Sixth Circuit Creates New Standard for Certification Process in FLSA Collective Actions

July 7, 2023

The United States Court of Appeals for the Sixth Circuit recently made a significant decision regarding the certification procedure for collective actions under the Fair Labor Standards Act (FLSA). In the case of Clark v. A&L Home Care and Training Center, LLC , the court rejected the traditional two-step certification process and introduced a new standard that focuses on demonstrating a “strong likelihood” that other employees they seek to represent are “similarly situated” to the original plaintiffs. This decision marks the second time a circuit court has rejected the familiar two-step certification procedure for FLSA actions.

The Previous Certification Procedure

The FLSA allows a plaintiff to bring claims for the employer’s failure to pay minimum wage and overtime compensation individually as well as on behalf of other employees similarly situated in what is known as a collective action. Under the previous certification procedure established by Lusardi v. Xerox Corp (1987), a collective action was “conditionally certified” based upon a lenient standard. This standard required the plaintiff to make a modest factual showing that they are similarly situated to the potential plaintiff they seek to represent.

The process of certification begins with the Court issuing a notice of the lawsuit to the potential plaintiffs to allow them to opt-in.  The defendant then has the burden to demonstrate that the potential plaintiffs are not similarly situated, thus decertifying the collective action. The Court then determines if these potential plaintiffs are:

“Similarly situated and upon such a finding, grants final certification and the case proceeds as a collective action.”

This procedure has been followed by district courts since 1987. During the discovery phase of the lawsuit, it is quite common for the parties to settle the matter as defendants realize how quickly one plaintiff can turn into hundreds and increase the potential damages astronomically.

Challenging the Lusardi Standard

The Lusardi standard was first challenged in January of 2021,when the Fifth Circuit rejected it in Swales v. KLLM Transport Services, LLC. Swales held that district courts have a duty to “consider all of the available evidence” before issuing the notice to potential members of a collective action. The Fifth Circuit stressed that district courts should rigorously enforce the FLSA’s “similarly situated” requirement at the beginning of litigation, allowing parties sufficient discovery to permit the court’s analysis.

In Clark, the plaintiffs advocated for use of the more lenient Lusardi two-step procedure. The defendants argued that the court should adopt the ruling in Swales. However, the Sixth Circuit rejected both positions.

Differentiating Collective Actions from Class Actions

The Court was clear in its distaste of the certification process as borrowed from class actions under Rule 23 of the Federal Rules of Civil Procedure, emphasizing that collective actions are “fundamentally different.” The court explained that collective actions differ from class actions because other employees become parties to the suit only after opting in, and the district court individually determines whether each employee is similarly situated to the original plaintiffs.

In a class action, under Rule 23, the notice determination affects the character of the underlying suit. The court determines, almost categorically, of who can and cannot join a class action suit. The class certification is not on an individual basis. On the other hand, collective actions proceed forward changing only in the fact more plaintiffs are brought in. There are no categorical limitations placed on who can and cannot join but an individual comparison on a case-by-case basis of who is similarly situated to the original plaintiff.

The Court’s New Standard

The Court found that its determination to certify the collective action was a provisional decision, similar to that of a preliminary injunction proceeding. In such proceedings, only after the record is fully developed does a court render a final decision. Consequently, the Court adopted the fourth prong of the preliminary injunction standard to the certification of the collective action. This means that the movant, in this case, the plaintiff, must demonstrate a certain level of probability that they will prevail on the underlying issue when the court reaches its final decision.

The Court emphasized the importance of district courts expediting their decisions to the extent possible in FLSA claims, considering that these claims typically have a limited two-year period. Lastly, the Court chastised the District Court for refusing to send notice to employees who signed arbitration agreements, asserting that a defense based on arbitration agreements is a defense like any other. Such a defense is permissible at this stage and leaves the burden on the employee to satisfy the requisite showing of similarity. The Court’s opinion made it clear that while arbitration agreements may have unique treatment in certain situations, in this case, it is not the existence of an arbitration agreement that grants specific treatment, but the similarity of the employees that must be shown.

Accordingly, the Court created a new standard requiring that plaintiffs demonstrate a “strong likelihood” that other employees are similarly situated before moving forward with a collective action. Demonstrating a “strong likelihood” requires a showing “greater than the one necessary to create a genuine issue of fact, but less than the one necessary to show a preponderance.”

Takeaways for Employers

The decision in Clark will have an impact on FLSA collective actions in the Sixth Circuit. It is likely to accelerate the discovery process for both plaintiffs’ claims and defendants’ defenses, enabling district courts to determine if plaintiffs have met the new “strong likelihood” standard required to issue notices to “other employees.” This acts as a benefit to employers in that the burden on the plaintiff is now much higher. Clark also creates another division among circuits increasing the likelihood the Supreme Court will weigh in on the question.

For additional information or assistance, please contact KJK’s Labor and Employment Chair Rob Gilmore (RSG@kjk.com; 216.736.7240) or any of our other partners in our Labor and Employment Practice Group.