The Sixth Circuit Creates Requirements Benefiting Employers in Wage and Hour Collective Actions
On May 19, 2023, the Sixth Circuit Court of Appeals (“Court”) issued its highly-anticipated decision in Clark v. A&L Home Care and Training Center. The decision creates a new standard for when plaintiffs may send notice of a lawsuit to similarly situated employees under the Fair Labor Standards Act (“FLSA”), the federal minimum wage and overtime law. Essentially, the Court changed the once very lenient standard to be significantly more demanding. This makes it harder for plaintiffs to show that notice is appropriate under the FLSA in Michigan, Kentucky, Ohio, and Tennessee. Additionally, the Court discussed how arbitration agreements may reduce employer’s exposure to risk going forward.
Unlike the traditional class action rules, where members of a class must opt-out of a group to not be affected by the outcome of litigation, the FLSA has an “opt-in” procedure where only those individuals who affirmatively join the litigation will be subject to the outcome of the case. Typically, a plaintiff will file a FLSA lawsuit in a district court somewhere in the United States and seek the court’s permission to send a notice of the lawsuit to all current and former employees who may be similarly situated. Then, those who receive the notice can decide whether they want to join the lawsuit, usually at no cost to them.
The Fairly Lenient Two-Step Process
Since 1987, a majority of courts in the United States, including in the Sixth Circuit, have applied a “fairly lenient” standard of proof to the first of the two steps required for collective action certification. The first step, occurring early in the litigation, happens when a plaintiff files a motion asking the court to conditionally certify a collective action of current and former employees whom the plaintiff alleges are similarly situated to the plaintiff. Under this standard, courts require a “modest showing”, usually in the form of a sworn affidavit from the lead plaintiff. This often leads to courts essentially rubberstamping a plaintiff’s request for conditional certification. Theoretically, the second step is the decertification phase where, after discovery is exchanged, a more rigorous inquiry is made to determine whether the lead plaintiff and the conditionally certified collective action members are actually similarly situated under the FLSA.
Pitfalls of the Fairly Lenient Standard
In practice, lawsuits almost never make it to the second step of the certification inquiry. As the Court acknowledged, the first step’s “decision to send notice of an FLSA suit to other employees is often a dispositive one, in the sense of forcing a defendant to settle—because the issuance of notice can easily expand the plaintiffs’ ranks a hundredfold.” The sheer size of the collective action makes defending an FLSA case incredibly costly for employers. Because of this, most employers – regardless of whether they are truly liable – decide to settle FLSA cases because it is less expensive than actually litigating the case.
In 2021, the Fifth Circuit (covering Louisiana, Mississippi, and Texas) recognized the pitfalls of the lenient standard of proof and created its own standard. The Fifth Circuit held that court-approved notice may be sent only to employees when a plaintiff shows “by a preponderance of the evidence” that the putative collective action members are actually similarly situated to the original plaintiffs. This raised the standard from a modest showing to a standard that makes plaintiffs show that the putative collective action members are more likely than not similarly situated to the original plaintiffs.
The New Standard in the Sixth Circuit
Instead of adopting the Fifth Circuit’s alternative to the fairly lenient two-step process, the Sixth Circuit created its own standard. The Court’s new standard requires that a plaintiff show a “strong likelihood” that the lead plaintiff is actually similarly situated to putative collective action members before the court will allow a notice to be sent out. Like the Fifth Circuit’s standard, the Sixth Circuit’s test is significantly more demanding than that which had been previously applied.
Additionally, defendants in the recent decision contended that because a portion of the company’s employees had signed arbitration agreements, those employees could not receive notices to join the lawsuit. While the Court declined to hold categorically that any party who signed an arbitration agreement could not receive notice, it recognized that arbitration agreements may make employees who sign them no longer similarly situated to the lead plaintiff.
This recent decision may be appealed to the U.S. Supreme Court. For now, however, employers will want to think strategically about the jurisdictional implications of this decision and consider implementing arbitration agreements, if not already in use.
For a deeper dive into this decision, see our recent blog post here. We will continue to monitor the development of this issue. If you have any questions about this decision or find yourself defending a FLSA lawsuit, feel free to contact one of Honigman’s Labor and Employment Attorneys here.