The Fifth Circuit Rejects Two-Stage Conditional Certification Procedure for FLSA Collective Actions in Favor of a One-Step Rigorous Scrutiny Approach.

Alerts / January 15, 2021

On Jan. 12, 2021, the Fifth Circuit Court of Appeals significantly altered the process for certification of collective actions in wage and hour cases under the Fair Labor Standards Act (“FLSA”). In Swales v. KLLM Transport Services, L.L.C., the Fifth Circuit expressly rejected the two-step certification process, commonly known as “the Lusardi test,” which has been used by many district courts across the United States to analyze whether court-authorized notice of an FLSA collective action lawsuit should be sent to potential plaintiffs. Specifically, the Fifth Circuit rejected the lenient standard courts have applied in making this notice determination under Lusardi in favor of a more “rigorous” standard. This decision will be of substantial employers defending FLSA collective actions in the Fifth Circuit and will change the way they have been litigated for many years.

The Two-Step Lusardi Test for Conditional Certification

Under the two-step Lusardi approach, the district court first determined whether a putative collective action should be “conditionally certified” by examining whether the named plaintiff and the members of the putative collective were “similarly situated” under what courts have described as a “lenient” standard. Often, under this lenient standard, district courts determined whether a lawsuit should be conditionally certified based on pleadings and affidavits, alone, a process that strongly favored plaintiffs. If the court found that the putative collective action members were “similarly situated” under this lenient standard, the court would authorize all potential collective action members to receive written notice of the lawsuit so that they would have an opportunity to opt-in and join the case.

The second step under Lusardi occurred at the conclusion of discovery when the defendant would file a motion to decertify the conditionally certified collective action. At that time, because the factual record is more fully developed with discovery complete, the court would determine whether the collective members are “similarly-situated” for purposes of deciding the merits of their claims based on common proof under a “stricter standard” than that applied at the conditional certification stage. If the court decertified, the court would dismiss the claims of the opt-ins.

This two-step Lusardi test often resulted in notice being given to workers who were ultimately determined not to be “similarly situated” to the named plaintiff under the stricter standard applied at the decertification stage. However, because those individuals had received notice under the more lenient standard at the first stage, they often filed separate, individual lawsuits after their claims were dismissed at decertification. Thus the procedure worked to make cases much more expensive for employers, even if their conduct was ultimately found to be lawful or that collective treatment was held to be inappropriate.

The Fifth Circuit Determines the Lusardi Approach “Frustrates, Rather than Facilitates,” the FLSA’s Notice Process.

Noting that the term “conditional certification” appears nowhere in the FLSA or any Supreme Court precedent interpreting it, the court found no support for the two-step conditional certification procedure outlined in Lusardi or any of the various tests that the district courts have used in the first step to determine whether a group of employees should receive notice of a collective action. Relying upon the plain language of FLSA section 16(b), the court explained that district court’s job in FLSA collective actions is to ensure that notice is given only to those who are “similarly situated” without necessarily ruling on the merits of the case. However, the court observed that the Lusardi test has led to district courts focusing more on the “certification” issues and avoiding addressing the merits of the claims instead of whether the notice would be sent to “similarly situated” individuals.

For these reasons, the Fifth Circuit expressly rejected the Lusardi test, instead instructing that district courts “must rigorously scrutinize the realm of ‘similarly situated’ workers.” The Fifth Circuit explained that courts “must do so from the outset of the case, not after a lenient, step-one ‘conditional certification.’” In particular, in connection with its articulated “rigorous” standard, the Fifth Circuit directed district courts to “[c]onsider[], early in the case, whether merits questions can be answered collectively.” And, in doing so, the Fifth Circuit stated that courts must “consider[] all available evidence,” not just the pleadings and affidavits. To help develop a factual record to assist the court in determining whether the plaintiffs have met their rigorous burden to establish that a lawsuit should be certified as a collective action, the Fifth Circuit instructed that the district court “should 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 “authorize preliminary discovery accordingly.”

Moreover, when deciding whether to certify a case as a collective action, the Fifth Circuit stated that courts should examine issues related to the merits of the plaintiff’s claims and whether the members of the putative collective are similarly situated with regard to the factors that will be relevant to determining the merits of the plaintiff’s claims. In fact, the Fifth Circuit stated that it is “improper to ignore evidence of…[such] threshold matters,” like whether workers are employees or independent contractors. If such evidence is improperly ignored, the Fifth Circuit noted that the court “is likely to send notice to employees who are not potential plaintiffs” and “risks crossing the line from using notice as a case-management tool to using notice as a claims-solicitation tool,” which prior U.S. Supreme Court precedent “flatly forbids.”

The Swales case significantly increases the burden on plaintiffs to establish that an FLSA lawsuit should be certified as a collective action.

The decision in Swales puts greater emphasis on focused discovery on the nature and extent of the claim before any notice goes out to the putative collective members. While that process may result in increased discovery costs earlier in litigation, the heightened standard will almost certainly decrease the number of certification motions that are granted and reduce the scope of court-authorized notices in cases where certification may be appropriate.

Notably, since district court decisions on conditional certification are typically not subject to interlocutory appeal, the Fifth Circuit opinion in Swales is the only Court of Appeals decision directly addressing the proper standard for issuing notice to potential plaintiffs in collective actions. Thus, although the Swales decision is only binding on district courts in the Fifth Circuit, it is likely to be powerful precedent to courts throughout the country on certification issues in FLSA collective actions.

Authorship Credit: Peter Stuhldreher, Ashlee Grant and Greg Mersol

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