Just this week, in Richards v. Eli Lily & Co., the Seventh Circuit Court of Appeals became the third circuit to depart from the long-standing Lusardi standard for distributing notice to potential plaintiffs in collective actions. The Seventh Circuit adopted a new test that lower courts must now follow to determine whether notice should be issued, marking a significant development for employers and litigants navigating collective actions under the Fair Labor Standards Act (FLSA) and the Age Discrimination in Employment Act (ADEA).
Collective Action Basics
Under the FLSA, employees may sue their employer through a collective action on behalf of themselves and other “similarly situated” employees for wage and hour violations. The ADEA incorporates the FLSA’s collective action mechanism, allowing groups of employees to pursue age discrimination claims together.
Unlike traditional class actions, which use an “opt-out” process, collective actions require similarly situated employees to affirmatively “opt in” to join the case. To facilitate this, district courts may issue notice to potential plaintiffs, but only if certain standards are met.
Because Congress and the Supreme Court have not defined what it means to be “similarly situated,” courts have developed varying tests to determine when notice may be sent.
The Diverging Approaches to Notice
In the late 1980s, a New Jersey district court introduced the Lusardi approach, which has since been widely adopted. Lusardi uses a two-step framework. At the first stage, employees need only make a “modest showing” of similarity — a relatively low threshold. The second stage occurs after opt in and discovery, when the employer may move to decertify the collective by arguing that the employees are not sufficiently similar.
However, in recent years, appellate courts have begun to reject Lusardi in favor of more rigorous standards prior to facilitating notice.
The Fifth Circuit Court of Appeals requires a showing by a preponderance of the evidence that the potential plaintiffs are “actually similar to the named plaintiff.”
The Sixth Circuit Court of Appeals instead adopted an approach requiring employees to show a “strong likelihood” that employees are similarly situated.
Several circuits, including the Second, Ninth, Tenth, and Eleventh, have approved the use of the Lusardi approach, although not all require it, unlike the Fifth, Sixth, and now Seventh circuits, which have taken a more explicit stance.
The Seventh Circuit’s New Middle-Ground Approach
The Seventh Circuit Court of Appeals also rejected the Lusardi modest showing approach but declined to follow the either the Fifth or Sixth circuit’s stricter tests. Instead, it adopted a new “material factual dispute” standard.
To warrant notice, a plaintiff must show that “there is a material factual dispute as to whether the proposed collective action is similarly situated.” A plaintiff must produce some evidence suggesting that they and potential collective members were subject to a common unlawful employment practice or policy. The district court must weigh both parties’ evidence to determine whether a material dispute exists as to similarity prior to facilitating notice.
This new approach is considered a middle ground between the lenient Lusardi approach and the heightened Fifth and Sixth circuit’s standards.
Takeaways
Given the trend to move away from the Lusardi approach, employers faced with a collective action may have greater opportunity to halt it early in the litigation process. The resurgence of collective action standards also serves as an important reminder for employers to maintain documentation of workplace policies, employee job descriptions and duties, and decision-making processes, which can be critical tools for rebutting claims of similarity amongst employees in collective actions.
