Quick Hits
- The FLSA allows similarly situated employees to litigate claims collectively but does not define who qualifies as similarly situated or what showing is required to secure notice.
- Most district courts, including those in the Seventh Circuit, have defaulted to the two-step procedure established by the U.S. District Court for New Jersey in 1987, which requires only a “modest” showing of similarity to issue notice, subject to later challenges at the “decertification” stage.
- The Seventh Circuit found the two-step approach too permissive and the Fifth and Sixth Circuits’ standards too restrictive, opting for a new standard that allows district courts to resolve similarity disputes before issuing notice, where practicable.
Background
Monica Richards, a six-year employee of Eli Lilly & Company, sued for age discrimination under the Age Discrimination in Employment Act (ADEA) after she was passed over for a promotion in favor of a younger, less experienced employee. Specifically, Richards alleged Eli Lilly engaged in a pattern and practice of denying promotions to employees aged forty or older.
Because the ADEA incorporates the Fair Labor Standards Act’s (FLSA) enforcement provision, Richards sought conditional certification under the familiar two-step approach. Under the two-step approach, Richards could secure notice by making a modest factual showing that she and the potential plaintiffs were victims of a common policy or plan that violated the law (often called “conditional certification”). After notice is issued, prospective plaintiffs would opt in. At the conclusion of discovery, Eli Lilly could challenge whether the collective was in fact similarly situated through a process called “decertification.”
Eli Lilly opposed Richard’s motion, advocating instead for the higher evidentiary burdens of the Fifth Circuit’s Swales standard or the Sixth Circuit’s Clark standard. Under Swales, Richards would have to show by a preponderance of the evidence that she was similarly situated to the proposed collective before notice could be issued. Under Clark, Richards would have to show a “strong likelihood” that she was similarly situated to the proposed collective.
The district court adopted the two-step approach, but it acknowledged the Seventh Circuit had not articulated a standard to govern notice issuance and thus certified the question for interlocutory appeal. The Seventh Circuit accepted the interlocutory appeal.
The Seventh Circuit’s Analysis
The Seventh Circuit’s analysis was guided by three principles from a 1989 Supreme Court of the United States decision: (1) the need for timely and accurate notice; (2) importance of judicial neutrality; and (3) the district court’s ability to exercise discretion in managing collective claims. Applying these principles, the Seventh Circuit rejected the 1987 two-step standard, noting its permissive nature jeopardized judicial neutrality by increasing perceived endorsement of the merits through early notice practices, increasing discovery costs, and increasing pressure on employers to settle. The Seventh Circuit also criticized the 1987 standardfor hampering the district court’s ability to exercise discretion during early stages of collective actions by requiring employers to wait until “decertification” to challenge the similarity of the collective, even if the dissimilarities could have been established at an earlier juncture.
However, the Seventh Circuit also rejected Swales and Clark, noting their “preponderance of the evidence” and “strong likelihood” standards were unworkable and inconsistent with the principles of the Supreme Court’s prior ruling. Specifically, the Seventh Circuit criticized these approaches for preventing potentially meritorious claims from advancing. The Seventh Circuit stated that the Fifth and Sixth Circuits ignored that some factual disputes cannot be resolved prior to notice issuing because the evidence needed to establish similarity resided with yet-to-be-noticed plaintiffs. The Seventh Circuit also opined that the Swales and Clark approaches “foster delay and inefficiency, requiring courts to facilitate pre-notice discovery even when it’s readily apparent that such discovery is unlikely to help resolve the factual dispute at hand.”
Instead, the Seventh Circuit introduced a new standard, requiring a holistic review of the evidence before authorizing notice to potential collective members. Specifically, Seventh Circuit courts must consider whether the employee has raised a “material factual dispute as to whether the proposed collective is similarly situated.” In making this showing, the employee must present “some evidence suggesting that they and the members of the proposed collective are victims of a common unlawful employment practice or policy.” Next, the employer can present rebuttal evidence demonstrating a lack of similarity amongst the proposed collective. Then, the employee can “engage with opposing evidence” to show a material dispute over similarity.
The Seventh Circuit “stress[ed] … that a plaintiff is not automatically entitled to notice” even if a “material dispute” exists. Instead, district courts are encouraged to exercise their discretion to determine “whether notice is appropriate” under the circumstances. If the necessary evidence is likely in the hands of yet-to-be-noticed plaintiffs, courts may proceed with a two-step approach. Alternatively, courts may authorize limited and expedited discovery to resolve the merits of the similarity dispute before issuing notice. The Seventh Circuit emphasized flexibility, encouraging district courts to manage the notice process in a way that honors the principles of the Supreme Court’s precedent and the remedial goals of the FLSA and ADEA.
Key Takeaways
Richards v. Eli Lilly marks a clear shift in the Seventh Circuit’s approach to FLSA (and ADEA) collective actions. Under Richards, district courts are encouraged to balance the evidence to determine whether a “material factual dispute” exists regarding collective similarity, and whether that dispute is best resolved through a one-step or two-step notice approach. As part of this process, Seventh Circuit employers may present evidence of collective dissimilarity—evidence that may have been ignored pre-Richards. This balanced approach provides employers with increased opportunities to limit or halt collective actions earlier in the litigation process and greater negotiating power in early settlement discussions.
Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will provide updates on the State Developments and Wage and Hour blogs as additional information becomes available.
Follow and Subscribe
LinkedIn | Instagram | Webinars | Podcasts