ALVAREZ V. CITY OF CHICAGO: SEVENTH CIRCUIT FURTHER CLARIFIES THE PROPER AND IMPROPER USE OF SUBCLASSES

By Ashe, Rafuse & Hill, LLP

In a recent decision reversing the district court, the Seventh Circuit illustrated a fundamental difference between legal questions and fact-intensive questions when evaluating subclasses. According to the Seventh Circuit, while differences among employees with respect to the latter may warrant decertification, differences among employees with respect to the former may not always be fatal. In Alvarez v. City of Chicago, — F.3d —-, 2010 WL 2011500 (7th Cir. May 21, 2010), the Seventh Circuit reversed the decision of the district court to dismiss two consolidated lawsuits brought by paramedics against the city, and its decision sheds light on the proper and improper use of subclasses to deal with manageability concerns in collective actions.

In August of 2006, 54 paramedics filed a collective action complaint against the City of Chicago to recover unpaid overtime based on alleged miscalculation of the regular rate of pay. See Alvarez v. City of City of Chicago, No. 06-cv-4639 (N.D. Ill.). The court granted conditional certification, and over 300 opt-ins joined the lawsuit. Some, however, were dismissed for joining after the expiration of the 60-day notice period. Four of those dismissed then filed a new individual lawsuit devoid of class claims. See Caraballo v. City of Chicago, 07-cv-2807 (N.D. Ill). The court consolidated the cases in September 2007. In June 2008, the individual Caraballo plaintiffs moved for summary judgment, identifying 10 FLSA subclaims. The first six subclaims were types of pay the plaintiffs identified as inappropriately excluded from their “regular rate” of pay, such as driving pay when they drove the ambulance or acting pay when they temporarily worked at a higher rank. Another group of subclaims involved items the plaintiffs identified as excludable from “hours worked” (such as continuing education), as their inclusion decreased the overtime rate.

The City filed a cross-motion for summary judgment against all plaintiffs, including those from Alvarez, as well as a motion to decertify and to dismiss the collective action claims. The court granted the employer’s motions, applying them to both the Alvarez and Caraballo plaintiffs, holding that the class was not similarly-situated because each plaintiff raised a different combination of the ten different FLSA subclaims “such that the plaintiffs could not readily be divided into homogenous subgroups.” Alvarez v. City of Chicago, — F.3d —-, 2010 WL 2011500 (7th Cir. May 21, 2010). The court also noted that arbitration under the collective bargaining agreement, which was not mandatory but available, may be a more efficient way to resolve the claims. The Seventh Circuit reversed, holding that the named plaintiffs have a right to proceed individually. The Seventh Circuit also noted, in dicta, that the district court may have been mistaken in rejecting the manageability of the class, because the analysis underlying the subclaims was not itself necessarily fact-intensive.

The Seventh Circuit begins its analysis by describing the precedent upon which the district court relied – Jonites v. Exelon Corp., 522 F.3d 721 (7th Cir. 2008). There, according to the Seventh Circuit, it affirmed the dismissal of a collective action consisting of over one thousand employees seeking compensation for two categories of uncompensated time. The plaintiffs challenged the “call-out” policy, which required employees to respond to a certain percentage of off-duty calls, as well as the lunch policy, which required workers to remain on site to deter trespassing and theft. The Seventh Circuit affirmed the dismissal because liability for both policies “would require significant individual fact-finding and many of the workers had no conceivable claim at all.” Alvarez, — F.3d —-, 2010 WL 2011500, *3. The frequency of calls to employees under the “call out” policy varied significantly, while the lunch duty claims only potentially applied to day shift workers. In contrast, in Alvarez, liability with respect to any subclaim is not necessarily fact-intensive, but instead legal questions. “For example, whether any given paramedic is entitled to recover on the uniform pay theory depends on the legal question of whether such pay should have been included in the base rate, and the simple factual question of whether the particular paramedic received uniform pay.” Id. Since the district court agreed with this characterization of liability, the Seventh Circuit noted that the court “may have mistakenly read Jonites to forbid it from [evaluating whether subclasses made the collective action manageable].” Id. at *4.

The Seventh Circuit also held that the lower court erred in its evaluation of arbitration efficiency. The district court only evaluated the efficiency of proceeding collectively. It never evaluated the efficiency of proceeding individually, or through more tailored classes. As the Seventh Circuit noted, plaintiffs have a right to proceed individually, and the twelve Caraballo plaintiffs both filed and moved for summary judgment as individual named plaintiffs. Further, the district court never undertook any analysis to determine if the fifty-four named plaintiffs in Alvarez could proceed individually. The court concluded by holding it was error to dismiss the claims of the named plaintiffs. Instead, when a collective action is decertified, it must “revert[] to one or more individual actions on behalf of the named plaintiffs.” Id. at *5.

The Seventh Circuit noted that the district court has wide discretion to manage collective actions, and even individualized damage questions could justify decertification despite common liability. On remand, the district court will at least have to determine whether the named plaintiffs should proceed individually in one action or several.

Ashe Rafuse & Hill

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