In a recent decision, the Seventh Circuit favorably revised the standard for defendant employers faced with a putative collective action under the Fair Labor Standards Act (FLSA) or the Age Discrimination in Employment Act (ADEA). In Richards v. Eli Lilly & Co., the court departed from the widely-adopted lenient standard used to analyze a plaintiff’s request to send notice to putative collective action members set forth in Lusardi v. Xerox Corp. The Seventh Circuit, which governs district courts in Illinois, Indiana, and Wisconsin, has instead adopted a balanced approach that requires district courts to consider evidence from both sides with respect to similarity and allows them to issue notice to potential plaintiffs only when there is “at least a material factual dispute” of whether individuals are indeed similarly situated.
The Basics
Section 216(b) of the FLSA allows employees to bring wage actions against their employer on behalf of themselves or other “similarly situated” employees, and the ADEA incorporates this provision to allow employees to form collective actions when suing an employer for age discrimination. However, without a national standard from Congress or the Supreme Court, district courts have been left to decide how and when to permit notice to go out to other potential plaintiffs. This vacuum gave rise to the two-step approach from Lusardi.
In Lusardi, a 1987 decision from the District Court in New Jersey, the court split the collective action into two steps. The first step requires a plaintiff seeking to send notice to make a “modest factual showing” that they and the potential plaintiffs were subject to the same unlawful plan or policy by their employer. Once a plaintiff has met this low burden, the court then authorized notice to those individuals, who could then opt into the collective action. The second step occurs once discovery is complete, when the employer typically challenges whether the collective is indeed similarly situated by moving to decertify the collective action.
The New Seventh Circuit Approach
In declining to follow Lusardi, the Seventh Circuit held that a plaintiff must at least show that a “material factual dispute” exists as to whether the proposed collective is similarly situated. This is viewed as a higher evidentiary burden on the named plaintiffs, who must demonstrate that they and the proposed collective were subject to the same unlawful plan or policy. Additionally (and crucially), district courts must now permit defendants to submit evidence rebutting a plaintiff’s claim that a collective is appropriate. By doing so, courts will evaluate the extent to which plaintiffs engage with and respond to opposing evidence.
This differs from the Lusardi standard in two ways. First, plaintiffs must now cross a higher evidentiary threshold to justify issuing notice to a potential collective. Second, courts will consider evidence by both parties—not just a “modest” showing by the plaintiff—before deciding whether notice is appropriate.
In its holding, the Seventh Circuit emphasizes “flexibility” because “a plaintiff is not automatically entitled to notice” even if a “material dispute” exists. District courts may still use the two-step approach and issue notice to the proposed collective if they believes that necessary evidence is in the hands of potential plaintiffs. Alternatively, if a court believes that a similarity dispute can be resolved before authorizing notice, it may allow limited discovery to decide whether or not notice is appropriate.
Other circuit courts have departed from Lusardi and established their own approaches. For example, the Fifth Circuit demands plaintiffs prove by a “preponderance of the evidence” that the individuals are similarly situated before the court permits notice to issue. This means the plaintiff bears the burden from the outset of a case to definitively prove that certification is warranted. The Sixth Circuit, on the other hand, requires a “strong likelihood” that the potential plaintiffs are similarly situated, and a court may expedite discovery to decide whether notice is appropriate. The Seventh Circuit declined to adopt either approach in Richards. With a range of approaches emerging, this could set the stage for resolution by the Supreme Court.
Conclusion
Before Richards, defendants were left with very few options, while plaintiffs were permitted to form potentially oversized collectives that may have included both eligible and ineligible plaintiffs. As the Seventh Circuit admitted, this meant defendants were susceptible to higher discovery costs, premature settlements, and an influx of potential claimants who may choose to bring their own individual lawsuits.
Consequently, the Seventh Circuit’s decision marks a shift in how collective actions are evaluated, and it offers a better opportunity for employers to challenge whether a proposed collective is truly similarly situated. Employers who respond strategically could see reduced litigation and/or settlement costs and increase the odds of defeating the certification of a collective action. Affected Employers should reach out to their employment counsel with any questions or explore this development further.
