class would be identified before any trial and would be bound by the outcome — win or lose.

The court noted that seven other Courts of Appeals have expressly held that Rule 23 requires a class certification decision before a trial on the merits. Although the Third Circuit declined to go that far in its ruling, it said the only situation where a trial would occur before the class certification decision would be where the defendant consented to the approach. In the normal circumstance, failure to rule on class certification would create an “atmosphere of confusion” that would be particularly compounded in a hybrid wage-and-hour case such as this one. If having an FLSA trial before deciding on class certification were to become the practice in wage-and-hour suits, most employees would never opt into the FLSA action and would instead remain on the sidelines to get the FLSA trial result. As the court summed it up:

What we do conclude here is that, by compelling the FLSA opt-in collective action trial before deciding Rule 23 class certification—in contravention of our clear instruction to conduct a rigorous examination of the class certification issue and without assessing any of the procedural complexities we have discussed—the District Court elected to forge ahead, thereby creating a predicament for others to unravel.

The Third Circuit sent the case back to the chief judge of the district for reassignment.

Takeaways

The district court put Citizens Bank in a tough spot for this hybrid FLSA collective and class case, but the appellate court’s ruling was refreshing for defendants.  FLSA hybrid cases are difficult and expensive for employers to litigate, but at least class members must join the case before they find out whether they will win or lose.