THE TOP FLSA LITIGATION ISSUES OF 2016—PART II

 

One of the year's most important FLSA cases was between Tyson Foods and pork processing plant employees.

In a recent Bloomberg BNA webinar, a panel of experts discussed this year’s top FLSA litigation issues. Part I of my blog highlighted the panel’s insights on the uncertain fate of class waivers in arbitration agreements and how the Labor Department’s recent regulatory updates and enforcement priorities have impacted employers.

Part II addresses the strategic use of Rule 68 in FLSA actions, the impact of the U.S. Supreme Court’s Tyson Foods decision, and advice from a judge on drafting effective FLSA pleadings and smoothing the settlement approval process. 

Increased Specificity in FLSA Pleadings

According to Judge Steven M. Gold, one hot issue is the impact of Iqbal and Twombly on pleading standards for FLSA claims. 

“The bottom line is the more specific you can be the better off you are in withstanding a Rule 12 motion, but of course the more specific you are before discovery, the more susceptible plaintiffs will be to cross-examination based upon what’s in the complaint once the records come forward. It’s a really delicate balancing act,” he said. 

The judge also observed that “unlike a Rule 23 claim, a § 216(b) collective action allegation doesn’t toll the statute of limitations. So if the court decides to hear the Rule 12 motion before the collective action motion, actionable time is being lost while the Rule 12 motion is being litigated.” 

He cautioned defendants against bringing Rule 12 motions merely to run out the clock, though he noted that where such a motion is colorable, it’s a benefit defense counselors will be thinking about.

Judge Gold offered practitioners a few bits of advice related to FLSA pleadings:

  • Defaults aren’t uncommon in this area given the number of small businesses sued. Even if a defendant defaults, however, the complaint still must adequately plead the FLSA claim to withstand the court’s scrutiny before default judgment will be entered.
  • If you're thinking about bringing a § 216(b) collective action, consider whether you’ll be better situated to make the certification motion early on if you have at least two plaintiffs.
  • Defendants should consider going beyond bare bones responsive pleadings to incorporate available and helpful facts—such as the use of a payroll company, the existence of a proper tip credit or prior unsubstantiated DOL investigations—as a way to alert the court that certain defenses are available and to enhance its understanding of the issues as it considers discovery and conference schedules.

Be Strategic With Rule 68 Offers

According to Colin Dougherty, there’s still a lot of uncertainty on whether opt-ins’ FLSA collective claims might be mooted by a named plaintiff’s acceptance of a Rule 68 offer.

Despite this uncertainty, Dougherty said a Rule 68 offer of judgment can be an effective tool for defendants to jumpstart serious negotiations or to protect themselves from plaintiffs’ counsel’s demands for high damages as a way of driving up fees. Remember that Rule 68 offers are analyzed strictly against the drafter, he said. For this reason, defendants should be sure to establish whether attorney’s fees are covered.

Conversely, to protect plaintiffs against defense Rule 68 tactics, Jahan Sagafi recommends that counsel explicitly mention service payments for class representatives so that they become part of the substantive relief sought. 

Another technique he suggested is to bring placeholder FLSA certification or Rule 23 motions very early in the litigation process to give the judge a heads-up regarding plaintiffs’ intention to push for collective proceedings.

All Sides Claim Victory in Tyson Foods

The Tyson Foods case was the first time in several years that the U.S. Supreme Court addressed class certification, Sagafi noted. 

Sagafi said that Tyson Foods underscores the viability of the FLSA and representative actions generally—both in terms of the trial of an action and the procedural mechanisms plaintiffs should utilize. The case reinforces the availability of representative evidence and the substantive rights the FLSA is intended to protect, he averred. 

Most significantly, the case permits plaintiffs to make reasonable inferences from imperfect data where no accurate records of hours worked are available. He acknowledged, however, that the case seems to open the door for more Daubert litigation at the class certification and pretrial phases.

Sagafi said the case should be helpful in streamlining litigation to make sure we don’t “boil the ocean” to get every piece of discovery but noted that plaintiffs must use representative evidence in a way that would withstand a Daubert challenge.

Dougherty offered the defense perspective on the Tyson Foods holding. He said the lack of a Daubert challenge—and even the concession in that case that both experts were reliable, relevant and representative—is a huge distinguishing factor that defendants can point to in future cases.

“I don’t think it necessarily resolved anything because both sides have been mining it for tidbits for their cases,” Dougherty said. “We’re going to need more information from the Supreme Court before these issues get resolved.”

Heightened Scrutiny and Questionable Work-Arounds for FLSA Settlements

According to Judge Gold, courts across the country have been devoting more time to settlement approvals in light of cases like the Second Circuit’s Cheeks decision, which lays out factors a court must consider in analyzing the reasonableness of an FLSA settlement. 

Dougherty added that, from the management perspective, these rulings are making it difficult for defendants to settle because they preclude confidentiality of the agreement, thereby creating a fear of setting a public precedent for future claims. 

The judge urged practitioners to consider the following in anticipation of the settlement approval process:

  • When preparing complaints and damages charts, keep in mind that you must justify the reasonableness of any compromise.
  • When filing a joint motion for approval, collectability becomes an issue. Think about what you need to gather regarding the defendant’s ability to pay if it’s the reason a case settles for far less than the damages sought.
  • An FLSA settlement agreement is a judicial document—not a confidential one. Defense counsel should make sure their client understands this upfront.
  • Often, cases settle after conferences before the magistrate judge. If this happens, consider having the case reassigned to the magistrate for all purposes because the judge presiding over the settlement conference is typically satisfied that the settlement is reasonable and conducted at arm’s length. Otherwise you’ll need to remake the case to the presiding district judge.
  • The fact that the case has to be reviewed for reasonableness under cases like Cheeks can be a significant negotiating tool against low offers or unreasonable fee requests.

Judge Gold also mentioned that lawyers have been submitting Rule 68 offers that were agreed upon during settlement negotiations as a way to circumvent Cheeks. He said this practice raises a “troublesome question for the courts.”

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