On January 12, 2021, the U.S. Court of Appeals for the Fifth Circuit vastly changed the landscape for collective action wage and hour claims under the federal Fair Labor Standards Act.

In Swales v. KLLM Transport Services, L.L.C., the Fifth Circuit rejected the lenient standard typically employed by federal district courts for “conditionally certifying” collective actions and ruled that courts must, instead, do the difficult work to rigorously scrutinize whether workers are similarly situated to the named plaintiff before sending notice to potential opt-in plaintiffs.  According to the Court, the importance of the collective action certification issue “cannot be overstated.”

Background: FLSA Collective Actions

The FLSA allows plaintiffs to proceed collectively in litigation, but only when the plaintiffs can show that they and the members of the proposed collective are “similarly situated.”

Group litigation under the FLSA is different from class actions under Federal Rule of Civil Procedure 23. Whereas Rule 23 provides an “opt out” mechanism for class action members to avoid being bound by any judgment, the FLSA requires that similarly situated individuals file written consents to “opt-in” to the collective action.  But, the FLSA does not define what it means to be “similarly situated.”

Lusardi Two-Step Process

There has been much confusion and a lack of uniformity among district courts over how collective actions should proceed.  District courts are required to ensure that notice of the litigation is sent to those who are similarly situated to the named plaintiff, but they must do so in a way that scrupulously avoids endorsing the merits of the case.  Most district courts within the Fifth Circuit applied a “two-step” process to determine (1) who should receive notice of the potential collective action, and then (2) who should be allowed to proceed to trial as a collective.  This method comes from a New Jersey district court case, Lusardi v. Xerox Corp.  Under Lusardi, district courts utilize the two-step process to determine whether other employees or former employees of the defendant are “similarly situated” to the named plaintiff.

In the first step of Lusardi, the district court determines whether the proposed members are similar enough to the named plaintiff to receive notice of the lawsuit. This step is referred to as “conditional certification” of the putative class.  Typically, it is a lenient standard and a relatively low hurdle for the plaintiff to satisfy.

The second step occurs at the end of discovery.  At that time, the district court makes a second and final determination (utilizing a stricter standard) of whether the named plaintiff and opt-in plaintiffs are “similarly situated,” such that they may proceed to trial collectively.  If the court determines that the opt-ins are not sufficiently similar to the named plaintiff, then the opt-ins are dismissed from the lawsuit, and the named plaintiff proceeds to trial.  This step is referred to as “decertification.”

The Swales Court Rejected Lusardi; New Standard Announced

Last week, in Swales, the Fifth Circuit expressly rejected Lusardi. The Court found that the FLSA does not support Lusardi’s lenient conditional certification of a collective. Instead, the Court instructed district courts to “rigorously scrutinize” whether workers are similarly situated at the outset of the case.

Specifically, the district courts are to identify, before sending notice to any potential opt-ins, what facts and legal considerations will be material to determining whether a group of employees is similarly situated.  Then, the district court should authorize preliminary discovery specifically tailored to those facts and legal considerations.  The Fifth Circuit recognized that the amount of discovery necessary to make the determination will vary case-by-case; but the Court made clear that the determination “must be made, and as early as possible.”  As a result, notices of the lawsuit will only be sent to the individuals who actually are similarly situated to the named plaintiff.

Impact on Employers

Swales is a positive development for employers who face the potentially grueling and costly collective action process. Under Swales, threshold and potentially dispositive issues must be addressed early in the case. While the Swales framework may require more discovery at the beginning of the case, it also limits the scope of potential opt-in plaintiffs and number of individuals receiving notice to only those who truly have an interest in the outcome of the case.  The Fifth Circuit’s new standard also provides litigants with more certainty regarding the issues and parties in the case.