Category: Wage & Hour Litigation

By Gerald L. Maatman, Jr., Rebecca S. Bjork, and Betty Luu

Duane Morris Takeaways: On July 1, 2025, the U.S. Court of Appeals for the Ninth Circuit issued a decision in a case with major ramifications for employers facing wage and hour claims under the Fair Labor Standards Act.  In Harrington v. Cracker Barrel Old Country Store, Inc., Nos. 23-15650, 24-1979 (9th Cir. July 1, 2025), a unanimous panel joined three other Circuits and held that the U.S. Supreme Court’s Decision in Bristol-Myers Squibb Co. v. Superior Court of Cal., 582 U.S. 255 (2017), applies to actions under the FLSA brought in federal court.  This means that to achieve nationwide issuance of notice of a collective action under Section 216(b), each opt-in plaintiff must show a sufficient connection to the forum state. The impact will likely be fewer nationwide collective actions, which ultimately may reduce litigation pressure on employers who operate in states within the Ninth Circuit. 

Background

Plaintiffs, former and current employes of Cracker Barrel, filed a class action lawsuit in the U.S. District Court for the District of Arizona against Cracker Barrel alleging violations of the Fair Labor and Standards Act (“FLSA”).  Id. at 7.  Plaintiffs moved for court authorization to send notice of a collective action under the FLSA to “all servers who worked for Cracker Barrel in states where it attempts to take a tip credit . . . over the last three years.”  Id. at 7.  Cracker Barrel objected on various grounds, including that the district court did not have personal jurisdiction over any of its employees outside of Arizona.  Id. at 7.  The district court granted the plaintiffs’ motion and ordered the issuance of nationwide notice because “the participation of one Arizona-based plaintiff was all that was needed to secure personal jurisdiction over Cracker Barrel for the collective action.”  Id. at 7.  Cracker Barrel appealed the district court’s decision to the Ninth Circuit.

The Ninth Circuit Joins The Third, Sixth and Eighth In Requiring Non-Resident Plaintiffs In FLSA Collective Actions To Establish Specific Personal Jurisdiction

The three-judge panel in Harrington unanimously held that where the basis for personal jurisdiction in an FLSA collective action is specific personal jurisdiction, the district court must assess whether each opt-in plaintiff’s claim bears a sufficient connection to the defendant’s activities in the forum state.  In the case before them, they concluded that the district court authorized nationwide notice on the mistaken assumption that it would not need to assess specific personal jurisdiction on a claim-by-claim basis.  As a result, it vacated and remanded for further proceedings. 

In so doing, the Ninth Circuit held that the Supreme Court’s requirement outlined in Bristol-Myers — that non-resident plaintiffs in a mass tort action must establish their own basis for personal jurisdiction — applies in FLSA collective actions. 

It therefore adopted the view of three other Circuits (the Third, Sixth, and Eighth) that non-resident plaintiffs must establish their own basis for specific personal jurisdiction in the context of an FLSA collective action.  Thus, within the Ninth Circuit, a district court now must determine whether each opt-in plaintiff’s claim bears a sufficient connection to the defendant’s activities in the forum state. 

Implications Of The Decision

Harrington v. Cracker Barrel means that in states encompassed within the Ninth Circuit, employers facing wage and hour collective actions will be far less likely to need to worry about the possibility of multi-state or nationwide issuance of notice under Section 216(b) of the FLSA.  

This decision has enormously important implications for such employers.  If nothing else, the vast geographic territory and population encompassed by the jurisdiction of the Ninth Circuit means that employers now have a powerful pre-certification defense argument to deploy to defend against putative nationwide collective actions, which tend to arise where large populations of potential opt-in plaintiffs are employed.  We will follow the case on remand and keep our blog readers apprised as to how plaintiffs’ counsel proceeds in the district court. 

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Gregory Tsonis

Duane Morris Takeaways: Complex wage & hour litigation has long been a focus of the plaintiffs’ class action bar. The relatively low standard by which plaintiffs can achieve conditional certification under the Fair Labor Standards Act (FLSA), often paired with state law wage & hour class claims, offers a potent combination by which plaintiffs can pursue myriad employment claims. To that end, the class action team at Duane Morris is pleased to present the second edition of the Wage & Hour Class And Collective Action Review – 2025. This new publication analyzes the key wage & hour-related rulings and developments in 2024 and the significant legal decisions and trends impacting wage & hour class and collective action litigation for 2025. We hope that companies and employers will benefit from this resource and that it will assist them with their compliance with these evolving laws and standards.

Click here to download a copy of the Wage & Hour Class And Collective Action Review – 2025 eBook.

Stay tuned for more wage & hour class and collective action analysis coming soon on our weekly podcast, the Class Action Weekly Wire.

By Gerald L. Maatman, Jr., Jennifer A. Riley, Emilee N. Crowther, and Derrick Fong-Stempel

Duane Morris Takeaways: In Restaurant Law Center et al v. U.S. Department of Labor, No. 23-50562, 2024 WL 3911308 (5th Cir. Aug. 23, 2024), the Fifth Circuit reversed a decision of Judge Robert L. Pitman of the U.S. District Court for the Western District of Texas that had upheld the U.S. Department of Labor’s final rule that stated that an employer could only take a “tip credit” against the federal minimum wage for work performed by a tipped employee that was part of the employee’s tipped occupation. The Fifth Circuit held that, pursuant to the U.S. Supreme Court’s holding in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2273 (2024) (which the Fifth Circuit expressly noted was rendered after Judge Pitman’s trial court decision), it was not required to defer to the DOL’s interpretation of the Federal Labor Standards Act. Accordingly, it found the Final Rule contrary to the express language of the FLSA, and that it should be vacated because it was arbitrary and capricious.

This case previews the likely new federal circuit court regime regarding agency interpretations of ambiguous statutes post-Loper Bright. The ruling is also a required read for all hospitality industry organizations.

Case Background

The Fair Labor Standards Act (“FLSA”) permits employers to take a “tip credit” when paying the wages of any “tipped employee,” such that employers may pay tipped employees $2.13 per hour “under the theory that a large portion of such employees’ total earnings comes from tips.” Id. at *2. If the difference between the $2.13 wage and the general minimum wage of $7.25 per hour is not paid by tips, the FLSA requires the employer to pay the remainder to ensure that the tipped employee makes at least $7.25 an hour. Id.

The DOL is permitted to promulgate rules interpreting and clarifying the FLSA, and issued an 80/20 guidance concerning the tip credit in its sub-regulatory Field Operations Handbook in 1988. Id. at *3. The 80/20 guidance provided that an employer was permitted to take a full tip credit for employees that provided both tipped and non-tipped work, so long as the employee’s non-tipped work did not constitute more than 20% of that employee’s work. Id.

In 2021, the DOL issued a “Final Rule” concerning the 80/20 guidance, which mandated that “[a]n employer may only take a tip credit for work performed by a tipped employee that is part of the employee’s tipped occupation.” Id. at *4 (citing 29 C.F.R. §531.56(f) (2021)). Notably, the term “tipped occupation” is not defined in the FLSA. Id. However, the Final Rule demarcated three categories of work, including: (a) directly tip-producing work (e.g., a server); (b) directly supporting work (e.g., bussing tables); and (c) work not part of the tipped occupation (e.g., preparing food). Id. The Final Rule stated that an employer could take the tip credit for “tip-producing work,” but that if more than 20 percent of an employee’s workweek is spent on “directly supporting work,” then the employer cannot claim the tip credit for the excess. Id. Moreover, the Tip Credit stated that any “directly supporting work” could not be performed for more than 30 minutes at a time. Id.

Thereafter, in December 2021, the Restaurant Law Center and the Texas Restaurant Association (collectively, the “Associations”) filed suit against the DOL, seeking to permanently enjoin the DOL’s enforcement of the Final Rule, and moved for a preliminary injunction. Id. at 5. The district court denied the preliminary injunction, and the Associations appealed to the Fifth Circuit. Id.

The Fifth Circuit’s Decision

The Fifth Circuit held that the DOL’s 2021 Final Rule was contrary to the FLSA’s text, was arbitrary and capricious, and should be vacated. Id. at *2.

In so holding, the Fifth Circuit first focused on the impact of the U.S. Supreme Court’s recent holding in Loper Bright. Prior to Loper Bright, “[u]nder Chevron, a court reviewing agency action for compliance with [a] relevant statute had to defer to ‘permissible’ agency interpretations, ‘even if not the reading the court would have reached if the question initially had arisen in a judicial proceeding.’” Id. (citing Loper Bright, 144 S. C.t at 2264).

However, post-Loper Bright, the Fifth Circuit noted that it was required “to return to the APA’s basic textual command: independently interpret [an ambiguous] statute and effectuate the will of Congress” and “use every tool at [its] disposal to determine the best reading of the statute and resolve the ambiguity.”” Id. (citing Loper Bright, 144 S. Ct. at 2263, 2266). And, since the Supreme Court’s holding in Loper Bright came out after the district court’s holding, the Fifth Circuit reasoned that it was required “to depart from the district court’s analysis at the very start.”  Id. at *10.

As such, the Fifth Circuit’s analysis started with the express text of the FLSA, which states that a “tipped employee” means “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Id. at *11 (citing 29 U.S.C. § 203(t)). Importantly, the FLSA does not define the terms “engaged in” or “occupation.” Id. Since the terms were not expressly defined, the “ordinary meaning of these terms in 1966, when the tip credit was added to the FLSA, controls.” Id.

After reviewing the “contemporary dictionary definitions” of the words “engaged” and “occupation,” the Fifth Circuit found that the phrase “‘engaged in an occupation’ most naturally indicate[d] a focus ‘on the field of work and the job as a whole,’ rather than specific tasks.” Id. at *11-13. Importantly, the Fifth Circuit noted that “[t]he FLSA does not ask whether duties composing [a] given occupation are themselves each individually tip-producing.” Id. at *14. Accordingly, the Fifth Circuit held that “the Final Rule applies the tip credit in a manner inconsistent with the FLSA’s text.” Id.

Finally, the Fifth Circuit noted that the plain language of the FLSA “asked only whether the employee is engaged in an occupation in which he receives tips.” Id. at *20. As such, the Fifth Circuit determined that the Final Rule “replace[d] the Congressionally chosen touchstone of the tip-credit analysis — the occupation — with one of the DOL’s making — the timesheet.” Id. For these reasons, the Fifth Circuit concluded that the Final Rule was arbitrary and capricious. Id. at 821.

Implications For Employers

This decision has wide-ranging implications. The Fifth Circuit’s ruling in Restaurant Law Center sets aside 36 years of precedent upholding the 80/20 standard contained in the Final Rule. It arms employers with additional ammunition to fight wage & hour class and collective actions brought by private plaintiffs who have relied on the DOL’s Final Rule to position their lawsuits. It also previews what could be the new federal circuit court regime regarding agency interpretations of ambiguous statutes post-Loper Bright. As the Fifth Circuit stated, Congressional intent controls, and “while longstanding agency practice might have the power to persuade, it has never had the power to control.” Id. at *16 (citing Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Derek S. Franklin

Duane Morris Takeaways: On August 21, 2024, 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.  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.

By Gerald L. Maatman, Jr., Gregory Tsonis, and Ryan T. Garippo

Duane Morris Takeaways:  On August 16, 2024, in Luna Vanegas, et al. v. Signet Builders, Inc., No. 23-2964, 2024 WL 3841024 (7th Cir. Aug. 16, 2024), the U.S. Court of Appeals for the Seventh Circuit found that, in a Fair Labor Standards Act (“FLSA”) collective action, a district court must have personal jurisdiction over a defendant for every single one of the would-be plaintiffs’ claims.  Those plaintiffs for whom personal jurisdiction does not exist must proceed in a forum where the corporate defendant is essentially at home.  This decision is a substantial win for employers and helps prevent them from being dragged into nationwide lawsuits far away from where they do most of their business.

Case Background

Signet Builders, Inc. (“Signet”) is both incorporated and headquartered in Texas, but its business spans across the nation.  As part of its business, Signet employs a small subsect of its employees in Wisconsin who are primarily tasked with building livestock houses.  Plaintiff Jose Ageo Luna Vanegas (“Luna Vanegas”) was one of those workers.  In 2021, he sued Signet in the U.S. District Court for the Western District of Wisconsin claiming that he was not paid overtime, in violation of the FLSA.  Luna Vanegas, however, did not bring his claims on an individual-plaintiff basis, but rather sought to litigate his FLSA claims on a nationwide collective action basis in an effort to magnify the scope of the litigation.

After Luna Vanegas filed his lawsuit, a complicated legal battle unfolded.  Signet filed a motion to dismiss and argued that “Luna Vanegas’s work fell within a provision of the FLSA that exempts agricultural workers from its overtime requirements.”  Luna Vanegas v. Signet Builders, Inc., 554 F. Supp. 3d 987, 989-90 (W.D. Wis. 2021) (citing 29 U.S.C. § 213(b)(12)).  The district court held that Luna Vanegas “performed his work on farms, and the work he performed — constructing livestock containment structures — was incidental to farming,” and therefore dismissed his case.  Id. at 993.

Luna Vanegas appealed that dismissal to the Seventh Circuit. It reversed the district court — holding that dismissal was premature.  Luna Vanegas v. Signet Builders, Inc., 46 F. 4th 636, 645 (7th Cir. 2022).  The Seventh Circuit ruled that § 213(b)(12) is an affirmative defense, and Luna Vanegas’ complaint did not contain enough facts about the agricultural nature of the work to warrant dismissal.  Signet then filed a petition for writ of certiorari and asked the U.S. Supreme Court to decide the issue, which the Supreme Court declined to do.  Signet Builders, Inc. v. Luna Vanegas, 144 S. Ct. 71 (2023).

With the case back at the district court, Luna Vanegas filed a motion for conditional certification, a common strategic tactic in FLSA collective actions, and sought to send notice of the lawsuit to a nationwide group of Signet’s employees.  Luna Vanegas v. Signet Builders, Inc., No. 21-CV-00054, 2023 WL 5663259, at *1 (W.D. Wis. Sept. 1, 2023).  Even though Signet was incorporated and headquartered in Texas, the district court held that it was fair for this notice to go out to employees across the nation, because otherwise the ruling would have “the practical effect of forcing plaintiffs to file any multi-state FLSA collective action in the defendant employer’s home forum.”  Id. at *3.  Signet then filed a motion for interlocutory appeal, bringing the case back to the Seventh Circuit for a second time.  Id. at *4.  The district court granted that request.

The Seventh Circuit’s Opinion

On appeal, the Seventh Circuit reversed the district court for the second time, but this time on personal jurisdiction grounds.

The Seventh Circuit explained that generally a plaintiff can only sue a corporate defendant in three places.  First, a corporation can be sued in its state of incorporation.  Second, a corporation can be sued in the state where its headquarters is located.  And third, a corporation can be sued in any state where the issues connected with that particular case occurred.  In this case, it was undisputed that Signet was incorporated and headquartered in Texas.  It was also undisputed that only Luna Vanegas’ claims (and not the claims of other employees) arose out of Signet’s conduct in Wisconsin.  Therefore, the question was whether Signet’s conduct in Wisconsin was sufficient to justify a nationwide case.  The Seventh Circuit held that it was not.

Relying heavily on a recent U.S. Supreme Court decision in Bristol-Myers Squibb Co. v. Superior Ct. of California, San Francisco Cnty., 582 U.S. 255 (2017), the Seventh Circuit held that Signet must be subject to personal jurisdiction in Wisconsin — for each and every one of the would-be opt-in plaintiffs’ claims — for the case to go forward on a nationwide basis.  This rule differs from the standard in Rule 23 class actions because there, a representative plaintiff can maintain a lawsuit in a foreign jurisdiction as long as the court has jurisdiction over the named plaintiff.

The Seventh Circuit, however, reasoned that because a collective action plaintiff is not a party until they “opt in” to the litigation, FLSA collective actions are truly just “agglomerations of individual claims,” as opposed to one singular lawsuit.  Luna Vanegas, 2024 WL 3841024, at *4.  Further, unlike Rule 23 class actions, each party is entitled to proceed individually and “the statute of limitations on opt-in plaintiffs’ claims enjoys tolling only after the plaintiff files her consent, which goes to show the focus on a plaintiff’s own management of her claim.”  Id.  Consequently, the Seventh Circuit set a different standard to find personal jurisdiction in FLSA collective actions than the standard for Rule 23 class actions.

Additionally, the Seventh Circuit dispensed with a highly technical argument regarding Federal Rules of Civil Procedure 4 and 5 — holding that it did not save Luna Vanegas’ nationwide lawsuit.  Luna Vanegas argued that once personal jurisdiction was established over his claims against Signet in Wisconsin, and service was validly executed pursuant to Rule 4, then he was free to add parties via service under Rule 5.  However, the Seventh Circuit succinctly and unequivocally rejected that argument and held: “That is not how it works.”  Id. at *7 (emphasis added).  The Seventh Circuit explained that the Rule 5 workaround only applies if the court already has personal jurisdiction over the defendant as to the opt-in plaintiffs’ claims.  Otherwise, a new summons needs to be brought in a venue where the opt-in plaintiff can establish personal jurisdiction over the company.

Implications For Employers

Although a positive development for employers, this opinion is not a “nail in the coffin” for nationwide FLSA collective actions.  Indeed, the Seventh Circuit explicitly noted that “[a] nationwide collective of Signet’s workers could proceed in Texas, which enjoys general jurisdiction over Signet, with no loss of efficiency.”  Id. at *9.  Rather, this opinion simply states that if an employee is going to sue their employer for millions of dollars of potential liability and while asserting a nationwide collective action, they must do so in their employers’ home forum.

Corporate counsel, however, should not expect the fight to stop here.  The Seventh Circuit’s opinion is consistent with recent holdings by the Courts of Appeal in the Third, Sixth, and Eight Circuits, each imposing the same personal jurisdiction requirement.  Canaday v. Anthem Cos., 9 F.4th 392 (6th Cir. 2021); Fischer v. Fed. Express Corp., 42 F.4th 366 (3d Cir. 2022); Vallone v. CJS Sols. Grp., LLC, 9 F.4th 861 (8th Cir. 2021).  The issue is not entirely settled, however, as the First Circuit reached the opposite conclusion.  Waters v. Day & Zimmermann NPS, Inc., 23 F.4th 84, 94 (1st Cir. 2022).  Accordingly, the pending circuit split signals that this issue is ripe for consideration by the U.S. Supreme Court.

By Gerald L. Maatman, Jr., Gregory S. Slotnick, and Zachary J. McCormack

Duane Morris Takeaways: On June 21, 2024, in Cinar v. R&G Brenner Income Tax, LLC, No. 20-CV-1362, 2024 U.S. Dist. LEXIS 110045 (E.D.N.Y. June 21, 2024), Magistrate Judge James R. Cho of the U.S. District Court for the Eastern District of New York recommended granting class certification in a suit accusing R&G Brenner Income Tax Centers, also known as R&G Brenner Income Tax Consultants (“R&G Brenner”) of failing to pay overtime wages in violation of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”). Judge Cho was unpersuaded by R&G Brenner’s arguments that plaintiffs’ motion to certify the class and distribute notice to putative class and collective action members was untimely and that plaintiffs could not establish numerosity, commonality, predominance and superiority under Rule 23. The ruling recommended that R&G Brenner’s employees, working as income tax preparers since March 13, 2014, met the requirements for class certification.

In determining the timeliness of the class certification motion, Judge Cho opined that R&G Brenner should not have been surprised by the motion considering that earlier pleadings in the record alluded to its likelihood. Further, the rules governing class actions indicate there is no deadline to file a motion to certify a class. While explaining that plaintiffs could establish numerosity, commonality, predominance and superiority, Judge Cho relied on the terms of more than eighty tax preparers’ employment agreements, which were derived from a form template that R&G Brenner adjusted slightly to allow for individualized compensation and work schedules. Therefore, the Court recommended the tax preparers met the requirements to secure class certification in the lawsuit accusing R&G Brenner of failing to pay overtime.

Case Background

R&G Brenner operates a tax preparation business that maintains approximately thirty offices in the New York metropolitan area. Id. at *2. During tax season, R&G Brenner employs approximately 75 income tax preparers at these different offices, which it classifies as overtime exempt. Id. at *3. On March 13, 2020, tax preparers for R&G Brenner filed a class and collective action claiming the employer violated federal and state wage and hour law by denying them overtime and by taking unlawful deductions from their wages. Id. at *4.

R&G Brenner paid the income tax preparers on a commission-only basis, in which the employees received a weekly advance on their commissions that was later deducted from their final gross commissions at the end of the tax season. Id. at *3. At the end of the tax season, R&G Brenner then created a final reconciliation for each income tax preparer, including: (i) the gross commission earned for the tax season; (ii) all advances that were paid during the season; (iii) all deductions withheld from the employee’s wages; and (iv) the net commission earned by and payable to the income tax preparer for the tax season. Id. at *4. Plaintiffs alleged that this compensation structure denied overtime compensation to the tax preparers even though they routinely worked more than forty hours per week. Id. at *6.

In addition to the contention that R&G Brenner failed to compensate tax preparers for overtime worked, plaintiffs further claimed that R&G Brenner’s policies made unlawful deductions from tax preparers’ wages, including credit card service charges, chargeback receipts, missing deposit money, employee referrals, “early bird specials,” reward money and promo money. Id. Finally, plaintiffs claimed that R&G Brenner did not provide the tax preparers with accurate written wage statements each week and did not pay them at least monthly, as required by New York State law. Id.

The Court’s Decision

Plaintiffs brought their FLSA and NYLL claims under a single action using the procedural mechanisms available under 29 U.S.C. § 216(b) and Rule 23, and moved the Court to certify a class of all income tax preparers who worked for R&G Brenner in New York since March 13, 2014. Id. at *8. R&G Brenner opposed plaintiffs’ motion, arguing the motion was untimely and that plaintiffs had not established numerosity, commonality, predominance, and/or superiority to certify the proposed class action. Id. at *1.

Even though Rule 23 does not provide a deadline for filing a motion for class certification, R&G attempted to persuade the Court to deny the motion as untimely, and therefore prejudicial. Id. at *10. Unpersuaded by this argument, Judge Cho explained that the claims of surprise were contradicted by the plaintiffs’ complaint and amended complaint that put R&G Brenner on notice of the class-wide claim. Id. In addition, R&G Brenner’s timeliness argument was upended by its stipulation with plaintiffs containing an express reservation of plaintiffs’ rights to move for class certification. Id. at *12.

R&G Brenner also failed to persuade Judge Cho that plaintiffs could not fulfill the numerosity requirement to certify the class. Id. at *8. Numerosity is presumed when the putative class has 40 or more members, and plaintiffs identified at least 87 putative class members. Id. However, R&G Brenner argued that the Court should not consider 84 of the 87 collective action notice recipients for numerosity purposes because they declined to opt-in to the collective action. Id. R&G Brenner, however, could not offer any authority in support of this position, and the Court relied on Second Circuit precedent indicating that the number of opt-ins under the FLSA has no bearing on the numerosity requirement under Rule 23. Id.

Finally, plaintiffs successfully demonstrated commonality and typicality through R&G Brenner’s policy of failing to pay overtime compensation, failing to provide plaintiffs with accurate wage statements pursuant to NYLL, delaying payment to plaintiffs, and withholding unlawful deductions. Id. at *15. Plaintiffs, as well as all income tax preparers, were required to sign employment agreements prior to the tax season which included their compensation and work schedule. Id. Those agreements were based on form templates that R&G Brenner adjusted to allow for individualized compensation and work schedules, but were otherwise standardized. Id. Thus, the Court determined that the language of the agreements was similar with the exception of commission rates, salary draws, and work schedules. Id. Relying on the foregoing reasoning, Judge Cho recommended granting the motion to certify the class, allowing the parties until July 8, 2024 to object to his recommendation and report. Id. at *40.

Implications For Employers

Judge Cho’s recommendation and report serves as a cautionary tale for employers drafting standard employment agreements. Even with differing compensation and work schedules, employment contracts derived from standardized language may provide the necessary elements for a Court to find the commonality and typicality requirements of a proposed class under Rule 23 are satisfied for purposes of class certification. Moreover, the decision serves as a timely reminder that courts may find the opt-in rate of an FLSA collective action unrelated to the issue of Rule 23 class certification within the same litigation.

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Ryan T. Garippo

Duane Morris Takeaways:  On June 3, 2024, in Loonsfoot, et al. v. Stake Center Locating, LLC, No. 23-CV-3171, 2024 WL 2815422 (S.D. Ill. June 3, 2024), Judge David Dugan of the U.S. District Court for the Southern District of Illinois denied a plaintiffs’ motion to dismiss his own lawsuit – a wage & hour class action – for lack of subject matter jurisdiction.  This decision highlights one of the rare circumstances where a company may want to oppose a plaintiff’s proposed dismissal of his class action and force the plaintiff to address the merits of his arguments early in the litigation.

Case Background

Plaintiff Michael Loonsfoot (“Plaintiff”), a former employee of Stake Center Locating, LLC (“Stake Center”), brought claims for alleged wage & hour violations.  Stake Center is a company that provides “utility locating services across the country.”  Id. at *1.  From December 2021 through June 2024, Plaintiff worked in a variety of different roles for Stake Center.  Plaintiff, however, believed that his former employer allegedly deprived him of wages for “compensable ‘off the clock’ work” and failed to include certain amounts when calculating his overtime wages.  Id.

Based on those allegations, Plaintiff filed a lawsuit against Stake Center in the U.S. District Court for the Southern District of Illinois for alleged violations of the Illinois Minimum Wage Law and the Illinois Wage Payment and Collection Act.  In order to pursue those claims in federal court, Plaintiff argued that “jurisdiction is proper under [the Class Action Fairness Act (“CAFA”)] because the proposed class has more than 100 members, the minimal diversity requirement is met, and the amount in controversy exceeds $5 million dollars.”  Id. at *2.  Stake Center appeared, filed its answer, and then moved for judgment on the pleadings.

In response, Plaintiff filed a motion to dismiss his own complaint on the basis that the court lacked subject-matter jurisdiction to hear the dispute.  Plaintiff argued that because Stake Center denied the Plaintiff’s general allegation that “[t]his Court has original subject matter over this action pursuant to the jurisdictional provisions of the Class Action Fairness Act” as well as similar allegations, jurisdiction must not be proper.  Id.

The Court’s Opinion

The Court easily dispensed with what it called Plaintiff’s “unusual litigation tactic.”  Id. at *3.  The Court noted that where “the party that invoked the court’s jurisdiction in the first place” subsequently files a motion to dismiss “such motions are [considered] ‘unseemly.’”  Id. (citing Napoleon Hardwoods, Inc. v. Professionally Designed Benefits, Inc., 984 F. 2d 821, 822 (7th Cir. 1993)).  The Court explained that “[g]iven the procedural posture of the case, Plaintiff cannot unilaterally dismiss the action” and thus, decided to address the jurisdictional issue under the CAFA.  Id. at *1, n. 2.

The Court analyzed the elements of original jurisdiction under the CAFA.  It held that “there is no dispute that the parties are minimally diverse”; “that the proposed class exceeds 100 class members”; and that “the amount in controversy exceeds $5 million” as pled.  Id. at *4.  The Court further noted that “Plaintiff provides no legal authority for the contention that a Defendant’s denial of an allegation in an answer is controlling on any issues, including the existence of subject matter jurisdiction.”  Id. at *2, n. 5.  The Court, therefore, denied Plaintiffs’ motion to dismiss his own complaint — against the backdrop of Stake Center’s argument that Plaintiff was “only seeking dismissal to avoid a ruling on the pending Motion for Judgment on the Pleadings.”  Id. at *1.

Implications For Companies

It should go without saying that it is atypical for a company to “decline[ ] Plaintiff’s request to consent to dismissal of” a class action lawsuit.  Id. at *1, n. 2.  That said, the defendant here astutely recognized that Plaintiff’s dismissal request was simply a procedural dance to avoid addressing the merits of the employer’s dispositive motion.  The defendant recognized that the Plaintiff’s lawsuit would just be refiled in state court — which likely would be a less favorable forum to the corporate defendant.

For that reason, if corporate counsel has a winning argument that it can raise in a Rule 12 motion, it often makes sense to put plaintiffs to their proofs in federal court, and not indulge in procedural gymnastics that will only lead to a case being heard in a less favorable forum.