On May 24, 2010 the Honorable Frederick J. Martone of the District of Arizona conditionally certified a class of approximately 4,600 current and form Store Managers at AutoZone automotive parts stores across the country (except for California). See Taylor v. Autozone, Inc. et al., 2011 U.S. Dist. LEXIS 55590 (D.Az May 24, 2011). The lawsuit alleges that Autozone improperly treats its Store Managers as exempt from the overtime law and pays them a salary that does not properly compensate them with overtime pay. In reaching this conclusion, the Taylor Court held that the company’s common classification of all store managers as exempt “supports the conclusion that all class members are similarly situated. Taylor, 2011 U.S. Dist. LEXIS 55590 at *7. The workers argue that rather than performing typical managerial tasks (such as hiring, firing and scheduling), they spend the majority of their time performing more basic duties that are usually performed by hourly employees who are entitled to overtime such as, inter alia, stocking merchandise , creating plan-o-grams, helping customers with sales and operating the cash register.

The complaints made by the workers in Taylor are common throughout the retail and banking industry, especially in recent years where many employers have cut back on the amount of overtime its hourly workers are allowed to put in. As a result, salaried Assistant Store Managers and Store Managers have been required to “pick up the slack” and put in long hours performing duties that are usually reserved for hourly employees and not get paid for this time because they are “managers.” This is especially true for Assistant Store Managers or Assistant Branch Managers which are often paid a salary simply to do the same tasks as hourly without any of the authority or responsibility that is supposed to come with the “manager” title.

In a recent opinion by the U.S. District Court for the District of Columbia, five exotic dancers were found to be employees of the club that they danced at, entitling them to minimum hourly wages and overtime compensation. See Thompson v. Linda & A., Inc., 2011 U.S. Dist. LEXIS 46078 (D.D.C. Apr. 29, 2011). In Thompson, the defendant classified its dancers as independent contractors and paid them $40 per 10 hour shift plus tips. The plaintiffs argued that despite the independent contractor classification, they were in fact employees entitled to the protections of the Fair Labor Standards Act. The Court performed an economic realities test and sided with the dancers. Specifically, the Court found that: (i) the club asserted significant control over the dancers; (ii) the dancers did not have the opportunity for profit or loss and investment in the business; (iii) the dancing did not require a degree of skill and independent initiative to be independent of the club; and (iv) the dancers were an integral part of the employer’s business. Thus, the club was responsible for paying dancers minimum wages for each hour worked and overtime premium pay for hours worked over 40 in a single week.
The improper classification of exotic dancers as independent contractors is a common practice. Other types of employers will also do the same in order to avoid their responsibilities of paying workers minimum wage and overtime pay.

In recent years, district courts within the Third Circuit have frequently held that workers cannot bring “hybrid” federal wage and hour claims under the FLSA as a collective action under 29 U.S.C. §216(b) along side state wage and hour class action claims under Federal Rule of Civil Procedure 23. See, e.g., Otto v. Pocono Health Sys., 457 F. Supp. 2d 522, 524 (M.D. Pa. 2006) (“To allow an Section 216(b) opt-in action to proceed accompanied by a Rule 23 opt-out state law class action claim would essentially nullify Congress’s intent in crafting Section 216(b) and eviscerate the purpose of Section 216(b)’s opt-in requirement.). The notion that such claims cannot be simultaneously pursued in federal court has become known as “inherent incompatibility.”

However, in an opinion issued on January 18, 2011, the Seventh Circuit Court of Appeals rejected this idea, holding that “there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA.” Ervin v. Os Restaurant Services, Inc., 2011 U.S. App. LEXIS 863, *3-4 (7th Cir. Ill. Jan. 18, 2011). “Nothing in the text of the FLSA or the procedures established by the statute suggests either that the FLSA was intended generally to oust other ordinary procedures used in federal court or that class actions in particular could not be combined with an FLSA proceeding.” Id. at *4.

In Ervin, former employees of an Outback Steakhouse restaurant brought claims under both the Fair Labor Standards Act and the Illinois Minimum Wage Law alleging that Outback failed to pay them minimum wage and overtime due to their tip sharing/pooling practices. The district court declined to certify the state law claims under Rule 23 because “of what he saw as a conflict between the two different forms of aggregate litigation.” Id. at *7-8.

The Seventh Circuit examined Congressional intent behind the FLSA and disagreed with the district court, noting that “[t]here is ample evidence that a combined action is consistent with the regime Congress has established in the FLSA.” Id. at *15. Moreover, the Seventh Circuit rejected the notion that §216(b)’s opt-in procedure and the opt-out nature of Rule 23 would create confusion among class members. In fact, the Court noticed that having two parallel actions, one in federal court and one in state court, would create more potential for confusion than having a class’s wage and hour claims proceed in one venue. Id. at *18-19.

The Ervin Court also addressed whether a district court could have supplemental jurisdiction over state wage and hour claims pursuant to 28 U.S.C. §1367. It held that the requirements of §1367(a) are satisfied where the state wage claims are closely related to the FLSA collective action. Id. at *21. The court also held that “a simple disparity in numbers should not lead a court to the conclusion that a state claim ‘substantially predominates’ over the FLSA action” as precluded by §1367(c). Id. at *24. In fact, the court observed that the 45 current and former Outback workers who had joined the suit (compared to the 180 to 250 who may be covered by the Rule 23 claims) was a “low” ratio ,suggesting that the state claims did not predominate over the FLSA claims in this case. Id. at *25. In closing, the Ervin court stated:

We agree with the D.C. Circuit in Lindsay and the Ninth Circuit in Wang that the Third Circuit decision in De Asencio represents only a fact-specific application of well-established rules, not a rigid rule about the use of supplemental jurisdiction in cases combining an FLSA count with a state-law class action. In our case, the record reflects no reason to doubt that it is sensible to litigate all theories in a single federal proceeding. The identity of the issues, the convenience to both plaintiffs and defendants of not having to litigate in multiple forums, and the economy of resolving all claims at once suggests that an exercise of supplemental jurisdiction will normally be appropriate. In all but the most unusual cases, there will be little cause for concern about fairness or comity.

Id. at *26.

While the Seventh Circuit’s opinion is not the first circuit court to reject inherent incompatibility, see, e.g, Wang v. Chinese Daily News, Inc., 623 F.3d 743, 753-55, 760-62 (9th Cir. 2010) (holding that a district court properly certified a Rule 23(b)(2) class along with an FLSA collective action and properly exercised supplemental jurisdiction over the state-law claim), the Third Circuit Court of Appeals has yet to address this issue. As a result, overtime lawyers in Pennsylvania, New Jersey and Delaware must still confront this issue when planning any class/collective action litigation.

Court decisions resolving FLSA conditional certification motions are relatively commonplace.  However, far fewer decisions are available addressing FLSA class certification at the post-discovery stage of litigation.  These decisions usually arise in response to the defendant’s motion to “decertify” the FLSA class.

I recently wrote a brief responding to a decertification motion.  In the process, I came across four decisions in which federal courts in Pennsylvania have refused to decertify the FLSA class.  These decisions are briefly discussed below:

In Lockhart v. Westinghouse Credit Corp., 879 F.2d 43 (3d Cir. 1989), the Third Circuit applied §216(b)’s “similarly situated” requirement to an ADEA claim alleging that workers were discriminatorily terminated from their jobs.  Id. at 46.  The individual class members were “from different divisions of the company” and “different areas of the country” and “reported to different managers,” id. at 61 (Garth, J., dissenting), so, in opposing collective treatment, the company emphasized the “individualized explanations” for each plaintiff’s termination, id. at 62.  Even (more…)