Fifth Circuit Shakes Up Standard for Certifying FLSA Collective Actions

The U.S. Court of Appeals for the Fifth Circuit issued a potentially landmark decision in Swales v. KLLM Transport Services, L.L.C. on Jan. 12, 2021, rejecting more than 30 years of case law related to conditional certification and emphasizing that district courts should use their litigation-management authority early in litigation to prevent the circulation of notice in Fair Labor Standards Act (FLSA) collective actions from being used to stir up unwarranted litigation.

The FLSA, 29 U.S.C. § 216(b), allows employees to sue for overtime and minimum wage violations on behalf of themselves and those "similarly situated" in a "collective action." But only those individuals who affirmatively "opt-in" to the litigation by filing written consents with the court become part of the collective action. Because of this opt-in procedure, potential opt-in plaintiffs need to be told about the existence of litigation so they can choose whether to join or remain uninvolved.

In the absence of any statutory guidance beyond "similarly situated" and "opt-in," district courts developed a two-stage process for FLSA collective actions. First, the plaintiff moves for "conditional certification," at which point the court applies a lenient standard and often authorizes the circulation of notice to potential opt-in plaintiffs. Then, after those who wish to opt-in have done so, the defendant files a motion for "decertification," arguing that the individuals who opted-in are not in fact similarly situated to the named plaintiff, and asking the court to dismiss all the opt-ins and proceed on just the named plaintiff's claims. Courts often erred on the side of sending notice, sometimes expressly reasoning that if the employer was ultimately able to show that the other employees were not "similarly situated," they could simply be dismissed after decertification.

In Swales, the Fifth Circuit recognized that the routine sending of notice to a broad group of current and former employees, often deferring consideration of an employer's evidence and arguments until the decertification stage, carried the unintended consequence of stirring up litigation and, as a corollary, was often used by plaintiffs to create settlement leverage over employers.

In light of such problems, and not having any statutory or binding precedent to constrain them, the Fifth Circuit went back to the drawing board and crafted a new approach altogether. The Court's goal was to establish "a workable, gatekeeping framework for assessing, at the outset of litigation, before notice is sent to potential opt-ins, whether putative plaintiffs are similarly situated – not abstractly but actually." District courts within the Fifth Circuit now "must rigorously scrutinize" whether the plaintiffs and potential opt-in plaintiffs are sufficiently similar to each other "at the outset of litigation" – even before the potential opt-in plaintiffs can be notified of the FLSA action.

The Fifth Circuit's Opinion

In Swales v. KLLM Transport Services, L.L.C., several truck drivers brought an FLSA collective action, arguing that their employer, KLLM Transport Services, had misclassified them as independent contractors, rather than as employees, and thereby wrongfully denied them overtime. The Swales plaintiffs moved for "conditional certification" pursuant to the two-step conditional certification process that has been widely used for more than 30 years. The U.S. District Court for the Southern District of Mississippi struggled with the lack of clarity in the case law. It applied, in the Fifth Circuit's term, a "Goldilocks" level of scrutiny – something "in between lenient and strict" – because some discovery had taken place. On the other side of the ledger, however, the district court declined to wade into the "merits" and refused to consider the defendant's evidence and arguments until the decertification stage. The district court then authorized sending notice of the litigation to thousands of potential opt-ins.

Seemingly most troubled by the district court's reticence to address the "merits" at conditional certification, the Fifth Circuit first surveyed the legal landscape to find that it was not constrained to work within the traditional two-step certification process, then proceeded to design a new procedure.

Under the new procedure, before notice is sent, the district court should, with the help of the parties, identify the material facts that will be germane to the "similarly situated" determination and authorize limited, preliminary discovery on those issues. Then, with an evidentiary record before it, the district court must "consider all available evidence" to conclude whether the plaintiffs and putative opt-ins are similarly situated. Notice should be circulated only to those individuals who have been shown to be "similarly situated" to the named plaintiffs.

What's Next?

Although Swales is now the law in Texas, Mississippi and Louisiana, it remains to be seen whether other courts will follow suit and reject the traditional two-stage certification approach. Given the tangled history since the development of the two-stage approach in the first place, bright-line clarity seems too much to hope for. Instead, intercircuit conflict, ultimately necessitating resolution from the U.S. Supreme Court, is more likely.

Even within the Fifth Circuit, however, courts will still be faced with a number of unanswered questions that will have to be addressed as they arise in litigation. One of the most obvious unanswered questions following Swales is: What happened to decertification? If the district court has already made a finding of "similarly situated" prior to notice being circulated, can an employer still seek decertification later? Must it be based on new evidence showing that some or all of the opt-ins are not similarly situated to the named plaintiff? Will "decertification" essentially become summary judgment by which individuals or subgroups are carved out and dismissed, or will it be possible for some level (or type) of dissimilarity to result in the entire action being decertified?

Holland & Knight will closely monitor the development of the case law in the Fifth Circuit and nationwide following this important decision. For specific questions on how the decision could affect your organization, please contact the authors.

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