Rule 68 Employer Strategy To Moot FLSA Collective Actions

If your business has been sued you want the case to be over as soon as possible with the least overall cost.  This is particularly true if it is a class, collective or other representative action.  The U.S. Supreme Court in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (4/16/2013) underscored a strategy to do just that in collective actions under the Fair Labor Standards Act (FLSA).  For employers, the strategy involves using Federal Rule of Civil Procedure Rule 68 to terminate a FLSA collective action before it becomes one.

Background And Definition Of Terms

To fully appreciate the Genesis Healthcare case (and this post), background on FLSA, FLSA collective actions and Rule 68 is in order.

FLSA: The FLSA is the federal law governing payment of wages, including minimum wages and overtime.  California also has laws that govern payment of minimum wages, overtime, and other workplace requirements (rest/meal periods, itemized wage statements, penalties for failure to comply, etc.).  We collectively call this “wage and hour law.”  For purposes of this post, we are talking about federal law under the FLSA and federal procedural law under the Federal Rules of Civil Procedure (FRCP), not California state law.

FLSA Collective Actions: An employee can file a solo FLSA action, i.e. just for himself/herself, or he/she can file the case for himself/herself and as a representative on behalf of others similarly situated called a “collective action.”  A collective action is not a “class action” under FRCP 23, but the concept is the same: a single employee can increase the employer’s exposure by suing on behalf of many others.  A significant difference between a collective action under the FLSA and a “class action” is non-named employee claimants must “opt in” to a collective action.  This means they must affirmatively agree to join and become a party to the case, unlike a class action.

Rule 68: Rule 68 is a federal rule of procedure that allows a defendant to offer to allow the plaintiff to take a judgment against defendant for a specific amount of money.  If the plaintiff refuses the Rule 68 offer, negative consequences can result.  For example, if the plaintiff fails to accept the offer and the judgment obtained is less than the Rule 68 offer, the plaintiff must pay all costs (including the defendant’s costs) after the offer was made.  As to plaintiff’s recovery of attorney’s fees, the 9^th Circuit has ruled the district court must (not may) consider what attorney’s fees are “reasonable” when the judgment obtained is less than the Rule 68 offer.  Haworth v. State of Nevada, 56 F.3d 1048 (9th Cir. 1995).

As discussed next, Genesis Healthcare underscores a Rule 68 offer’s strategic utility to make a case “moot,” including the collective action aspect of the case.  “Moot” is legalese for “the case is over.”

The US Supreme Court’s Genesis Healthcare Decision

The employee plaintiff in Genesis Healthcare filed a FLSA collective action against her former employer.  The employee claimed the employer had a practice of unlawfully deducting 30 minutes, representing a meal break, every day she and her coworkers worked whether they actually took a meal break or not.

The employer served a Rule 68 offer for $7,500 plus reasonable attorney’s fees.  The $7,500 plus reasonable attorney’s fees was sufficient to satisfy her entire individual claim.

The plaintiff ignored the Rule 68 offer and allowed it to expire.  Employer then moved to dismiss the case on grounds that it was “moot.”  The trial judge agreed the individual plaintiff’s case was moot because the Rule 68 offer fully satisfied her claim (even though she had not accepted the offer).  Further, because the individual claim was moot and no other individuals had joined the lawsuit, the trial court dismissed the entire case including the “collective action” component.  Effectively, the court ruled the case was over.

Employee appealed and the court of appeal reversed the trial court.  It said even though the individual’s claim was “moot” the “collective action” claims were not and the plaintiff could continue the collective action on behalf of the others similarly situated.  Allowing calculated attempts to “pick off” named plaintiffs with strategic Rule 68 offers would short cut the process and frustrate the goals of collective actions said the appellate court.

Employers May “Pick Off” Named Plaintiffs In FLSA Collective Actions

The US Supreme Court disagreed with the court of appeal.  The US Supreme Court concluded that once the named plaintiff’s claim was “moot” she “ha[d] no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness.”  Therefore the entire case was appropriately dismissed outright.

Without saying so directly, the US Supreme Court ruled employer defendants are allowed to “pick off” named plaintiffs as a legitimate defense strategy and “moot” the entire case but they need to do so before other claimants to an FLSA collective action opt in.  Since no other employees/former employees had opted in in Genesis Healthcare, the entire case was moot as there were no other “live” claims.  If employees/former employees had opted in the result as to those claims would have been different.  Claims of employees who opt in would not be moot even if the named plaintiff’s claims become moot via Rule 68 offer, settlement or otherwise.

Conclusion And Strategy For Employers

This is a great result for employer defendants and their counsel.  Strategic legal ingenuity is rewarded as it should be.

For savvy employers, Rule 68 offers are potentially potent tools not only for solo or collective claims under the FLSA, but for all forms of employment litigation in federal court.  But use of Rule 68 Offers is not for the uninitiated.  It is clear that defense counsel for the employer in the Genesis Healthcare case were experienced, knowledgeable and savvy in FLSA litigation and federal procedure.  Consult your own experienced employment and labor law counsel for the defense of your case.

For California employers in state court, there is a Rule 68 equivalent: California Civil Procedure Code section 998 (CCP 998).  While both Rule 68 and CCP 998 offers are technical and complex, they can be a source of leverage for an employer defendant in an otherwise uneven match against an employee who can recover their “reasonable attorney’s fees” as the prevailing party for most employment litigation claims.

And with plaintiff’s attorney’s fees it’s usually the case of the “tail wagging the dog,” especially in wage and hour cases.  The employee’s attorney’s fees recovery can far outstrip the plaintiff’s actual recovery.  Believe it or not, the plaintiff’s attorney’s fees requests can easily be a factor of 20-1.  Yes, that’s an eye-popping $200,000 attorney’s fees for a $10,000 case.

Thus, a Rule 68 or CCP 998 offer used strategically in the appropriate circumstances can increase an employer’s leverage to reduce unreasonable attorney’s fees requests and to get out of the case as soon as possible with the least overall cost.