On August 21, Judge William C. Griesbach of the U.S. District Court for the Eastern District of Wisconsin joined in the fray over whether the long-used two-step process for issuing notice of a Fair Labor Standards Act (“FLSA”) collective action is consistent with the text of the statute.
Gerald L. Maatman, Jr., Jennifer A. Riley, and Derek S. Franklin are with Duane Morris LLP.In Laverenz v. Pioneer Metal Finishing, LLC, No. 1:22-CV-00692 (E.D. Wis. Aug. 21, 2024), Judge Griesbach held that it is not. He ruled that in actions brought under the FLSA, plaintiffs must show by a preponderance of evidence that they are “similarly situated” to other individuals allegedly subject to the same violations of the statute in order to secure certification of a collective action.
The decision in Laverenz reflects potential growing momentum among district courts toward rejecting a two-step “conditional certification” approach in favor of “one-step” standard placing the “similarly situated” burden in Plaintiff’s court at all relevant times. The ruling should be required reading for all businesses defending wage & hour litigation in the states comprising the Seventh Circuit.
Case Background
Plaintiff Amanda Laverenz filed a class and collective action lawsuit under the FLSA and Wisconsin state law alleging that Defendant Pioneer Metal Finishing, LLC (“Pioneer”) deprived her and other similarly situated hourly employees of wages through its practice of rounding employees’ time clock entries to the nearest quarter hour and paying employees based on that rounded time. Id. at 2. In connection with her proposed FLSA collective action, Plaintiff filed a motion with the Court seeking conditional certification of a collective of employees whom she claimed Pioneer subjected to the same rounding practice. Id. at 3.
As is typical, Plaintiff argued that her lawsuit should proceed immediately as a collective action by issuance of an order sending notice to include hourly-paid employees at seven of Pioneer’s divisions around the country who she claimed were similarly situated. Id. She maintained that the Court should employ a lenient two-step certification process established in 1987 by a Third Circuit district court in Lusardi v. Xerox Corp. Id.
Under the Lusardi framework, named plaintiffs need only present what courts have described as a “modest factual showing” that similar potential plaintiffs exist to satisfy the first step, i.e., certification of a collective action on a conditional basis. In the second step, assuming others have joined the lawsuit as opt-in plaintiffs and the parties have completed discovery on the merits, the court would then make a final determination whether the opt-in plaintiffs actually qualify as parties to the litigation on the basis of substantial similarity to the named plaintiffs in what is known as a second-stage final certification order. Plaintiff claimed that she offered sufficient evidence of similarity and a violation of law to satisfy that standard at the conditional certification stage. Id.
Pioneer responded that the Court should follow the Fifth Circuit’s 2021 decision in Swales v. KLLM Transp. Servs., LLC, which rejected the longstanding approach developed in Lusardi. 985 F.4th 430 (5th Cir. 2021). Pioneer argued that the two-step approach “is inconsistent with the FLSA’s purpose and Seventh Circuit case law stressing the similarities of FLSA certification to Rule 23 class certification, which requires ‘rigorous’ scrutiny.” Id. at 3.
The Court’s Decision
Judge Griesbach sided with Pioneer. He adopted the Fifth Circuit’s FLSA collective certification approach in Swales and denied Plaintiff’s motion for conditional certification on August 21, 2024.
Citing a 2022 Annual Class Action Report that Gerald L. Maatman, Jr., for which this post’s co-author served as General Editor, Judge Griesbach noted that federal courts in 2021 granted FLSA conditional certification motions in 81% of rulings on such motions during the first stage of the two-step process despite – in that same year – granting 53% of FLSA decertification motions at the next stage. The Court gleaned from that data that “over half of those conditionally certified putative classes failed to survive upon a more rigorous review” and concluded, as a result, that the two-step certification process “defeats the very goal it set out to accomplish — efficiency.” Id.
The Court’s adoption of the Swales framework in Laverenz required it to assess following factors to determine whether Plaintiff sufficiently proved similarly between she and proposed opt-in plaintiffs: “(1) the disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to the defendant which appear to be individual to each plaintiff; and (3) fairness and procedural considerations.” Id. at 15-16.
As to the first factor, the Court noted that “significant factual differences exist regarding how the [time rounding] policy affected each employee” given that “[t]he rounding benefitted some and negatively affected others.” Id. at 1. As to the second factor, the Court found that too many individualized claims remained in the matter that would necessarily involve fact-specific inquiries. Id. at 20. As to the final factor, the Court explained that “it would seem particularly inefficient and unfair to notify a broad class of employees,” given its conclusion that Plaintiff’s proposed collective action claims “involve highly individualized inquiries and defenses.” Id. Toward that end, the Court determined that “[a]uthorizing notice in a case such as this would turn a tool into a sword,” and that “[m]any a plaintiff would likely join the line, requiring Pioneer to defend dozens — possibly hundreds — more claims despite the fact that Laverenz has not even showed a violation of law.” Id. at 20.
Ultimately, the Court concluded that Plaintiff “failed to provide a sufficient basis for the court to facilitate notice to potential plaintiffs,” and denied Plaintiff’s motion for conditional certification. Id. at 20.
Implications For Employers
Our annual class action review analyzed FLSA conditional certification rates, and, in 2023, plaintiffs won 75% of first stage conditional certification motions. However, only 56% of those conditionally certified collective actions survived motions for decertification involving a more rigorous scrutiny. Our previous post on these statistics is here. Hence, the stakes are quite meaningful in terms of the approach outlined in the Laverenz ruling.
As any employer who has been sued by a named plaintiff seeking to represent an FLSA collective action knows, the discovery burden imposed by application of the two-step Lusardi standard is far more onerous than what Judge Griesbach established in this case. Full merits discovery lasting more than a year is common, as opposed to a narrowly-targeted investigation of the work performed by the plaintiffs along with facts relating to the relevant independent contractor factors. For that reason alone, employers with operations within the Seventh Circuit will be happy to know they can cite Judge Griesbach’s ruling in the future.
While no one can predict the future with any degree of certainty, it seems likely that this new legal trend regarding the collective action notice process may eventually need to be resolved by the U.S. Supreme Court.
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Gerald L. Maatman, Jr., chair of Duane Morris’ Workplace Class Action group, has nearly four decades’ experience of practicing law and has defended some of the most significant bet-the-company cases ever filed against corporate America. Mr. Maatman has represented companies, executive teams and boards across the country in class action litigation, ranging in size from thousands to hundreds of thousands of claims by employees. Among his accomplishments, he defended and defeated the largest systemic enforcement action ever brought in the history of the U.S. Equal Employment Opportunity Commission, the first Attorney General prosecution of a Wall Street company for workplace discrimination and harassment, and the largest wage & hour class and collective actions ever brought in Florida and New York.
Jennifer A. Riley, Vice Chair of Duane Morris’ Workplace Class Action group, has defended companies faced with significant complex litigation matters for more than two decades. Ms. Riley regularly defends companies facing class actions, collective actions, pattern or practice lawsuits, and other types of representative proceedings, ranging in size from dozens to tens of thousands of claims. Working on the forefront of the developing law in an ever-changing arena, Ms. Riley regularly develops strategies for navigating some of the largest challenges faced by corporate America today and counsels employers confronted with a range of complex theories that span from claims of discrimination or sexual harassment to myriad types of alleged wage & hour and statutory privacy violations.
Derek Franklin practices in the area of employment law, with experience in employment disputes, business litigation and class actions. Mr. Franklin defends businesses in employment law matters ranging from nationwide class and collective action lawsuits to single-plaintiff lawsuits and administrative charges. Mr. Franklin’s practice extends to federal and state courts throughout the United States, the Equal Employment Opportunity Commission, the Department of Labor and multiple state agencies managing employment, labor, and wage and hour issues. He also advises and counsels clients on a wide range of legal issues, including the creation and implementation of workplace procedures and policies.
