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Department of Labor Argues that FLSA Collective Actions and State-Law Class Actions May Be Asserted Simultaneously Against the Same Employer

In a recent amicus brief to the Third Circuit, the United States Department of Labor has formally taken the position that state-law class actions under Federal Rule of Civil Procedure 23 are compatible with collective actions under § 16(b) of the Fair Labor Standards Act (“FLSA”), such that the two claims may be brought against the same employer in the same federal lawsuit.  While this position is at odds with a majority of district courts within the Third Circuit – and arguably even with the Third Circuit opinion of De Asencio v. Tyson Foods, Inc., 342 F.3d 301 (3d Cir. 2003) – employers within the jurisdiction are anxiously awaiting the Third Circuit’s ruling. 

The case before the Court of Appeals is Parker v. NutriSystem Inc., No. 09-3545.  The plaintiff filed suit in the Eastern District of Pennsylvania, bringing an FLSA collective action and a Rule 23 class action under the Pennsylvania Minimum Wage Act (“PMWA”).  The plaintiff alleged that he and other call center employees were denied overtime pay for weeks in which they worked more than 40 hours.  Call center employees were paid the larger of their hourly pay or their flat-rate payments per sale of the employer’s weight-loss program.

The district court granted the employer’s motion to dismiss the PMWA class action.  The court declined to exercise supplemental jurisdiction over the state-law claim, finding that “the opt-out mechanism of a Rule 23 class action is ‘inherently incompatible with the opt-in scheme specified by Congress with respect to FLSA collective actions.’”  In its perfunctory opinion, the district court expressly adopted the reasoning of Woodard v. FedEx Freight East., Inc., 2008 U.S. Dist. LEXIS 11919 (M.D. Pa. Feb. 19, 2008), and Ramsey v. Ryan Beck & Co., Inc., 2007 U.S. Dist. LEXIS 56129, *6 (E.D. Pa. Aug. 2, 2007).  The courts in those cases dismissed Rule 23 class actions filed concurrently with FLSA collective actions because, in their view, including both an “opt-in” and an “opt-out” claim in a single lawsuit would permit the plaintiff to circumvent the FLSA’s opt-in requirement and bring unnamed parties into federal court. 

The district court also granted summary judgment in favor of the employer on the FLSA claim.  The court found that the call center employees were paid on a commission basis and were therefore exempt from overtime requirements under the FLSA’s § 7(i) retail commission exemption.

On appeal, in its brief, the DOL argued that the district court improperly declined to exercise subject matter jurisdiction over the PMWA claim.  It cited 28 U.S.C. § 1367’s mandate that a court has supplemental jurisdiction over all state-law claims that are “so related” to the federal claims “that they form part of the same case or controversy.”  The DOL stressed that the FLSA and the PMWA are parallel laws and that an FLSA claim and a PMWA claim share a “common nucleus of operative fact,” such that a district court should exercise supplemental jurisdiction over a the PMWA claim. 

Next, the DOL argued that the FLSA is not the exclusive remedy in the area of wage payment, that states may enact wage laws that are broader and more protective than the FLSA, and that the FLSA is not intended to occupy the entire field of wage payment. 

With respect to the “inherent incompatibility” of the opt-in and opt-out mechanisms, the DOL contended that nothing in either the text or the legislative history of § 16(b) of the FLSA or the Portal-to-Portal Act evidenced a congressional intent to prohibit simultaneous state-law class actions.  According to the DOL’s reasoning, the FLSA’s “opt-in” requirement applies only to FLSA claims and not to state-law class actions, and accordingly, state-law, “opt-out” claims may be brought irrespective of the FLSA.  The DOL stated that Congress’s enactment of the FLSA “opt-in” provision was not “a choice against, or a relegation of, the opt-out process of Rule 23.”  The DOL essentially argued that, absent any indication that Congress intended for an FLSA collective action to preclude a Rule 23 class action, the state-law class action is permissible in the same suit.  Supporting the DOL’s argument was the fact that Rule 23’s “opt-out” provision was enacted in 1966 – almost 20 years after the passage of the Portal-to-Portal Act, which enacted the “opt-in” requirement for FLSA collective actions. 

The DOL then distinguished De Asencio, in which the Third Circuit found that the district court had abused its discretion in exercising supplemental jurisdiction over a Rule 23 class action under the Pennsylvania Wage Payment and Collection Law (“WPCL”).  The DOL argued that the Third Circuit’s decision was based primarily on the fact that the WPCL claim predominated over the FLSA claim due to its novel questions of state law and standards of proof different from those under the FLSA.  It pointed out that, unlike in De Asencio, a PWMA claim and an FLSA claim are identical. 

It should be noted that De Asencio contains language that may prove to be problematic for the DOL’s position: 

Another countervailing interest in relegating the WPCL claims here to state court is Congress’s express preference for opt-in actions for the federal cause of action. Congress’s interest in these matters is manifest.  For policy reasons articulated in the legislative history, Congress chose to limit the scope of representative actions for overtime pay and minimum wage violations.

De Asencio, 342 F.3d at 310-11.  The DOL attempted to marginalize this language by stating in a footnote that “there is no basis for concluding that Congress made that ‘choice’ for anything other than collective actions.” 

Finally, the DOL cited cases both within and outside of the Third Circuit that disagreed with the lower court’s conclusion and found that an FLSA collective action and a Rule 23 class action may proceed simultaneously. 

On the merits of the FLSA claim, the DOL asserted that the retail commission exemption did not apply to the employees in question.  According to the DOL’s interpretation, flat fees paid without regard to the value of the service performed or the amount charged to the customer – which described the fees paid to the call center employees – do not constitute commissions for the purposes of the
§ 7(i) retail commission exemption.       

Parker has the potential to be a landmark case.  If the Third Circuit adopts the DOL’s position, wage and hour plaintiffs within the Circuit’s jurisdiction will be permitted to bring FLSA collective actions and Rule 23 class actions simultaneously against the same employer for the same alleged violation.  
 

By Jason E. Reisman and Seth Spiegal, Obermayer Rebmann Maxwell & Hippel LLP

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More on FLSA “Trainees”: Training Program Providers Beware!

To follow up on Dennis’ posting, I wanted to mention another aspect of this “trainee” concept.  It is critically important to remember that the nature of the U.S. Department of Labor’s (“DOL”) view on this subject often derives from the view that the employer providing the training is doing a general service to the community, for example, by increasing the size of the qualified pool of potential new hires for businesses that require such skills.  In following that theme, an employer must be alert to portions of a training program that include instruction or education on that particular employer’s policies, procedures and/or practices.  Such information, in the DOL’s view, runs afoul of factor 2 and/or 4 of the Walling test.

For instance, a few years ago, a transportation company that I worked with began providing a training program to assist potential driver applicants to learn to drive the relevant vehicles, which ultimately required the applicant to acquire a commercial driver’s license (“CDL”).  Not only did the company provide classroom training but it provided road testing to assist the enrollee in obtaining a CDL, and even allowed an enrollee who completed the program to borrow a vehicle for taking the state’s CDL driving test.  For the DOL, even though the overwhelming majority of the training focused on driving skills and related safety procedures (which were fungible and usable by enrollees within the transportation industry), the problem existed in certain small portions of the nearly 35 hours of training that the company provided.  Specifically, the DOL objected to the company’s review during the training of its own defensive driving, accident reporting and drug testing policies as well as a review of the company’s employee handbook materials.  In the end, we were able to work with the DOL to eliminate certain portions of the training so that it was comfortable with the company’s continued provision of the program without FLSA implications—but the DOL did require minimal back pay payments to be made to numerous of the recent enrollees who successfully completed the course.

So, as Dennis said, “proceed with caution”—pay close attention to all aspects of your training or unpaid intern program before you implement it.–By Jason E. Reisman