Labor Law Update

CLASS ACTION UPDATE: LARGE FAIR LABOR STANDARDS ACT COLLECTIVE ACTION MAY PROCEEDIn Perez v. RadioShack Corp., WL: 21372467, 8 Wage and Hour cases 2d BNA 1409 (N.D. Ill. 2003), United States District Judge Rebecca R. Pallmeyer of the Northern District of Illinois held that the named plaintiffs in a Fair Labor Standards Act ("FLSA" or "Act") lawsuit could send notice of the suit to more than 10,000 RadioShack store managers, informing them that they may "opt-in" (i.e., join) the lawsuit. The named plaintiffs claim that by erroneously classifying store managers as "exempt" under the FLSA, RadioShack has denied the managers overtime pay of more than $100 million for hours worked in excess of forty per week. Specifically, the managers argue that they should not have been classified as "exempt" because management responsibilities comprised only a small portion of their time and all discretionary decisions were made by the corporate office.

Before granting plaintiffs' motion to send the opt-in notices, Judge Pallmeyer took the unusual step of holding an evidentiary hearing to determine whether there was a basis for the claim that RadioShack's store managers were not exempt from the Act. The judge noted that in the ordinary case plaintiffs would be permitted to give notice to potential "opt-ins" without a detailed analysis of the facts. However, she wrote, "[b]ased on a cursory reading of the Act, the court understands that persons responsible for retail management are likely exempt from the Act's overtime provisions." And, after the hearing, she had "grave concerns" as to whether the employees were non-exempt and entitled to overtime pay. Nevertheless, Judge Pallmeyer permitted the plaintiffs to send opt-in notices.

The general rule governing federal court class actions, Rule 23 of the Federal Rules of Civil Procedure, does not apply to actions brought on behalf of groups of employees under the FLSA, (sometimes called "collective actions"). The Perez decision demonstrates that plaintiffs hoping to maintain a collective action under the FLSA have a lower burden to meet than plaintiffs bringing a class action under Rule 23. As Judge Pallmeyer explained, under the FLSA a "plaintiff need only show that he is suing his employer for himself and on the behalf of other employees 'similarly situated,' a requirement that courts have characterized as 'considerably less stringent' than the Rule 23 requirements." The typical "similarly situated" analysis in a FLSA suit often involves a quick review of the facts by the Court, whereas a "class certification" under Rule 23 involves a detailed consideration of whether: (1) a class is numerous enough; (2) common questions of law and fact exist, (3) the named plaintiff's claims aretypical of the other class members; and (4) the named plaintiffs are adequate representatives of the class. As Perez shows, the initial burden is more easily satisfied in an FLSA collective action. Indeed, the Perez plaintiffs were allowed to send notice to other potential class members even after an evidentiary hearing that caused the court "grave concerns" about the merits of the plaintiffs' claims.

The low initial burden makes it easier for aggressive plaintiffs to use the FLSA notice procedures to recruit potential plaintiffs and, ultimately, build large collective actions covering hundreds or thousands of employees. Because backpay of up to three years may be awarded under the FLSA, exposure in such cases can easily reach six figures and, if the case is large enough, seven or eight figures.

The Perez lawsuit is part of a growing trend. Similar suits for overtime pay are being filed around the country by employees classified as exempt by their employers. Over 450 FLSA suits have been filed in the last five years. Companies such as Rite Aid, Albertson's and Bank of America have settled similar FLSA cases for over $20 million dollars. The increase in the number of FLSA suits can be attributed to government's renewed interest in enforcing wage and hour laws, the success some "exempt" employees have had in suing for overtime pay, and the aggressiveness of lawyers seeking to cash in on lucrative FLSA collective actions.

Of course, the Perez decision to allow notice is not determinative of the employer's liability under the FLSA. It merely allows plaintiffs to proceed collectively through pretrial discovery. After discovery is completed, the employer can ask the court to rule that the case should not proceed as a collective action based on analysis of the evidence gathered in discovery regarding whether the named plaintiffs are "similarly situated" to the other plaintiff members of the collective action. If successful, the Court will decertify the collective action and dismiss the claims of the "opt-ins." However, any dismissed opt-in plaintiff would still be free to pursue his case on his own.

Perez is troublesome in that it signals the courts' willingness to permit plaintiffs to initiate notice of an FLSA collective action in spite of substantial questions about the viability of the claims. It underscores that employers should regularly review their classification of employees as exempt or nonexempt in order to minimize potential exposure to such actions. And it shows that employers hit with a potential collective action must be prepared to litigate the case aggressively every step of the way.

Vedder Price is well experienced in defending FLSA collective actions and has challenged FLSA collective actions at all stages of litigation. If you have any questions about the Fair Labor Standards Act, or have received notice that an employee is suing under the FLSA, or have questions about class actions generally, please call Joe Mulherin (312/609-7725), Dick Schnadig (312/609-7810), Nina Stillman (312/609-7560), Mike Cleveland (312/609- 7860), or any other Vedder Price attorney with whom you have worked.

SEVENTH CIRCUIT FINDS ARBITRATOR PERMITTED TO CONSIDER FMLA

The United States Court of Appeals for the Seventh Circuit recently held in Butler Mfg. Co. v. United Steelworkers of America, 336 F.3d 629, 2003 (7th Cir. 2003) that an employer had granted an arbitrator the authority to consider the Family Medical Leave Act ("FMLA") when resolving an employee grievance. The Court held that the employer, Butler Manufacturing Company ("Butler"), had granted this authority in two ways: first, by stating in its collective bargaining agreement ("CBA") with the Union that it offered "continuation of employment to all qualified...