It is now a common practice for plaintiffs to bring parallel claims for overtime pay under the federal Fair Labor Standards Act and under state labor law. The federal law requires potential plaintiffs to join, or "opt-in," to the collective action for their claims to be considered. The accompanying state wage claims are often styled as "Rule 23 class actions," which permit claims of everyone in the class to be considered, unless the employee specifically decides against participating and "opts-out" of the lawsuit. Courts throughout the United States have been grappling with the issue of whether such claims can co-exist, with varying results.
Most recently, a Pennsylvania federal court, in Amy Burkhart-Deal v. Citifinancial, No. 7-147 (W.D. Pa. June 5, 2008), handed down a ruling that could bolster arguments that parallel state class action wage claims should be dismissed from federal litigation.
In Citifinancial, a Pennsylvania federal court recently held in a putative collective and class action with identical claims of failure to pay overtime under the Fair Labor Standards Act and Pennsylvania law, that such opt-in and opt-out claims are inherently incompatible. Accordingly, the court dismissed all the state claims, limiting the action to only the named plaintiffs. This result is significant because it limits the employers' exposure to the two-year or three-year federal statute of limitations as compared to a significantly longer state statute of limitations in some jurisdictions, and reduces the number of potential claimants to only those plaintiffs who actively opt-in to the lawsuit.
In the Citifinancial case, the plaintiff brought a putative collective and class action in federal court claiming that Citifinancial violated both the FLSA and Pennsylvania state labor law by failing to pay proper minimum wage and overtime.
Plaintiff's federal claims were brought under Section 216(b) of the FLSA and the state wage claims were brought under Rule 23 of the Federal Rules of Civil Procedure as "supplemental" to the federal jurisdiction.
The FLSA requires plaintiffs who want to become parties in a collective action to execute and file written consents. This opt-in requirement thus restricts the right of recovery under the FLSA to those who affirmatively file consent forms indicating their desire to participate in the suit. Restricting the number of claimants can vastly reduce the potential exposure to the employer.
This opt-in provision of federal law constitutes a significant difference from class actions brought pursuant to Rule 23, which provide for an opt-out procedure, which means that employees are automatically included in the class unless they affirmatively declare they want to be excluded by "opting out."
In reaching its decision, the court in Citifinancial joined a growing number of decisions, including Ellis v. Edward D. Jones & Co., L.P., 527 F. Supp.2d 439 (W.D. Pa. 2007), in which the court observed that the FLSA's opt-in language was designed to prohibit precisely what is advanced under Rule 23. The Citifinancial court found that this conflict could not be brushed aside as insignificant, concluding that to permit a "'mirror-image' Rule 23 class action to proceed alongside an FLSA collective action would not only nullify Congress' mandate, but also disregard the crucial nature of its choice."
The Citifinancial decision provides employers doing business in Pennsylvania, or in other jurisdictions whose courts have been silent on this issue, with an argument to defend FLSA collective actions alleging parallel state labor claims, with a view to having the state claims dismissed from the litigation.
The Citifinancial court noted that the Court of Appeals for the Third Circuit has not yet ruled on the question of whether opt-in and opt-out actions of the type at issue, may proceed in a single lawsuit.
However, New York employers should be aware that to date federal district courts in New York have not been receptive to this position and have found that collective and class claims under the FLSA and New York state labor law may coexist in the same action.
The Court of Appeals for the Second Circuit, the federal appellate court above the federal district courts in New York, has not yet ruled on the issue. Until a higher court hands down an authoritative decision, the issue remains unsettled.
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