On May 19, 2023, the 6th Circuit Court of Appeals issued a decision creating a three-way split among federal courts on the handling of collective actions filed under the Fair Labor Standards Act (FLSA). In deciding whether and when current and former employees receive notice of a collective action, the 6th Circuit created a new test, rejecting the test used by a majority of federal courts and a separate test used within the 5th Circuit Court of Appeals. This three-way split sets the stage for the Supreme Court to address collective actions under the FLSA—an important topic the Supreme Court has substantively avoided and cleverly punted for decades.
Collective actions are specific to the FLSA and the Age Discrimination in Employment Act, which incorporates by reference sections of the FLSA. Collective actions differ from class actions. In a class action, which isn’t limited to any particular statute or claim, individuals are included in the class by default but can opt out if they don’t want to be included. In a collective action, to be included, individuals (always current or former employees) must opt into the action. In other words, individuals must affirmatively join a collective action.
Although Congress enacted the FLSA in 1938, collective actions only became popular in the 1990s. There are several reasons for this, but the driving factor was a 1987 decision from a federal court in New Jersey—Lusardi v. Xerox Corporation. The Lusardi decision created a two-step or two-stage certification process for FLSA collective actions. In the first stage, known as the “notice” stage or “conditional certification” stage, a court will send a notice to current and former employees, advise them of the collective action, and provide instructions for joining it.
The second stage, which occurs after employees have opted into and joined the action, examines whether the opt-in employees are actually similarly situated to the plaintiff-employee who filed the lawsuit. The standards applied at the first stage are extremely favorable to the plaintiff-employee and heavily weighted against any defendant-employer. This most often results in conditional certification of a collective action, with hundreds if not thousands of current and former employees joining an action before any meaningful litigation has occurred. For decades, employers have battled to even out this lopsided approach, but courts continued to apply it.
In 2021, the 5th Circuit was the first federal appellate court to flatly reject conditional certification, Lusardi, and any lenient standard. In Swales v. KLLM Transport Services, L.L.C., the 5th Circuit ruled that a court must consider “all available evidence” when deciding whether or when to send notice to any current or former employee, and notice should only be sent when current and former employees are actually (not potentially or theoretically) similarly situated to the plaintiff-employee who filed the lawsuit. Now known as the Swales test, it split the 5th Circuit from other federal courts.
The 6th Circuit has added to that split. In Clark v. A&L Home Care and Training Center, LLC, with respect to Lusardi and any lenient standard, the 6th Circuit rejected that approach. Notably, in doing so, the 6th Circuit noted how the approach “can easily expand the plaintiffs’ ranks a hundredfold,” thereby “forcing a defendant to settle.” As for the Swales test, the 6th Circuit rejected it, too, believing it to place impractical burdens on a court. The 6th Circuit then created its own test. In order for notice to be sent, a plaintiff-employee must show a “strong likelihood” that other current and former employees are similarly situated—a standard, the 6th Circuit explained, that’s analogous to a court’s decision whether to grant a preliminary injunction.
It’s likely the Clark decision will remain at the 6th Circuit for the foreseeable future. The plaintiffs—or perhaps the U.S. Department of Labor, an interested party in the case—will ask the full 6th Circuit to reconsider the decision, known as a rehearing en banc. From there, it’s likely a party will appeal the case to the Supreme Court. Will the Supreme Court take the appeal? That remains to be seen, but Lusardi, Swales, and Clark—the three-way split—make it more likely.
What should employers do in the meantime? As with any litigation, an employer’s priority should remain on avoidance. With FLSA collective actions in particular, auditing wage and hour practices and using workplace arbitration agreements are two ways employers can work to avoid them. For any pending collective action, employers should discuss the recent decision with their litigation counsel and any argument/defense it might support. This is especially true if the pending collective action is within the 6th Circuit, which encompasses Kentucky, Michigan, Ohio, and Tennessee.
Zachary B. Busey is a member of Baker Donelson’s labor and employment group in Memphis. He concentrates his practice on employment and general litigation and assists clients with claims regarding harassment, discrimination, wrongful termination, and wage and hour violations. He can be reached at zbusey@bakerdonelson.com.
Dean J. Shauger, an associate in Baker Donelson’s Memphis office, counsels and defends employers in labor and employment matters, such as workplace discrimination, wage and hour issues, sexual harassment, and employee termination. He can be reached at dshauger@bakerdonelson.com.