FLSA on the Cover of Business Week

Wage Wars is a great title for the October 1st cover story for Business Week, highlighting the surge of collective actions under the venerable wage and hour law, the Fair Labor Standards Act of 1938. The article is a good, not to mention sobering, overview of how these suits are playing out.

What is not mentioned is one of the reasons that the high settlements are being reached -- the structural process. Unlike other class actions governed by Rule 23, which have a relatively high burden for initial class certification, the courts have set a very low standard for the initial quasi-certification for collective actions under § 216(b) of the FLSA, which is sending out notice to potential class members.

Given that low standard, it is not uncommon for an employer to end up facing a class of hundreds or thousands, with very little evidence having been presented and frequently without any sort of hearing. You know it's not a good thing for employers when you read articles indicating that notice should be sought as early as possible in cases for the "settlement leverage" that it provides.

Although there is a procedure for "de-certifying" the class, it comes after the end of a long and potentially very expensive discovery period involving the "class", so there is a great pressure to settle cases rather than slug it out.

Ironically, the Supreme Court recognized the dangers of forcing the settlement of "marginal cases" because of the costs of discovery in anti-trust cases in Bell Atlantic v. Twombly decided just this past May.

In Twombly, the Court was affirming dismissal of a case based on the pleadings, and in explaining its rationale noted, "it is one thing to be cautious before dismissing an antitrust complaint in advance of discovery .... but quite another to forget that proceeding to antitrust discovery can be expensive." An apt description of an FLSA collective action as well.

Justice Souter (the author of the 7-2 decision) went on to perfectly describe the danger of launching the discovery juggernaut when very little is required:

It is no answer to say that a claim just shy of a plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through "careful case management," post at 4, given the common lament that the success of judicial supervision in checking discovery abuse has been on the modest side. See, e.g., Easterbrook, Discovery as Abuse, 69 B. U. L. Rev. 635, 638 (1989) ("Judges can do little about impositional discovery when parties control the legal claims to be presented and conduct the discovery themselves"). And it is self-evident that the problem of discovery abuse cannot be solved by "careful scrutiny of evidence at the summary judgment stage," much less "lucid instructions to juries," post, at 4; the threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching those proceedings. (emphasis added).

Another problem is that the first notice is, at least in the circuits that have decided the issue so far, including the 5th Circuit, a non-appealable decision.

In many ways it is a perfect storm -- the current standard is set low and it is difficult to get cases in a position where an appellate court is going to write on changing that standard.

The roots of the easy notice standard lies in another 7-2 Supreme Court decision in an age discrimination case involving a class action based on a 1,200 person lay off by Hoffman La Roche. In a very short opinion, the Court approved the district court's facilitation of notice to the group.

Only Justice Scalia, joined by Chief Justice Rehnquist dissented:

There is more than a little historical irony in the Court's decision today. "Stirring up litigation" was once exclusively the occupation of disreputable lawyers, roundly condemned by this and all American courts. See, e. g., Peck v. Heurich, 167 U.S. 624, 629-630 (1897); Grinnell v. Railroad Company, 103 U.S. 739, 744 (1881). But in the age of the "case managing" judicial bureaucracy, our perceptions have changed. Seeking out and notifying sleeping potential plaintiffs yields such economies of scale that what was once demeaned as a drain on judicial resources is now praised as a cutting-edge tool of efficient judicial administration. Perhaps it is. But that does not justify our taking it in hand when Congress has not authorized it. Even less does it justify our rush to abandon (not only without compulsion but without invitation) what the Court deprecatingly calls the courts' "passive" role in determining which claims come before them, but which I regard as one of the natural components of a system in which courts are not inquisitors of justice but arbiters of adversarial claims.

One wonders if the Supreme Court really meant to start us down the path outlined in the BW article. Given the views expressed in Twombly, it seems highly unlikely that it did, or would do so again. The question now is how to get off that path.