Third Circuit Defines FLSA Plaintiffs’ “Second-Stage” Burden of Proof for Collective Action Certification

September 12, 2012

Although collective actions under the federal Fair Labor Standards Act have been around for decades, the federal appellate courts have only in the past few years begun addressing the procedural requirements for certifying a collective action of employees.  Last month, in Zavala v. Wal Mart Stores, Inc., No. 11-2381, 2012 WL 3217522 (3d Cir. Aug. 9, 2012) [available here], the Third Circuit defined, for the first time, the level of proof a plaintiff must present before being permitted to take an FLSA case to trial as a collective action on behalf of other “similarly situated” employees.  Much as the court’s landmark decision in In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008), raised the bar for class certification under Federal Rule of Civil Procedure 23, Zavala will likely make it more difficult to obtain final collective action certification under the FLSA.

The Zavala plaintiffs alleged that Walmart violated the FLSA by using contractors and subcontractors who employed illegal immigrants to clean Walmart stores at night, exercising control over how those workers cleaned the stores and failing to pay overtime compensation.  The district court initially certified the case as a collective action but then, after substantial discovery, “decertified” the class after finding “significant differences in the factual and employment settings of the individual claimants” who had opted in to the collective action and who “worked in 180 different stores in 33 states throughout the country and for 70 different contractors and subcontractors.”  Slip op. at 24.

Unlike class actions under Rule 23, proposed collective actions under the FLSA are governed by the standards in the statute itself, which require other employees who wish to participate in the lawsuit to affirmatively opt in, and permit the case to proceed as a collective action only if the other employees are “similarly situated.”  See 29 U.S.C. § 216(b).  Last year, in Symczyk v. Genesis Healthcare Corp., 656 F.3d 189 (3d Cir. 2011), cert. granted on other grounds, No. 11-1059, 2012 WL 609478 (U.S. June 25, 2012), the Third Circuit approved the procedure of considering collective action certification in two steps – the first of which (entitling the plaintiff to send notice of the lawsuit to other employees) requires the plaintiff to make a “modest factual showing” that there is a “nexus between the manner in which the employer’s alleged policy affected her and the manner in which it affected other employees.”  Id. at 193.  In Zavala, the Third Circuit addressed the standards to be applied at the second stage – later in the case, after most discovery is completed, when the issue (often raised by the defendant in a motion to decertify) is whether the lawsuit should proceed to trial as a collective action.

The Third Circuit concluded that the burden of showing that the collective action plaintiffs are, in fact, “similarly situated” is on the plaintiffs, and that “plaintiffs must demonstrate by a preponderance of the evidence that members of a proposed collective action are similarly situated in order to obtain final certification and proceed with the case as a collective action.”  Slip op. at 22.  The district court – “after considering the claims and defenses of the parties and all the relevant evidence” – must make a finding of fact (to be reviewed on appeal for clear error) that the members of the collective action, i.e., those other employees who opted in, are “similarly situated” to the named plaintiffs.  Id. at 13, 21.  The court listed a number of relevant factors that district courts should consider, id. at 20, but emphasized that the list was not exhaustive and that the “similarly situated” factual determination should be made “on a case-by-case basis.” Id. at 19.  The court described it as an “ad-hoc approach” and rejected other approaches, “derived from Rule 23 [that had] been adopted by district courts.”  Id.

In Zavala, the Third Circuit agreed that the plaintiffs had not met their burden of showing that they were all similarly situated:  “The similarities among the proposed plaintiffs are too few, and the differences among the proposed plaintiffs are too many.”  Id. at 22.  The court noted that plaintiffs’ theory (and the evidence they offered to support it) that Walmart had a “common scheme to hire and underpay illegal immigrant workers” provided a common link among the collective action members, but it concluded that “these common links are of minimal utility in streamlining resolution of these cases.  Liability and damages still need to be individually proven.”  Id. at 24.

The Third Circuit’s articulation of the legal standards to be applied for final certification of an FLSA case as a collective action has important implications for how these cases are litigated.  First, with the burden of proof now squarely on the plaintiff, district courts may soon build into their case management orders a requirement that the plaintiff file a motion for final certification by a deadline at or near the close of discovery – rather than leaving the issue to be raised on a motion to decertify filed by the defendant.  Second, with the appellate standard of review of the “similarly situated” determination now set as “clearly erroneous” – a difficult standard to meet on appeal – the focus of the battle between plaintiffs and defendants on collective action certification will be on marshalling appropriate factual evidence to convince the district court judge (the “finder of fact” on this particular issue) that the opt-in plaintiffs are, or are not, similarly situated to the named plaintiff(s).