Wage & Hour Insights - Guidance & Solutions for Employers

Guest Author: Lindsey Marcus

Some good news for employers. In a recent 5-4 opinion, the U.S. Supreme Court held that collective-action claims brought under the Fair Labor Standards Act (FLSA) are moot when the named plaintiff has no continuing personal interest in the outcome of the lawsuit and no motion for conditional certification has been filed.  Genesis Healthcare Corp. v. Symczyk, Case No. 11-1059.

Relevant Facts

Laura Symczyk, a registered nurse, sued her former employer, Genesis Healthcare Corp. (Genesis), for violations of the FLSA. Specifically, she alleged that Genesis violated the FLSA by automatically deducting 30 minutes of time worked per shift for meal breaks, even when the employees performed compensable work during those breaks. Symczyk sought damages on behalf of herself and other similarly situated individuals using the so-called “collective action” mechanism prescribed in the FLSA, though no other such individuals had consented to join the suit and no motion for conditional certification had been filed.

When Genesis answered the complaint, it offered Symczyk $7,500 plus attorney’s fees and costs, an “offer of judgment” under the Federal Rules of Civil Procedure (FRCP). After Symczyk failed to respond to the offer, Genesis moved to dismiss the complaint by arguing that since it had offered Symczyk complete relief for her individual claims, she no longer had a personal stake in the litigation. Absent a personal stake in the claim, the lawsuit was moot. Both the district court and the U.S. Court of Appeals for the Third Circuit agreed that Symczyk’s individual claims were moot in light of the offer of judgment. The Third Circuit, however, held that Symczyk’s collective action was not moot because such calculated attempts by a defendant to “short-circuit” collective actions by “picking off” named plaintiffs with strategic offers of judgment would frustrate the goals of the collective-action process. The Supreme Court reversed the Third Circuit, rejecting the idea that the purpose of the FLSA would be frustrated. 

Analysis

As an initial matter, the Court held that it could not decide whether the unaccepted offer of judgment rendered Symczyk’s case moot since she did not challenge the lower courts’ rulings and did not properly preserve the issue on appeal to the Supreme Court. The Court therefore did not decide the question of whether Symczyk’s individual claim was moot based on the unaccepted offer of judgment. Rather, the Court assumed that Symczyk’s claim was moot based on the offer of judgment in deciding the question before it, i.e., whether her collective-action claims remained in controversy after her individual claims had been mooted.

Turning to the merits, Court held that the collective-action claims did not remain in controversy for a number of reasons. First, the Court differentiated between class actions under FRCP 23 and collective actions under the FLSA. In class actions, similarly situated individuals who are not named as plaintiffs are considered part of the class—and therefore bound by the court’s judgment—unless they affirmatively opt out. In contrast, in collective actions, individuals who are similarly situated to the named plaintiffs are not part of the suit unless they affirmatively agree to join it. Consequently, when a court certifies a class under FRCP 23, the class acquires a “legal status” of its own. On the other hand, conditional certification under the FLSA merely means that notice and an opportunity to opt in to the suit are sent to the putative collective-action members. Therefore, the Court reasoned, if no one has consented to join the collective action at the time of the offer of judgment, no one has a personal interest in the outcome of the suit as required to keep the suit alive.

Second, the Court rejected Symczyk’s argument that her collective-action claims related back to the date of the complaint because Genesis’ offer of judgment made the claims “inherently transitory.” In other words, Symczyk argued that it was possible that no plaintiff would have a personal stake in the suit long enough for the litigation to run its course if the defendant could “pick off” named plaintiffs before the collective-action process was complete. This rationale, the Court explained, only applies where the challenged conduct is effectively unreviewable, not to a defendant’s litigation strategy. If putative FLSA collective-action members do not consent to join the suit before it is resolved, they remain free to bring their own lawsuits against the defendant to vindicate their rights.

Finally, the Court rejected Symczyk’s argument that the purposes of the FLSA’s collective-action mechanism would be frustrated by allowing offers of judgment to named plaintiffs to moot a collective action before the process had run its course. Distinguishing prior case law on class actions under FRCP 23, the Court found that Symczyk had not asserted that she had any continuing economic interest in the outcome of the case—such as shifting a portion of the attorney’s fees to the other putative collective-action members—and therefore could not continue to represent these individuals as the named plaintiff.

Insights for Employers

Symczyk is important for what it says about the Court’s attitude toward claims asserted on behalf of a group as well as for what it actually holds. In the past several terms, the Court has issued multiple opinions narrowing the ability of plaintiffs to bring class actions, such as its 2011 decision in Walmart Stores, Inc. v. Dukes.  As one Supreme Court observer noted, Symczyk extended this trend to FLSA collective actions. 

Conversely, this opinion may actually come back to bite employers by pushing  plaintiffs’ attorneys to move more quickly to seek opt-in consents and file a motion for conditional certification to avoid falling victim to the “pick off” strategy used in this case. Although the opinion sanctions an employer’s right to use this strategy, employers must proceed with caution when making early offers of judgment because doing so may result in having to defend multiple lawsuits. Other plaintiffs who might have opted in to the original litigation are still free to file their own lawsuit. In addition, since the Court did not decide whether an unaccepted offer of judgment moots an individual plaintiff’s claims, this issue remains the subject of a split among the Courts of Appeal.

As our readers know, we often suggest that employers conduct an internal audit of their timekeeping and overtime policies to avert such lawsuits altogether. Symczyk is just another reminder of the complexities of federal and state wage and hour laws and the benefits of conducting such an audit to ensure compliance with these laws.

On September 12, 2012, Family Dollar announced that it will pay up to $14 million to settle a class action in the Southern District of New York.  Similar to other class actions filed against Family Dollar over the years, New York store managers claimed that the Company failed to pay them overtime.  Although the agreement has not yet been finalized, the proposed settlement would affect more than 1,700 store managers in New York who are covered by the certified class. 

As we mentioned in our prior blog post back in April, court rulings have come down on both sides of the issue as to whether store managers at discount retailers, such as Family Dollar, are exempt from overtime.  Back in 2008, the Eleventh Circuit upheld a $35.6 million judgment in favor of Family Dollar Stores managers on the basis that those managers did not meet the executive exemption.  Since then, court rulings addressing this issue have varied depending upon the facts of each case.  Most recently, in April 2012, a federal district court in South Carolina determined that two Dollar General store managers met the executive exemption from overtime pay under the FLSA.  Gooden v. Dolgencorp and Thomas v. Dolgencorp.  Similarly, in August 2012, a North Carolina district court found that a Family Dollar store manager met the executive exemption.  Ward v. Family Dollar Stores.   

Given some of the more recent rulings finding that the executive exemption applied to store managers, it is not entirely clear why Family Dollar chose to settle this New York class action.  Needless to say, each case must be reviewed based upon its own set of individual circumstances.  Like all employers, Family Dollar likely looked at the facts and risks associated with further litigation and made a determination as to whether the settlement made sense.  In any event, this case does not suggest that Family Dollar and other retailers cannot meet the executive exemption by demonstrating that management is the primary duty for its store managers in the future.  At most, this is a reminder to employers that such a determination will always be based on the specific facts at issue and the individuals involved.

Recently, another group of pharmaceutical sales representatives successfully demonstrated that they are not exempt from overtime under the FLSA.  Kuzinski, et al., v. Schering Corp  Focusing on the administrative exemption, the District Court of Connecticut held that the sales representatives’ work was not directly related to Schering’s management or general business operations and they lacked the necessary exercise of discretion and independent judgment to meet the requirements of the exemption.  The sales representatives did not directly sell pharmaceutical products, instead individualizing Schering’s canned sales pitch to promote certain products to identified customers.  At the end of the day, the sales representatives simply used the core messages and promotional strategies developed by Schering, rather than developing those messages and strategies themselves.

 Litigation Background

Pharmaceutical companies have traditionally classified sales representatives as exempt under the outside sales exemption, but have recently faced difficulty convincing courts that pharmaceutical representatives meet this exemption since they do not make “sales” in the traditional sense.  While the results have been mixed at the district court level, the most noteworthy case, the Novartis wage and hour litigation, put a hole in the companies’ defense.  Affirming the district court, the Second Circuit concluded that the Novartis sales representatives do not make sales and, therefore, do not qualify for the outside sales exemption.  The U.S. Supreme Court recently declined to review that decision and the holding remains. 

Notwithstanding the impact of the Novartis decision, there was a glimmer of hope that pharmaceutical sales representatives could still be classified as exempt, but under the administrative exemption.  In Smith v. Johnson & Johnson, the Third Circuit concluded that the administrative exemption was satisfied because Smith’s work related to the company’s core business operations and her primary duties involved the use of her discretion in making significant decisions.  Specifically, Smith had to form a high-level strategic plan to maximize sales in her territory, and exercised significant discretion and independent judgment while performing her duties without direct oversight.  But not all sales representatives are alike and so the administrative exemption will not apply across the board.  The Schering court focused on this issue, contrasting the “management-scripted,” “core messages” used by the Schering sales representatives with that of Smith, a senior professional sales representative who ran her territory as she saw fit.  Finding the Schering sales representatives duties were more like those of Novartis, the Court concluded they did not fit the narrow facts supporting the holding in Smith.

 Insights for Employers

The decisions in Schering and Smith further underscore the fact intensive nature of the administrative exemption.  This exemption is not a “one size fits all” category based on job title, but depends on whether the employee actually fulfills the requirements.  To truly meet the administrative exemption, companies must prove that the employee’s work is directly related to its management or general business operations and that the employee exercises discretion and independent judgment in matters of significance. 

For sales representatives, this may be achieved by giving the representatives actual control and management of their sales territory and allowing them to exercise the necessary level of discretion and independent judgment.  Companies should consider holding the representatives accountable for specific sales goals or targets, while leaving the means of achieving those ends primarily up to them.  This means that while the representatives may receive general guidance about how to approach a customer, the crafting of the precise message, the number of times conveyed and to whom, should be left up to the representative.  While there is no guarantee that a court will find the exemption met, such a proactive approach will definitely put the company in a better position if sued or subjected to a DOL audit.