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News | Jan 01, 2011

Seventh Circuit Rejects “Inherent Incompatibility”

In recent years, district courts within the Third Circuit have frequently held that workers cannot bring “hybrid” federal wage and hour claims under the FLSA as a collective action under 29 U.S.C. §216(b) along side state wage and hour class action claims under Federal Rule of Civil Procedure 23. See, e.g., Otto v. Pocono Health Sys., 457 F. Supp. 2d 522, 524 (M.D. Pa. 2006) (“To allow an Section 216(b) opt-in action to proceed accompanied by a Rule 23 opt-out state law class action claim would essentially nullify Congress’s intent in crafting Section 216(b) and eviscerate the purpose of Section 216(b)’s opt-in requirement.). The notion that such claims cannot be simultaneously pursued in federal court has become known as “inherent incompatibility.”

However, in an opinion issued on January 18, 2011, the Seventh Circuit Court of Appeals rejected this idea, holding that “there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA.” Ervin v. Os Restaurant Services, Inc., 2011 U.S. App. LEXIS 863, *3-4 (7th Cir. Ill. Jan. 18, 2011). “Nothing in the text of the FLSA or the procedures established by the statute suggests either that the FLSA was intended generally to oust other ordinary procedures used in federal court or that class actions in particular could not be combined with an FLSA proceeding.” Id. at *4.

In Ervin, former employees of an Outback Steakhouse restaurant brought claims under both the Fair Labor Standards Act and the Illinois Minimum Wage Law alleging that Outback failed to pay them minimum wage and overtime due to their tip sharing/pooling practices. The district court declined to certify the state law claims under Rule 23 because “of what he saw as a conflict between the two different forms of aggregate litigation.” Id. at *7-8.

The Seventh Circuit examined Congressional intent behind the FLSA and disagreed with the district court, noting that “[t]here is ample evidence that a combined action is consistent with the regime Congress has established in the FLSA.” Id. at *15. Moreover, the Seventh Circuit rejected the notion that §216(b)’s opt-in procedure and the opt-out nature of Rule 23 would create confusion among class members. In fact, the Court noticed that having two parallel actions, one in federal court and one in state court, would create more potential for confusion than having a class’s wage and hour claims proceed in one venue. Id. at *18-19.

The Ervin Court also addressed whether a district court could have supplemental jurisdiction over state wage and hour claims pursuant to 28 U.S.C. §1367. It held that the requirements of §1367(a) are satisfied where the state wage claims are closely related to the FLSA collective action. Id. at *21. The court also held that “a simple disparity in numbers should not lead a court to the conclusion that a state claim ‘substantially predominates’ over the FLSA action” as precluded by §1367(c). Id. at *24. In fact, the court observed that the 45 current and former Outback workers who had joined the suit (compared to the 180 to 250 who may be covered by the Rule 23 claims) was a “low” ratio ,suggesting that the state claims did not predominate over the FLSA claims in this case. Id. at *25. In closing, the Ervin court stated:

We agree with the D.C. Circuit in Lindsay and the Ninth Circuit in Wang that the Third Circuit decision in De Asencio represents only a fact-specific application of well-established rules, not a rigid rule about the use of supplemental jurisdiction in cases combining an FLSA count with a state-law class action. In our case, the record reflects no reason to doubt that it is sensible to litigate all theories in a single federal proceeding. The identity of the issues, the convenience to both plaintiffs and defendants of not having to litigate in multiple forums, and the economy of resolving all claims at once suggests that an exercise of supplemental jurisdiction will normally be appropriate. In all but the most unusual cases, there will be little cause for concern about fairness or comity.
Id. at *26.

While the Seventh Circuit’s opinion is not the first circuit court to reject inherent incompatibility, see, e.g, Wang v. Chinese Daily News, Inc., 623 F.3d 743, 753-55, 760-62 (9th Cir. 2010) (holding that a district court properly certified a Rule 23(b)(2) class along with an FLSA collective action and properly exercised supplemental jurisdiction over the state-law claim), the Third Circuit Court of Appeals has yet to address this issue. As a result, overtime lawyers in Pennsylvania, New Jersey and Delaware must still confront this issue when planning any class/collective action litigation.

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