Author: Gerald L. Maatman, Jr.

By Michael DeMarino and Gerald L. Maatman, Jr.

Duane Morris Takeaways –  In McCarthy v. Medicus Healthcare Sols., LLC, No. 1:21-CV-668, 2023 WL 2989051, at *1 (D.N.H. Apr. 18, 2023), the U.S. District Court for the District Court of New Hampshire granted conditional certification of a collective action consisting of physician recruiters who alleged that they did not receive overtime wages for all earned overtime hours in violation of the FLSA.  Although the plaintiff’s motion for conditional certification came late in the procedural posture of the case, the Court nonetheless applied the more lenient first-stage conditional certification standard often relied upon in FLSA collective actions. The decision in McCarthy is an important one as it highlights the ongoing battle between litigants over the standard for conditional certification of a FLSA collective action when the parties have engaged in significant discovery.

Background Of The Case

Plaintiff, a recruiter, worked for Medicus, a nationwide physician recruitment and medical staffing company.  Plaintiff alleged that Medicus misclassified him and other alleged similarly-situated employees as a “non-exempt” employee under the FLSA, and failed to pay him overtime compensation for working over 40 hours in a workweek in violation of the FLSA.

Prior to answering the complaint, Medicus twice moved to dismiss the original complaint on statute of limitations grounds.  The Court denied those motions, Medicus answered the complaint, and the parties proceeded to discovery.  During discovery, the parties unsuccessfully attempted to resolve the dispute at mediation. Afterwards, Plaintiff filed his motion for conditional certification of a collective action.

The Court’s Ruling

In opposing Plaintiff’s motion for conditional certification, Medicus argued that because Plaintiff filed the motion “near the end of the case” and the parties had engaged in “extensive discovery,” the Court should apply the heightened standard applicable to the later, decertification stage.  Under that standard, which typically occurs after the defendant moves to decertify the collective action, the Court makes “a factual determination as to whether there are similarly-situated employees who have opted in.”  Id. at *2.

In response, Plaintiff argued that he should “not be prejudiced for pausing the litigation (and delaying the filing of this motion) to attempt to resolve the case at a pre-certification mediation, and the more lenient first-stage standard should apply.”  Id.  Under this standard, “Plaintiffs bear the light burden of demonstrating that there is a reasonable basis for their claim that there are other similarly-situated employees.”  Id. at *1.

The Court agreed with Plaintiff. It concluded that Plaintiff provided a “reasonable explanation for the alleged delay in filing.” Id. at *4.  The Court also noted that numerous case law authorities had “applied the lenient standard under similar procedural circumstances, including after the parties engaged in substantial discovery.” Id. at *3. The Court opined that because conditional certification is ultimately a “case management tool,” it has broad discretion to manage its cases and apply the lenient first-stage standard.  Id. at *4.

Applying the lenient first-stage standard, the Court rejected Medicus’s arguments that inconsistencies in Plaintiff’s evidence precluded conditional certification and that certain facts admitted in Plaintiff’s deposition give rise to individualized defenses. Instead, the Court held that for “purposes of this motion,” it need not “resolve factual disputes, decide substantive issues going to the ultimate merits, or make credibility determinations.’” Id. at *8.  Over Medicus’s objection, the Court granted Plaintiff’s motion for conditional certification.

Implications For Companies Facing FLSA Collective Actions

The ruling in McCarthy underscores how the first-stage and second-stage certification standards in FLSA actions can impact the case and drive the decision whether to send FLSA notice to potential collective action members.  Although the defendant was ultimately unsuccessful in getting out from under the lenient first-stage standard, corporate defendants facing FLSA collective actions still should push for the heightened second-stage standard when the parties have engaged in some amount of discovery.  Whether a court will apply the first or second-stage standard generally will turn on the amount of discovery conducted and the reason for plaintiff’s delay in moving for conditional certification.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Rebecca S. Bjork

Duane Morris Takeaways: On April 14, 2023, U.S. District Court Judge T. S. Ellis, III 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.  In Mathews v. USA Today Sports Media Group, LLC, et al., No. 1:22-CV-1307 (E.D. Va.), he held that it is not.  Judge Ellis ordered the parties to engage in limited discovery to establish a factual record upon which he can decide whether members of the plaintiff’s proposed collective action are, in fact, “similarly situated.”  If – and only if – he concludes they are, he would then issue a notice allowing such persons to opt-in to the collective action.  This ruling is significant because it follows a similar decision by the U.S. Court of Appeals for the Fifth Circuit in 2021, and the Sixth Circuit is currently considering an appeal raising the same issue.  Thus, momentum may be building for the U.S. Supreme Court to ultimately step in and settle the issue. The one-step or two-step process is far from academic, for it has everything to do with litigation costs and risks, and the leverage flowing from a win or a loss in the certification battle.

Case Background

Plaintiff filed a collective action lawsuit under the FLSA alleging that USA Today Sports Media Group, LLC (“USA Today”) and Gannett Co., Inc. unlawfully classified her and others like her as independent contractors, and thus denied them overtime pay.  From January 2017 to August 2021, Plaintiff was the Site Editor for the Seahawks Wire website, USA Today’s website covering the NFL franchise Seattle Seahawks.  In her role, Plaintiff alleges that she and other “similarly situated” Site Editors for other teams all signed the same “Editor Agreement” with USA Today, and that they all engaged in similar duties such as “writing, editing and publishing sports news articles regarding their respective teams; managing others; editing other people’s articles; and making social media posts regarding articles they had written.”  (Slip Op. at 2.)  She submitted three declarations signed by herself and two others working as site editors for other teams, along with a motion for “conditional certification” of her FLSA collective.  (Id.)

USA Today responded by submitting declaration evidence to show that Site Editors have freedom to create their content including how long their articles are, the tone they take, how many are posted each day, et cetera.  (Id. at 3.)  It also noted that it did not provide any office space, tools, feedback, performance evaluations, or supervisors to Site Editors, and also allowed them to write for other websites. (Id.)  In other words, USA Today submitted evidence to show that under the applicable test for deciding whether someone is an independent contractor, Site Editors meet that standard, so they are not misclassified.

As is typical, Plaintiff argued that her lawsuit should proceed immediately as a collective action by issuance of an order sending notice to all of the other Site Editors around the nation.  She maintained that she had submitted sufficient evidence under a lenient first step standard in a two-step process that they are all “similarly situated.”  (Id. at 1, 4.)  Under a test established in 1987 by Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987), Plaintiff contended that step one is an “initial ‘notice stage’ determination” that members of the proposed collective action are similar enough to receive a notice of the action and be given the opportunity to opt in.  (Id. at 4 (citing Thiessen v. Gen. Elec. Capital Corp., 267 F.3d 1095 1102 (10th Cir. 2001).)  Under this view of the FLSA, a plaintiff need only show “substantial allegations” that they are “victims of a single decision, policy or plan” in order for a notice to be sent – in this case, to all Site Editors nationwide.  (Slip Op. at 4.)  Plaintiffs then usually receive the right to conduct complete discovery, after which defendants may file a motion to “decertify” the collective action, based on evidence developed during the discovery process.

USA Today responded that the Court should follow the Fifth Circuit’s recent decision in Swales v. KLLM Transp. Servs., LLC, 985 F.4th 430 (5th Cir. 2021), which rejected the longstanding approach developed in Lusardi.  (Slip Op. at 4.)  It argued that the two-step approach has no basis in the statutory language of the FLSA.  Rather, it emphasized that the court must instead make a sound factual determination as to whether proposed opt-in plaintiffs are, in fact, similarly situated and that requires discovery targeted solely to that inquiry.  (Id.)

The Court’s Decision

Judge Ellis agreed with USA Today.  He ruled that the parties must engage in discovery directed to establishing whether or not Site Editors around the country are similarly situated with regards to their work, the supervision provided (or not) by USA Today, along with the other relevant factors to establish that they were misclassified as independent contractors.  He began by noting that the Fourth Circuit had not adopted the Lusardi test, nor had it commented on the Fifth Circuit’s decision in Swales.  Rather, the Fourth Circuit has simply stated that district courts have discretion to manage the notice process in FLSA collective actions.  (Id. at 5.)  Judge Ellis decided that “the correct approach then, as noted by the Fifth Circuit, is the one authorized by FLSA’s text.  Courts must determine, at the outset, whether a proposed collective action is ‘similarly situated’ to the named plaintiffs.  To make this determination, courts may require limited discovery, targeted only at the factual and legal considerations needed to make the ‘similarly situated’ determination.”  (Id. at 6.)  He then ordered discovery only of the following – from the plaintiffs the Schedule C or W-2 forms of the named plaintiff and two declarants relating to their work writing sports media blog posts; any employment contracts, offer letters or agreements relating to their work; and one three-hour deposition; and from the defendants the independent contractor agreements; policy documents relating to the independent contractor arrangement; an organizational chart; a three-hour long Rule 30(b)(6) deposition; and a three-hour long deposition of defendants’ declarant filed in opposition to plaintiff’s motion.  (Id. at 6-7).  The discovery must be completed by May 26, 2023.  (Id. at 6.)

Implications For Employers

Our annual class action review analyzed FLSA conditional certification rates, and plaintiffs won 82% of first stage conditional certification motions, but only 50% of second stage motions. Our previous post on these statistics is here. Hence, the stakes are quite meaningful in terms of the approach outlined in the Matthews 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 decision is far more onerous than what Judge Ellis 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 Fourth Circuit will be happy to know they can cite Judge Ellis’ 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.

By Gerald L. Maatman, Jr., Shaina Wolfe, and Aaron A. Bauer

Duane Morris Takeaways: In Eddlemon v. Bradley University, No. 20-01264 (7th Cir. Apr. 12, 2023), the U.S. Court of Appeal for the Seventh Circuit vacated an Illinois federal district court’s class certification order because it failed to conduct a “rigorous analysis” of each of the Rule 23 factors – numerosity, commonality, typicality, and adequacy of representation. A student alleged, among other things, that during the COVID-19 pandemic, Bradley University breached its implied contract with students by shortening the Spring 2020 semester and continuing to charge students full tuition, and was unjustly enriched by charging students for their unused activity fees. The district court granted class certification to students that paid full tuition and activity fees for the Spring 2020 semester. The Seventh Circuit held that the district court did not thoroughly evaluate the Rule 23 factors because it relied only on the pleadings and failed to ensure that the plaintiff had met each of the required factors. The Seventh Circuit’s decision serves as a reminder that plaintiffs must offer sufficient evidence and show how each of the Rule 23 factors are met, and district courts must rigorously analyze the Rule 23 requirements prior to certifying a class action.

Case Background

With the unexpected onset of COVID-19 during the Spring Semester of 2020, Bradley University, like many other schools, transitioned from in-person to remote learning. To facilitate the transition, the university extended its Spring break, which in-turn, shortened the school’s 15-week spring semester to 14 weeks.

A student sued the university for breach of an implied contract because the university charged students full tuition despite the shortened semester. The student alleged that the university’s class catalog served as a contract that entitled the student to 15 weeks of education. The student also alleged that the university was unjustly enriched by the collected student activity fees because students did not attend any on-campus activities. The student sought class certification on behalf of the 7,759 other students.

The U.S. District Court for the Central District of Illinois granted Rule 23 certification of two classes, including: (1) students whose Spring 2020 semester was shortened, and (2) students who paid the Spring 2020 semester activity fees.  The university filed a Rule 23(f) appeal with the Seventh Circuit, challenging the district court’s analysis of the commonality and predominance requirements. The university argued that the district court erred in granting class certification because it relied solely on the student’s pleadings without assessing the record. The university also argued that the district court failed to identify or separately analyze the student’s claims.

The Seventh Circuit’s Ruling Vacating Class Certification

The Seventh Circuit vacated the district court’s class certification order and remanded for further proceedings. The Seventh Circuit agreed with the university’s two main arguments.

First, the Seventh Circuit noted that “[t]he district court’s certification order does not reveal whether the court examined the record,” but that the district court repeatedly referred to the student’s allegations without addressing his purported evidence (e.g., the university’s class catalog) or examining how the student would prove his allegations with common evidence. The Seventh Circuit held that the district court’s certification order, therefore, rested on an error of law and amounted to an abuse of discretion because Rule 23 required it to “go beyond the pleadings.”

Second, the Seventh Circuit explained that the district court’s analysis was incomplete because it did not identify or separately analyze the elements of plaintiff’s claims, which is critical to the predominance analysis. The Seventh Circuit emphasized that the district court failed to note the elements of the student’s claims. Instead, the district court listed only one common question for each class without explaining the question’s “relative importance” to each claim, whether any individual questions existed, or how the common question predominated over individual questions. The Seventh Circuit opined that the district court’s analysis was “fatal,” and reiterated that a “one size (or one claim approach) is at odds with the rigorous analysis required at the class certification stage.”

Finally, the Seventh Circuit took the “opportunity” to clarify that, at the certification stage, the district court may only consider the merits of a claim to the extent it is relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.

Implications for Employers

The Seventh Circuit’s decision in Eddlemon serves as important reminder that plaintiffs must support their motions for class certification with a “preponderance of the evidence” and district courts must conduct a “rigorous analysis” of the evidence in the record. To defeat class certification, defendants should emphasize the importance of each Rule 23 factor and attempt to show why, under a rigorous analysis, the plaintiff’s class claims should not be certified.