Another federal appellate court has rejected the Lusardi approach to managing collective actions under the Fair Labor Standards Act and the Age Discrimination in Employment Act.
In Richards v. Eli Lilly & Co., the U.S. Court of Appeals for the Seventh Circuit set out a new and more flexible process for determining when notice should issue in collective actions.
Two other federal appellate courts (the U.S. Courts of Appeals for the Fifth and Sixth circuits) have rejected the standard set forth in Lusardi v. Xerox Corp.
However, unlike these other circuits, the Seventh Circuit focused on the notice aspect of collective actions and provided an opportunity for employers to be heard at the notice stage.
Lusardi generally divides the management of a collective action into two steps. At Step One, a plaintiff files a motion seeking to send a notice to prospective members of a collective action. In that motion plaintiff must make a “modest factual showing sufficient to demonstrate that [the plaintiff] and potential plaintiffs together were victims of a common policy or plan that violated the law.” Once a plaintiff makes this “modest” showing, the court issues notice to prospective plaintiffs, who may then opt in to the action by filing written consent with the court. It is not until the opt-in and discovery periods are complete that Step Two begins. At this point, the defendant can challenge whether members of the collective are similarly situated. (If the court determines that they are not similarly situated, the claims may be severed.)
The Lusardi process can be extremely expensive and burdensome for employers because they must wait until Step Two to present their evidence showing dissimilarity.
Under the Seventh Circuit standard announced last week, when a plaintiff files a request to send a notice to all putative members of the collective action, the district court must review both sides’ evidence of the “similarity” of the members. And the court cannot authorize notice unless there is a material factual dispute about similarity. However, as described below, even where a material dispute exists, district courts must exercise restraint before authorizing notice.
Background
Monica Richards was a sales employee at Eli Lilly. She applied for a promotion to become District Sales Manager for one of the company’s Boston-based teams, a role she had filled on an interim basis for nearly six months. At the time of her application, she had six years of service with the Company and was 55 years old. When the position was given to a much younger employee with less relevant experience, Ms. Richards sued in Indiana (where the company is headquartered), alleging age discrimination in violation of the federal Age Discrimination in Employment Act and the Massachusetts Anti-Discrimination Law.
Although the ADEA is an anti-discrimination law, it incorporates the enforcement provisions of the FLSA. Thus, with respect to her ADEA claim, Ms. Richards moved to conditionally certify a collective action, arguing that “the unfavorable treatment she experienced was part of a broader pattern of discrimination against Eli Lilly’s older employees.” In her motion for conditional certification, Ms. Richards requested that the court send notice of her lawsuit to all “Ely Lilly employees who were 40 or older when they were denied promotions for which they were qualified, since February 12, 2022.” She alleged that the members of this proposed collective action were similar because “they had all been plausibly harmed by a company-wide initiative to support and retain ‘Early Career Professionals’ (workers with less than two years of postgraduate experience) at the expense of older, more experienced employees.”
The Indiana district court, following Lusardi, refused to consider at Step One the company’s evidence that the members of the proposed collective were not similarly situated. The court concluded that Ms. Richards had made the “modest factual showing” regarding similarity and agreed to issue a notice as described above.
Although it granted the Step One relief, the district court approved the company’s motion for an interlocutory (interim) appeal to the Seventh Circuit to determine the appropriate standard that should govern the issuance of notice in a collective action. The Seventh Circuit agreed to do so.
The Richards standard
In its decision issued on August 5, a three-judge panel of the Seventh Circuit began by rejecting Ms. Richards’ argument that it could not impose a uniform standard for notice because management of collective actions was committed solely to the discretion of district courts. It wrote, “imposing guardrails on the exercise of a district court’s discretion is the normal business of appellate courts.”
The panel then turned to the task of defining a uniform notice standard, relying on the three principles articulated by the U.S. Supreme Court in Hoffman-La Roche v. Sperling (1) timely and accurate notice, (2) judicial neutrality, and (3) use of discretion to “govern the conduct of counsel and the parties” to prevent abuses.
The Seventh Circuit panel then reviewed the uniform standards set forth in Lusardi, and the Fifth and Sixth circuit decisions rejecting Lusardi, and concluded that they each imposed an inflexible notice standard that all but eliminated judicial discretion. The panel then ruled as follows:
[T]o secure notice, a plaintiff must first make a threshold showing that there is a material factual dispute as to whether the proposed collective is similarly situated. By this we mean that a plaintiff must produce some evidence suggesting that they and the members of the proposed collective are victims of a common unlawful employment practice or policy.
In addition, the panel said that “defendants must be permitted to submit rebuttal evidence” and that “courts must consider the extent to which plaintiffs engage with opposing evidence,” presumably by affidavit and counter-affidavit.
The Seventh Circuit panel also noted that, even if a district court does find that a “material dispute” exists regarding similarity, the court will still have to assess the factual dispute before it.
- If the court decides that the evidence needed to resolve a similarity dispute is in the hands of yet-to-be-noticed plaintiffs, it may issue notice to the proposed collective but postpone a final determination on similarity until after the opt-in period and discovery are complete.
- If the district court is confident that a similarity dispute can be resolved by a preponderance of the evidence before notice, it may order limited and expedited discovery to make a final determination and tailor the notice or deny it entirely.
The Seventh Circuit panel cautioned that the pre-notice discovery process should be “carefully supervise[d] . . . to prevent abuses and unnecessary delay.” The district courts can also use equitable tolling to protect plaintiffs from the consequences of any resulting delays in discovery.
Implications for employers
With Richards, we now have three circuit courts of appeal – the Fifth, the Sixth, and the Seventh – that have rejected the low bar of Lusardi for issuing notice to putative class members in collective actions. As a result, in any current or future collective action, employers should argue against application of the Lusardi standard, even if their litigation is pending outside these three circuits.
It is important to note that the Richards standard is not identical to the Swales or Clark standards. Under Richards, a request for notice can be granted only if there is an unresolved “material dispute” about whether the members of the putative collective action are similarly situated. By contrast, under Swales, “similarity” must be shown by using a “preponderance of the evidence” standard. Under Clark, “similarity” will be found if there is a “strong likelihood” that the members are similarly situated. Thus, even if Lusardi is rejected by other circuits, it is unclear which of these standards, if any, will be adopted in its place.
In any event, for employers litigating collective actions in the Seventh Circuit, the Richards decision is welcome news.
