Wal-Mart Dodges Another Bullet, Allowing Third Circuit to Clarify Final Certification Standard in FLSA Collective Action

By:  Jason E. Reisman, Obermayer Rebmann Maxwell & Hippel LLP 

                On August 9, 2012, in upholding decertification in a nearly decade-long class action suit against Wal-Mart, the U.S. Court of Appeals for the Third Circuit took the opportunity to weigh in and clarify the standard for final certification of a collective action under the Fair Labor Standards Act (FLSA).  Zavala v. Wal-Mart Stores Inc., No. 11-2381 (3d Cir. Aug. 9, 2012).  Originally filed in 2003, in the U.S. District Court for New Jersey, the plaintiffs were Wal-Mart cleaning crew members who sought unpaid overtime compensation and certification of a collective action under the FLSA, as well as civil damages under RICO and damages for false imprisonment.  (Note: interestingly, though not for the purposes of this article, the RICO claims alleged Wal-Mart took part in the harboring of illegal immigrants, encouraging illegal immigration, conspiring to commit money laundering, and involuntary servitude.  Additionally, they alleged Wal-Mart locked workers in some stores at night without having a manager with a key available.)  The plaintiffs were illegal immigrants who had taken jobs with contractors and sub-contractors that Wal-Mart engaged to clean its stores. 

                In relevant part, after conditionally certifying the FLSA collective action in 2004, the District Court granted Wal-Mart’s motion to decertify the action in June 2010.  The District Court concluded that, after extensive discovery, the breadth of factual circumstances underlying the individual workers’ claims prohibited the case from proceeding as a collective action.

                On appeal, the Third Circuit affirmed and took the opportunity to clarify the final certification standard.  The Third Circuit stated that the standard for final certification is clearly more stringent than the standard for conditional certification and noted that final certification requires the District Court to “make a finding of fact that the members of the collective action are ‘similarly situated.’”  The proper analysis involves an “ad-hoc approach, which considers all the relevant factors and makes a factual determination on a case-by-case basis.”  The Third Circuit recognized the following non-exhaustive list of relevant factors to consider:  “whether the plaintiffs are employed in the same corporate department, division, and location; whether they advance similar claims; whether they seek substantially the same form of relief; and whether they have similar salaries and circumstances of employment.  Plaintiffs may also be found dissimilar based on the existence of individualized defenses.”

                The Third Circuit also held that, at the final certification stage, the burden of proof falls squarely on the plaintiffs to establish the “similarly situated” requirement under the FLSA.  Also, addressing an unresolved issue, the Court held that plaintiffs must satisfy this burden by a preponderance of the evidence, rather than a heightened standard.

                Under the standard and burden articulated, the Third Circuit found the plaintiffs failed to prove the potential opt-in class members were similarly situated.  “The similarities among the proposed plaintiffs are too few, and the differences among the proposed plaintiffs too many.”  The Third Circuit went on to clarify that being similarly situated is more than simply “sharing a common status, like being an illegal immigrant.  Rather, it means that one is subjected to some common employer practice that, if proved, would help demonstrate a violation of the FLSA.”  Although there was some commonality and link between the potential plaintiffs, the Third Circuit agreed with the District Court that the similarities were insufficient to allow the case to proceed as a collective action:  “the putative class members worked in 180 different stores in 33 states throughout the country and for 70 different contractors and subcontractors.  The individuals worked varying hours and for different wages depending on the contractor.”

                At the end of the day, the Third Circuit effectively assisted employers (in Delaware, Pennsylvania, New Jersey and the Virgin Islands) by clarifying that establishing different factual circumstances and individualized defenses will go a long way towards preventing final certification of a collective action under the FLSA.  As has been the case in courts around the country, it remains critical for plaintiffs seeking collective action certification to demonstrate some common policy, plan or decision that links the proposed class members together in pursuing FLSA violations.  The more breadth in the proposed class, whether across state lines or differing job classifications, the more difficult the burden appears to be on the plaintiffs.  Wal-Mart (and, of course, other employers in the Third Circuit) could not agree more.

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