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Snowball Effect of Wage and Hour Class Action Lawsuits

The Fair Labor Standards Act (FLSA), the federal law that governs wages and overtime pay, has been the topic of numerous articles in state Employment Law Letters.  We’ve reported on the rise of wage and hour lawsuits filed state courts and we highlighted what federal courts consider “acceptable terms” for an FLSA settlement agreement What we haven’t addressed is the snowball effect these cases create for an employer.

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It begins with one employee
Kristy Henderson was a salaried assistant manager for CVS Pharmacy in 2007 from May until December, when she was terminated. She sued CVS under the FLSA for failing to pay her overtime. Specifically, she claimed she was misclassified as an exempt employee. (Under the FLSA, exempt employees aren’t entitled to overtime pay.)

She filed her lawsuit as a collective action, including all CVS salaried assistant managers of every division, subsidiary, and affiliate throughout the country. In its response, the company claimed that individuals employed as assistant managers were exempt under the executive or administrative exemptions of the FLSA.

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Four servers for Fontainebleau
Sanjay Kohli, Diego Figueroa, Victor Alvarez, and Samuel Juarez sued Fontainebleau Miami Beach for failure to pay overtime and minimum wages. All four employees worked as servers for Fontainebleau (a 1,500- room resort that includes 11 restaurants and lounges). They were paid a reduced hourly rate plus tips. The FLSA not only governs overtime and minimum wage, but it also regulates how tipped employees are paid.

The employees asserted that Fontainebleau took illegal tip deductions from their pay. Specifically, it required them to perform “nontipped” work and share their tips with nontipped employees, resulting in a rate of pay less than minimum wage. Fontainebleau claimed the employees were paid in full for the work they performed.

Other employees join, collective action forms
Henderson filed her lawsuit against CVS on June 19, 2009. By November 18, nine other CVS employees had joined the suit, and by June 1, 2010, a total of 24 employees had joined.

Kohli, Figueroa, Alvarez, and Juarez filed their lawsuit on March 16, 2010. By April 2, seven other Fontainebleau employees had joined the suit, and by June 1, when the group requested class certification, 11 employees were parties to the lawsuit.

In each case, the employees’ attorneys asked the court to certify a collective-action lawsuit against the company. Before a collective action is certified under the FLSA, potential employees can “opt in” to be involved in the case. When an employee asks for collective-action certification, the court must decide, using a two-step process, whether the employees are similarly situated.

The first step is a conditional certification, in which the court looks only at the pleadings and any affidavits submitted. If the court is satisfied that there are other employees who (1) are similarly situated to the employee who filed, (2) were victims of a common scheme or plan that violated the law, and (3) may desire to opt in, it will issue conditional certification.

The second step occurs at the end of discovery (i.e., the pretrial exchange of evidence) when the employer requests decertification of the class. The court reviews the evidence presented by both sides and determines whether the initial employee is, in actuality, similarly situated to the class of current and former employees that has been certified.

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Effects of conditional class certification
Once the court has conditionally certified a class action, the employee may be granted approval to issue a notice to other potential claimants. In the case of CVS, the employee asked to give notice to “all current and former assistant managers working in CVS stores located in Florida . . . within the law’s three[-]year statute of limitations.” The court approved the conditional class certification and allowed the notice to be sent, thus opening the door for numerous other employees to join the 24 that already had opted in.

The Fontainebleau employees filed their request for class certification on June 1. To date, the court hasn’t issued its ruling. However, in their request, the employees asked that should the court certify the class, they be allowed to notify potential employees by mail and post notice of the lawsuit at each of Fontainebleau’s restaurants.

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What causes the snowball effect?
FLSA class actions are very different from typical class-action suits. The FLSA specifically outlines the process for creating a “collective action” (the language used in the law). Under the Act, an employee belonging to a similarly situated class of current or former employees must opt in to the class by filing a written consent with the court to be bound by the outcome. That’s the exact opposite of traditional class actions, in which the employee who files suit automatically represents every member of the class, including those who haven’t expressly opted in. The FLSA is the only employment law that creates a specific statutory process for a collective-action lawsuit.

While that may seem like it would deter the snowball effect, the U.S. Supreme Court has determined that U.S. district courts have discretion to implement the collective-action provision of the FLSA by facilitating notice to potential claimants. In short, district courts have the authority to issue an order requiring notice to similarly situated employees, thus affording them the opportunity to opt in. The process makes every individual who worked for the employer within three years of the lawsuit a potential claimant who will be directly notified about the lawsuit and given the option to join in.

Bottom line

You can’t stop an employee from exercising her rights when she feels she has been wronged under the law. You can, however, set yourself up to defend an FLSA lawsuit by taking proactive steps to ensure you’re complying with the law. The U.S. Department of Labor (DOL), which enforces the FLSA, has numerous aids on its website to help you ensure compliance with the Act. An FLSA audit is another way to ensure your current pay practices are in compliance. If they aren’t, an audit can help you restructure your employees’ pay.