Sunday, April 21, 2013

U.S. Supreme Court Holds Settlement Offer Thwarted FLSA Collective Action

Laura Symczyk, a nurse, challenged her employer's policy of "auto-deducting" a half hour for meal breaks, claiming that she and others "similarly situated" worked "off the clock."  She brought a "collective action" under the federal Fair Labor Standards Act, which is essentially an "opt-in" class action. That is, the other employees are given a chance to "opt in" to the action. In a class action, once certified, the unnamed class members are given a chance to "opt out" or they are bound by the judgment or settlement.

The courts never reached the auto-deduct issue.  The employer answered the complaint and simultaneously made an "offer of judgment" under Federal Rule of Civil Procedure 68. The offer was for $7500 plus attorneys fees and costs as determined by the court.  (Because it was the very beginning of the case, the employer must have figured the attorney's fees would be low).

The plaintiff ignored the Rule 68 offer.  The employer then brought a motion to dismiss the case, arguing that the Rule 68 offer completely compensated the plaintiff for her claims, and rendered it "moot" because she no longer had a stake in the case.  Therefore, she had no basis for leading the collective action against the employer.

The lower courts agreed that the settlement offer would have given the plaintiff complete relief. The district court dismissed the claim, but the Third Circuit Court of Appeals held the class action could proceed because the employer was trying to "pick off" the name plaintiff.

The Supreme Court assumed without deciding that an unaccepted Rule 68 offer would "moot" a claim if it offered complete relief. The Court did so because the plaintiff conceded that point in the courts below.

Based on that assumption and the plaintiff's concession, the Court decided that the claim could not proceed:  Justice Thomas, writing for 5 justices, wrote:

In the absence of any claimant’s opting in, respondent’s suit became moot when her individual claim became moot, because she lacked any personal interest in representing others in this action. While the FLSA authorizes an aggrieved employee to bring an action on behalf ofhimself and “other employees similarly situated,” 29 U. S. C. §216(b), the mere presence of collective-action allegations in the complaint cannot save the suit frommootness once the individual claim is satisfied
[W]e conclude that respondent has no personal interest inrepresenting putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness. Respondent’s suit was, therefore, appropriatelydismissed for lack of subject-matter jurisdiction.
Justice Kagan wrote for 4 dissenters.  She in essence argues that an unaccepted offer does not moot the case, which the majority did not decide because the plaintiff conceded the point and the lower courts so held.  Justice Kagan in essence "yelled" at the lower courts that this approach was "wrong, wrong, and wrong again."  (We'll see if those who criticize Justice Scalia when he gets sassy objects to her rather caustic opinion, which I enjoyed reading a lot by the way).

To me, the plaintiff should be able to reject an offer and continue litigating, hoping to do better than the offer of judgment.  The issue here is that the plaintiff agreed she could not have obtained a more favorable result on her individual claim.  Plaintiffs in future cases may not make that concession which, as Justice Kagan predicts, will render this case inapplicable to most future claims.

Anyway, it remains to be seen how this case will affect future FLSA collective actions.  California law regarding offers to compromise is governed by Code of Civil Procedure Section 998, so state-law cases are not directly affected.  But we will have to stay tuned to see whether California courts follow the federal approach.

The opinion is Genesis Healthcare Corp. v. Symczyk and you can read it (and the dissent) here.