Seyfarth Synopsis: The Seventh Circuit has joined the Fifth and Sixth Circuits in establishing a higher bar for employees to clear before courts may authorize “notice” to potential members of an FLSA collective action. Although the Seventh Circuit declined to adopt either the Swales or Clark standards, employers now will be given an opportunity to demonstrate, through their own evidence, that the proposed collective members are not sufficiently similar to one another to justify collective litigation. The new standard asks courts to consider whether, after viewing both sides’ evidence, there is a “material dispute” about similarity—and even then to still exercise restraint before authorizing notice.
The FLSA allows “similarly situated” employees to collectively sue employers. In much of the country, employees can obtain court-authorization to send notice to potentially similarly situated collective members under a “lenient standard” that courts often noted involved making only a “modest showing” to clear a “low burden.” This often is referred to as the Lusardi standard. But now, in the Seventh Circuit (Illinois, Indiana, and Wisconsin), plaintiffs who seek to distribute that notice will need to clear a significantly higher bar. That’s because in Richards v. Eli Lilly & Co., the Seventh Circuit rejected that “modest factual showing” as contrary to the text of the FLSA and Supreme Court precedent. It joins two other circuits (the Fifth and Sixth) in doing so.
Guided by three overarching principles it divined from a 1989 Supreme Court decision (Hoffman-La Roche Inc. v Sperling), Richards will require trial courts to conduct a holistic review of the evidence and the issues before authorizing notice to potential collective members. Those principles are: (1) timely and accurate notice; (2) judicial neutrality; and (3) discretion.
Accordingly, before sending notice, courts now will need to consider whether the employee has raised a “material factual dispute as to whether the proposed collective is similarly situated.” This determination involves a burden-shifting exercise and represents a sea-change compared to the “conditional certification” standard it is replacing.
The Richards Burden-Shifting Analysis
To begin with, the employee must come forward with at least “some evidence suggesting that they and the members of the proposed collective are victims of a common unlawful employment practice or policy.”
Next, the employer can respond with its own evidence to rebut this contention and demonstrate that there is not, in fact, a material dispute about similarity. Richards predicts that in most instances this will take the form of “affidavits” and “counter-affidavits.” It may of course also include deposition testimony, especially when the court authorizes pre-notice discovery.
Then, on reply, the employee will be given an opportunity to “engage with opposing evidence.” The court again likely will consider evidence the plaintiff provides in response before determining whether a “material dispute” exists.
Finally, even if the court does find that a “material dispute” exists, Richards urges district courts to use their discretion before authorizing notice. In the Seventh Circuit’s view, courts need to balance the need for “timely and accurate” notice versus “judicial neutrality.” Notice is not always necessary or helpful for resolving the relevant material disputes about similarity—and premature or unnecessary notice can wreak havoc on workforces in ways that do not benefit either side. Pre-notice discovery might resolve key questions relevant to similarity without the need to bother employees.
As the Richards standards gets litigated, courts likely will encounter many fact patterns in which pre-notice discovery can help answer important questions about similarity without costly notice. On the other hand, there will be some cases where similarity cannot be determined without involving the potential collective members. In those cases, Richards urges the courts to not delay notice once the employee successfully establishes that a material dispute about similarity exists. In those scenarios, Richards doesn’t change much: after notice issues, the parties will engage in discovery relevant to the merits and similarity. After discovery closes, the court will make a final decision about “similarity.”[1]
According to the Seventh Circuit, the Richards standard is intended to be less onerous for an employee than Swales or Clark standards – but more demanding than the Lusardi standard. Under the Fifth Circuit’s Swales standard, similarity must be proven by a preponderance of the evidence before notice goes out. And under the Sixth Circuit’s Clark standard, notice may only issue where the plaintiffs can show a “strong likelihood” that employees are similarly situated. Nonetheless, this new “material dispute” standard will significantly level the playing field for employers, who often were precluded from introducing their own rebuttal evidence at the notice stage before. It should be viewed as a very welcome decision for employers and should present ample opportunities to curb abusive litigation tactics.
Takeaways: Employers Facing Collective Actions in the Seventh Circuit Must Act Quickly to Present Rebuttal Evidence to Oppose Requests for Court-Authorized Notice
Although this is a very welcome decision, the Seventh Circuit did not place as high of a burden on employees to prove similarity prior to court-authorized notice as have the Fifth and Sixth Circuits. This means that, while employers in the Seventh Circuit will have the opportunity to present evidence to the court about dissimilarity that may have been ignored in previous cases, they cannot sit on their hands and just hope that employees will not be able to meet their initial burden. A well-prepared group of employees may very well be able to achieve notice by moving quickly with a modest amount of self-serving affidavits that a flat-footed employer struggles to timely rebut.
Instead, in order to gain the most benefits from this new Richards standard, employers in the Seventh Circuit facing collective actions will want to prepare the requisite evidence to challenge any request for conditional certification they encounter. This will require the marshalling of evidence sufficient to demonstrate that the relevant collective is not similarly situated. What that evidence needs to look like will depend on the nature of the case.
Although some of this evidence may be developed through a “pre-notice discovery period,” employers will generally need to look inward to identify the sources of evidence that they can use to show a lack of similarity. Additionally, because Richards suggests that district courts may be allowed to toll the statute of limitations for putative collective members in certain cases during pre-notice discovery under the right circumstances, employers will want to think strategically before reflexively agreeing to any prolonged discovery periods.
Richards is a welcome decision. To fully take advantage of it, employers must continue to respect collective actions as high stakes cases and think carefully about how they can develop a defense against the highly disruptive requests for court-authorized notice.
[1] As an interesting aside however, the Richards majority suggests (in dicta) that it should be Plaintiffs who initiate a “final certification” review. Traditionally, in most circuits (including the Seventh), it has been the employer’s responsibility to initiate the final review of similarity through a “Motion for Decertification.” Regardless of who initiates, the Richards majority makes clear that it is the plaintiff’s burden to establish similarity by a preponderance of the evidence.
