By David Schlottman & G. Scott Fiddler 

On January 12, 2021, the United States Court of Appeals for the Fifth Circuit issued a groundbreaking decision announcing that district courts should “rigorously enforce” a more stringent standard for the certification of collective actions under the Fair Labor Standards Act. (Swales v. KLLM Transport Services, L.L.C., No. 19-60847). With this decision, the Fifth Circuit did away with the two-step Lusardi certification process utilized by nearly all federal courts in Texas, Louisiana, and Mississippi. Under Lusardi, plaintiffs were permitted to distribute notice of a pending lawsuit to potential plaintiffs based on very little evidence, placing employers at a significant strategic disadvantage in FLSA litigation.

Now, district courts in the Fifth Circuit must “rigorously enforce” the FLSA’s requirement that collective action members be “similarly situated” and do so at the outset of a case. This opinion is the latest in a series of recent decisions from the Fifth Circuit providing employers with impactful defenses to costly and time-consuming collective action litigation. Below, we discuss the decision and the potential impact it may have on FLSA litigation.

Background & The Importance of the Certification Issue

The FLSA permits “similarly situated” employees to proceed together in a single case as a collective action. A collective action differs from a traditional class action in that a plaintiff-employee in a collective action must affirmatively “opt-in” to the case by filing a written notice with the court.

To facilitate this “opt-in” process, the FLSA permits courts to authorize notice to other “similarly situated” employees advising of their right to join the lawsuit. Before authorizing notice, the court must find that employees within the proposed class are “similarly situated.” This decision is critical because it determines the size of the case. Despite the importance of the “similarly situated” determination, the statute and appellate courts have provided little guidance as to when and how that determination should be made. In the absence of controlling authority, most courts across the county have used a decisional framework from a 1987 district court opinion, Lusardi v. Xerox Corporation.^[1]

Under step one—“conditional certification”—the court made a preliminary determination as to whether the proposed collective members were similar enough for the case to proceed collectively. Critically, courts had characterized this first step as (1) “lenient”; (2) based on the pleadings and affidavits of the parties; and (3) requiring little more than “substantial allegations” that proposed collective members were subject to a common decision, policy, or plan. If this standard was met, the court authorized notice to all potential plaintiff-employees.

At stage two, after employees had opted-in and after resource-intensive discovery and litigation had occurred, the would then make a final determination as to whether the opted-in employees were in fact “similarly situated.” If yes, then the case proceeded to trial as a collective action. If no, then the conditionally certified collective action was disbanded, and the employees who opted-in were permitted to proceed with their claims individually.

The Lusardi framework has not been kind to employers. Because of the lenient standard applied at step one, courts often conditionally certified collective actions and authorized notice being sent to other potential plaintiff-employees, doing so based on little more than the plaintiff’s complaint and an affidavit or two. As a result, under Lusardi, actions involving hundreds, or even thousands, of employees could be created without significant evidence. In short, one plaintiff with a little evidence could create a large class with a lot of leverage for settlement.

Even a victory for the employer at the second Lusardi step was not the end of the fight. If the court decertified the collective action, then employees within the former collective action were entitled to pursue their own individual case against the employer. In other words, when the more stringent similarity standard was finally applied, the employer was rewarded for winning the decertification motion by facing one hundred separate lawsuits rather than one lawsuit with one hundred plaintiffs.

The Decision

In Swales v. KLLM Transport Services, L.L.C., the Fifth Circuit flatly rejected the Lusardi framework. The Fifth Circuit found the standard “amorphous” and that it “has no universally understood meaning,” which creates confusion frustrating rather than furthering the opt-in notice process. Additionally, they found no basis in the text of the FLSA for the Lusardi standard. Finally—and perhaps most importantly—the Fifth Circuit concluded that rigidity and practical dynamics of the Lusardi framework had the effect of “stirring up litigation,” a concern the United States Supreme Court had raised in previous cases.

Rather than splitting the certification decision, the Fifth Circuit held certification should only be addressed once and at the outset of the case. Early on, the district court should assess the claims, determine what facts and legal considerations are relevant to deciding whether employees are “similarly situated”, and then authorize discovery accordingly. The district court must then “consider all of the available evidence” and decide whether the “similarly situated” standard has been met. In a notable deviation from Lusardi, the Fifth Circuit expressly noted that a consideration of the merits of the claim at issue may also be appropriate in making that determination.

Impacts & Observations

How Swales will ultimately play out in the lower courts remains to be seen, but our initial impression is that “rigorous” enforcement of the certification standard set by Swales is likely to benefit employers substantively and strategically. A few additional observations:

• More Discovery, Earlier On – An early certification fight will result in more substantial pre-certification discovery. This will reinforce the need for an early discovery plan and strategy to address and defeat collective action certification at the outset of a case.
• More Single Plaintiff Cases – Although potentially creating more expenditure of resources for an employer earlier in a case, the requirement of pre-certification discovery may ultimately deter FLSA collective action filings. Whereas conditional certification (and the settlement leverage created by distribution of notice and opting-in of plaintiffs) was previously something of a foregone conclusion, FLSA plaintiffs now face the prospect of bruising certification battles with no certainty of outcome. The early dynamics of an FLSA collective action case have significantly changed.
• More Dispositive Motions – Collective action allegations in FLSA complaints often lack factual detail. The Fifth Circuit’s instruction that district courts must “rigorously” enforce the “similarly situated” standard may cause some employers to consider early motions to dismiss. Additionally, given Swales’s approval of pre-certification discovery and the court’s consideration of merits issues at the certification stage, employers may consider use of a motion for summary judgment as a means to narrow or even defeat claims at the certification stage.
• A Continuing Trend – Swales continues a trend within the Fifth Circuit in which the court has taken the lead amongst US Circuit Courts of Appeal in placing significant procedural limitations on FLSA collective actions. In the 2019 case of In re JP Morgan Chase & Co.,^[2] the court held that employees who executed arbitration agreements were not entitled to receive notice of a pending FLSA collective action. In each case, the Fifth Circuit cited the Supreme Court’s instruction that collective action procedures should not be used to “stir up litigation.” It will be interesting to see if and how this consideration appears in future Fifth Circuit treatment of collective action issues, whether other Circuit Courts of Appeal hold similarly, and whether Supreme Court review may ultimately occur.

^[1] 118 F.R.D. 351 (D.N.J. 2011).
^[2] 916 F.3d 494 (5th Cir. 2019).

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