The United States Court of Appeals for the Fifth Circuit, which has appellate jurisdiction over federal district courts in Louisiana, Mississippi, and Texas, recently addressed how rigorously, and how promptly, a district court should probe whether potential members are “similarly situated” and thus entitled to court-approved notice of a pending collective action in wage-claim collective actions under the Fair Labor Standards Act (“FLSA”).
Background
A large trucking company (“Employer”) transports refrigerated goods throughout the country using either company-owned trucks operated by employee-drivers or trucks provided by other drivers as independent contractors. Independent contractors also have the option to lease their trucks directly from the Employer.
Four independent contractors (“Plaintiffs”) sued the Employer alleging that the Employer misclassified them, and other “similarly situated” drivers, as independent contractors rather than employees. The district court authorized limited discovery to determine whether to conditionally certify the alleged collective action and facilitate notice to potential class members. After the discovery period ended, Plaintiffs moved for conditional certification.
District Court’s Decision
The district court applied a two-step process to determine whether potential class members are “similarly situated” enough for purposes of the FLSA. Step one involves an initial notice stage determination that proposed members of a collective are similar enough to receive notice of the pending action. Courts typically base their decisions on step one on the pleadings and affidavits of the parties. If a court approves step one, the case is conditionally certified and notice is sent out to potential class members.
Step two occurs at the end of discovery and is often prompted by a motion to decertify. Because a court has the benefit of full discovery at this stage, the court makes a second and final determination utilizing a stricter standard about whether the named plaintiffs and opt-ins are similarly situated and may therefore proceed to trial as a collective action. Courts will consider 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 at this stage.
Recognizing that significant discovery had already taken place, the district court applied a middle ground method between the lenient provisions of step one and the stricter provisions of step two. The district court decided that the Plaintiffs needed to show “more than minimal evidence” of their similarities to justify conditional certification. The district court found similarities between the Plaintiffs and potential class members including that they all drove trucks for the Employer under an independent-contractor agreement, received compensation based on the number of miles they drove, and leased trucks from the Employer. The district court also acknowledged differences between the Plaintiffs and potential class members including different per-mile compensation rates and hours worked. The district court concluded that despite these differences, “the claims and defenses largely turned on the same questions like whether the drivers were misclassified as independent contractors,” a decision determined by the “economic realities test” which asks how much control the employer had over the independent contractor. The Employer pointed to evidence showing that application of the economic-realities test would require individualized inquiries of all the potential class members. The district court ultimately granted the Plaintiffs’ motion, conditionally certifying a collective of potentially thousands of the Employer’s truck drivers.
At the end of the opinion, the district court certified its decision for appeal, in part because of the open questions regarding the applicable standards for conditional certification—particularly when some discovery has already taken place. The Employer filed a petition for appeal, which the Fifth Circuit granted.
Appellate Court’s Decision
The Fifth Circuit ultimately ruled in the Employer’s favor and reversed the district court’s ruling granting conditional certification. The Fifth Circuit squarely rejected the two-step method for FLSA collective actions. The Fifth Circuit held that the two-step method frustrates, rather than facilitates the notice process. First, the Fifth Circuit found that the two-step method is problematic because courts have applied different methods when some discovery has occurred. And, as a result, it has no universally understood meaning.
Second, the Fifth Circuit held that the two-step method distracts from the FLSA’s text. The Fifth Circuit found, that instead of a two-step method for “conditional certification,” a district court should identify, at the outset of the case, what facts and legal considerations will be material in determining whether a group of employees is “similarly situated.” A district court should then authorize preliminary discovery necessary to make that determination. The Fifth Circuit acknowledged that the amount of discovery necessary to make the determination will vary from case to case, but the initial determination must be made as early as possible. At a practical level, the Fifth Circuit determined that the district court should dictate the amount of discovery needed to determine if and when to send notice to potential class members.
The Fifth Circuit found that in this case, applying the two-step method was inappropriate because the threshold issue depends on the economic realities test, which asks how much control the employer had over the independent contractor. The Fifth Circuit pointed out that if answering this question requires a highly individualized inquiry into each potential class member’s circumstances, then the collective action would quickly “devolve into a cacophony of individual actions.”
Takeaway
This decision should be positive for employers in Texas, Mississippi, and Louisiana because plaintiffs will not be able to sue and issue notice to potential class members early on in a case based merely on allegations. Instead, for FLSA cases in the Fifth Circuit, district courts will have to conduct adequate discovery to determine whether plaintiffs are “similarly situated” to the potential class members. Employers outside of the Fifth Circuit must still be cognizant of the two-step method. The Fifth Circuit was the first appellate court to address this issue so employers should keep watch to see if other Circuits adopt this ruling. Lastly, while on the topic of the FLSA, employers must be sure to accurately classify their employees, otherwise they can open themselves up to litigation. When utilizing independent contractors, employers should consider the factors that demonstrate a true independent contractor relationship and take steps to make sure that those factors are present in any related contract documents and in actual practice and dealings with independent contractors.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussi
on and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.