Hunton Employment & Labor Perspectives

The Seventh Circuit Court of Appeals recently issued a significant ruling for employers facing Fair Labor Standards Act (FLSA) and Age Discrimination in Employment Act (ADEA) collective actions. In Richards v. Eli Lilly & Company, the court vacated and remanded a lower court's decision to issue notice to a potential class, establishing a new, uniform standard for determining when court-authorized notice may be sent to potential plaintiffs. This decision directly impacts the initial stage of collective actions—the process of determining which employees are "similarly situated" and should receive official notice of the lawsuit. For employers, this is a welcome shift away from the more plaintiff-friendly standard that was set forth in Lusardi v. Xerox Corp., 99 F.R.D. 89 (D.N.J. 1983).

For decades, many district courts, including those in the Seventh Circuit, have relied on the two-step Lusardi approach for collective action notice. Under the old Lusardi standard, for conditional certification, plaintiffs only had to make a "modest factual showing" that they were victims of a common illegal policy or plan. The vast majority of courts applying this standard refused to weigh evidence or consider opposing evidence presented by the defendant. Such lenient notice standards plaintiffs to artificially expand the size of a class, significantly increasing pressure to settle, regardless of the action's actual merits.

Under Richards, the Seventh Circuit has now joined the Fifth and Sixth Circuits in concluding that this "modest" standard was too permissive and conflicted with the principles of judicial neutrality, although the Fifth and Sixth Circuits have adopted even more rigorous standards than Richards. The Richards court established a new, uniform, and more flexible framework that requires district courts to take a more active role at the notice stage. To secure court-approved notice, the plaintiff must first make a threshold showing that there is a material factual dispute as to whether the proposed collective is "similarly situated." This means producing some evidence suggesting the named plaintiff and the proposed collective members are victims of a common unlawful employment practice or policy. Critically, the court must now consider the employer's rebuttal evidence when assessing if a material dispute exists, where under the previous standard, rebuttal evidence was not considered.

If the plaintiff establishes a material factual dispute, the court's decision to issue notice is based on its "sound discretion" to balance timely notice and judicial neutrality. If the evidence needed to resolve the dispute is likely in the hands of the yet-to-be-noticed plaintiffs, the court may proceed with a two-step approach (notice now, final determination later). Further, if the court is confident that the dispute over similarity can be resolved by a preponderance of the evidence before notice, it may authorize limited and expedited discovery to make that determination and tailor (or deny) notice accordingly.

This flexibility allows a court to "tailor its approach" depending on the specific case. For example, a court may be able to narrow the scope of notice by determining that a policy was limited to a specific geographic location. The court could also consider evidence that touches on the merits, such as whether a proposed plaintiff group includes employees who are exempt from FLSA protections, because this is directly relevant to the "similarly situated" analysis. Additionally, the court can resolve factual disputes regarding whether an employee is bound by a valid arbitration agreement before notice is sent.

The Richards decision empowers employers in the Seventh Circuit (Illinois, Indiana, and Wisconsin) to more effectively defend against collective actions at the earliest stage and shifts the balance, providing employers with a more meaningful opportunity to challenge the scope and propriety of a collective action before a single notice is mailed. To do so, employers should work with their counsel to compile and highlight evidence showing that the proposed collective is not, in fact, "similarly situated." This includes evidence of different job duties, different locations, different management structures, or evidence showing employees are subject to different policies or are exempt from the law.