In Pitts v. Terrible Herbst, Inc., the 9th Circuit held that an offer of judgment made by an employer to an employee-plaintiff in an FLSA case will not moot the case where the Court has not yet ruled on certification. As a practical matter, what this ruling meant was that the plaintiff-who alleged that he was owed less than $100-could continue to litigate his collective-action claim, despite having rejected an offer of judgment in the amount of $9,000. In other words, employers who are sued for unpaid wages can do nothing to prevent being targeted by a class-action lawsuit.
The 9th Circuit’s decision in Terrible was a terrible one for employers. And, making it worse, the 3d Circuit is on the side of Terrible.
In Symczyk v. Genesis Healthcare Corp., the defendant-employer made an offer of judgment in the full amount of the plaintiff’s claim plus reasonable attorney’s fees. Because the offer provided for all of the relief that the plaintiff could have received had she pursued the claim through trial, the offer constituted “full relief” of her claims. The employee did not accept the offer.
Ten days after the offer expired, the court held a scheduling conference. The offer was not addressed and the court provided for a 90-day period for discovery, after which the plaintiff could move for conditional certification of a class of putative plaintiffs. Thereafter, the employer moved to dismiss the lawsuit on the ground that the court lacked subject matter jurisdiction because the offer of judgment for full relief had mooted the plaintiff’s claim. In other words-there was nothing more that she could have recovered and, therefore, she no longer had a “legally cognizable interest in the outcome.”
Standard of Law for Conditional Certification
Before addressing the mootness issue, the court first discusses the plaintiff’s burden at the conditional-certification stage. The court notes that there has been a split among district courts in the 3d Circuit, with some courts requiring the plaintiff’s pleadings to contain “substantial allegations,” with others requiring the plaintiff to make a “modest factual showing.” By no means is either test a difficult one to satisfy and, in all reality, the motion is likely to be granted. Nevertheless, the court did adopt the higher-burden test, which requires, the court explained, the plaintiff to produce some evidence “beyond pure speculation” of a factual nexus b/w how the employer’s policy affected her and how it affected other employees.
The Effect of an Offer of Full Relief on FLSA Collective Action
The court then turned to the main issue-whether an offer of full relief made pursuant to Rule 68 of the Federal Rules of Civil Procedure moots the claim of an FLSA plaintiff who has not yet moved for conditional certification. Like the 9th Circuit, the Third Circuit held that the answer is “no.”
The court acknowledged that an offer of complete relief will generally moot the plaintiff’s claim. But the court then went on to offer several policy-based reasons why this “general” rule limiting the jurisdiction of the federal courts should not be applied in the context of an FLSA collective action.
The court opined that, although Rule 68 was designed “to encourage settlement and avoid litigation,” the Rule can be manipulated in the class-action context to “frustrate rather than to serve those salutatory ends.” The court then states that, if the “general” rule were applied, the defendant would be able to “pick off” the claims of the named plaintiff and avoid certification of the class. This, in turn, would require “multiple plaintiffs to bring separate actions, which effectively could be picked off.” This application of the rule “obviously would frustrate the objective of class actions and waste judicial resources.”
Continue reading for my take on why this decision is so terrible for employers . . .
In My Humble Opinion
I respectfully disagree with the policy argument made by the court. Unfortunately, the court fails to understand the real-world application of the rules. In my very humble opinion, the court’s concerns are hypothetical only. If an employer makes an offer of full relief and the plaintiff accepts it, other potential plaintiffs are in no way discouraged from bringing their own claim. Instead, it becomes more likely that they will bring a claim, knowing that the employer offered to have judgment rendered against it.
In theory, this could mean that a flood of single plaintiffs file separate causes of action and overburden the court’s resources. But only in theory. In reality, the smart plaintiffs’ lawyer would make a demand to the employer before expending the cost to file a complaint. And, happy to prevent litigation, the employer is likely to pay the demand. Or, if no pre-suit demand is made, the employer is likely to make a similar offer of full relief to any plaintiffs who file subsequent complaints.
Another common reality is that the employer and employee settle the claim as a class action and provide for payment to all similarly situated class members. The only burden put on the court in that scenario is the review and approval of the settlement agreement.
It would not be in the employer’s interest to have each claim brought separately-remember, the employer would have to pay each plaintiff’s lawyer his reasonable fees, as well as the plaintiff’s alleged claim amount in order to constitute “full relief.”
The court’s holding leaves the employer-defendant with almost no way to avoid having to defend a class-action lawsuit. It cannot make an offer of judgment, even in the full amount of the plaintiff’s claim. Instead, it has no choice but to proceed with discovery and do its best to defend against the conditional-certification motion. Because the standard is so low at the conditional-certification stage, though, it’s more likely than not that the motion will be granted and a class will be conditionally certified.
At that time, the putative class members will receive notice of the lawsuit and the employer has to decide whether to risk the high cost to defend against a class action in the hope that the court denies the final certification motion. If it does not want to (or cannot afford to) expend the funds necessary to litigate a class-action lawsuit, then it is forced to settle and attempt to negotiate the best outcome possible.
In other words, the court’s holding means that employers who are faced with a collective-action lawsuit brought under the FLSA should be prepared to defend and/or settle with the entire class because there is no longer a way to avoid it.