The Effect of the Genesis Healthcare ruling on FLSA collective actions

The Fair Labor Standards Act mandates compensation for all hours worked and requires payment of a minimum wage and overtime compensation. The FLSA also provides several mechanisms for employees to enforce their rights.

Under the FLSA hourly workers may bring lawsuits not only on their own behalf but also on behalf of others who are “similarly situated.” This is called a “collective action.” The collective action is an important FLSA enforcement mechanism.  It permits parties who may not individually have substantial damages at issue to combine their resources and prosecute their employer for violations of the act.

A collective action under FLSA differs from the more familiar “class action” in that its participants must opt in to the case, while participants in a class-action lawsuit typically must opt out if they do not wish to be bound by the decisions made in the case.

Many states set wage-related requirements similar to those of the FLSA in their own statutes. Employees may pursue their rights under most of these statutes through class actions, while in the same case pursuing their rights in a collective action under the FLSA.

To subvert these procedural and substantive federal and state protections, employers frequently make  offers  of  judgment  to the plaintiffs before the plaintiffs have an opportunity fully to assess the strengths and weaknesses of their claims after having had the benefit of discovery.

Rule 68 of the Federal Rules of Civil Procedure permits a defendant to “serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.” If the plaintiff rejects the offer and later prevails, but recovers less than the amount offered, the plaintiff must pay the defendant’s costs incurred after the offer was made.

Now, as a result of the U.S. Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), plaintiffs may lose their ability to proceed with a collective action as a result of early offers of judgment under Rule 68.

Laura Symczyk worked for Genesis Healthcare Corp. as a registered nurse. Symczyk filed a complaint against the company alleging that for certain employees it automatically deducted 30 minutes of time worked each shift for meal breaks, even if the employees performed work during the breaks.

When Genesis responded to Symczyk’s complaint, it offered her $7,500 for her unpaid wages, plus attorney fees, costs and expenses as the court might award under Rule 68. Symczyk did not respond to the offer, and Genesis withdrew it.  Genesis then argued that Symczyk could no longer pursue claims on behalf of the other similarly situated employees because it had offered her the complete relief she requested.

Symczyk objected to Genesis’ argument, saying the company was trying to stop her from litigating her case before she could initiate the collective action process. More specifically, Symczyk argued that her claim was not moot because Genesis’ offer lapsed without judgment being entered.

Symczyk’s case went to the Supreme Court, which decided 5-4 that, because Symczyk’s claim was moot as a result of the Rule 68 offer, she could not move forward with the collective action process. The court said it could not consider whether Symczyk’s claim was mooted correctly because it was not properly before the justices on appeal.

The only issue the Supreme Court considered was whether Symczyk’s collective action allegations were justiciable in light of the fact that her claim was moot. The court concluded that Symczyk lacked any personal interest in representing others in the action and so could not proceed. The court implied that if Symczyk’s claims had been     granted conditional certification as a collective action and if other parties had joined the case by opting in, she would have had grounds to proceed.

The court also rejected Symczyk’s argument that claims such as hers were transitory and would allow defendants to “pick off” named plaintiffs before the litigation process was complete, continuously preventing any litigation with Rule 68 offers. The court held that Symczyk’s claims were not transitory, so she had no interest in pursuing them, because the defendant’s offer did not affect the rights of others who had similar claims.

Since the Genesis Healthcare decision, nearly 50 opinions from district courts and 10 opinions from courts of appeals have cited or discussed the ruling. Of the decisions from the appeals courts, only two substantively discuss the application of the Supreme Court’s holdings to the facts in each.

In Camesi v. University of Pittsburgh Medical Center; Kuznyetsov v. West Penn Allegheny Health System Inc., 729 F.3d 239 (3d Cir. 2013), the 3rd U.S. Circuit Court of   Appeals considered two consolidated appeals determining whether the named plaintiffs could appeal a federal judge’s order denying the final certification of their collective action.

The plaintiffs in the Camesi action argued that the University of Pittsburgh Medical Center failed to pay them for time worked during their meal breaks.  More than 3,000 people opted in to the case after the District Court judge granted the conditional certification. However, UPMC moved to decertify the class, and the court granted the motion and dismissed the opt-ins’ claims without prejudice. The plaintiffs asked the judge to dismiss their claims under Federal Rule of Civil Procedure 41(a) so they could secure a final judgment, which they could appeal.

Similarly, the plaintiffs in the Kuznyetsov action argued that their employer, the West Penn Allegheny Health System, failed to pay them for time worked during meal breaks, and the District Court decertified the collective action after more than 800 employees opted in. The Kuznyetsov plaintiffs also asked the court to dismiss their claims under Rule 41(a) to obtain an appealable final judgment.

Although the 3rd Circuit decided that neither set of plaintiffs had a judgment they could appeal, the court also considered whether the plaintiffs had rendered their cases moot by voluntarily dismissing them. The court found the plaintiffs did not have individual claims because they had dismissed their claims before the District Court with prejudice.

The appeals court noted that the Camesi and Kuznyetsov plaintiffs already had hundreds of opt-ins, whereas Symczyk did not. Regardless, the court concluded the plaintiffs could not have an interest in the outcome of their opt-ins’ claims.

Their voluntary dismissal of their claims  with prejudice “has not only extinguished appellants’ individual claims, but also any residual representational interest that they may have once had.”  Id. at 247.

On Oct. 4, 2013, the 9th Circuit issued its decision in Diaz v. First American Home Buyers Protection Corp., 732 F.3d 948 (9th Cir. 2013). Emily Diaz sued First American on behalf of all people who had made a claim under any of the company’s home warranty plans issued after March 2003.

After the District Court denied Diaz’s motion for class certification, First American made Diaz a Rule 68 offer of judgment on her state law claims. Diaz let the offer expire and First American moved to dismiss her case. The District Court held that First American’s Rule 68 offer would have given Diaz full relief and dismissed her claims as moot.

In analyzing Diaz’s claims, the 9th Circuit noted that the Supreme Court did  not  reach that issue in Genesis Healthcare, but concluded that, in light of Justice Elena Kagan’s   dissent,   the   Rule   68   judgment did not moot her claims. The 9th Circuit highlighted Justice Kagan’s conclusion that an unaccepted or rejected offer of judg- ment does not moot a case because the plaintiff’s “interest in the lawsuit remains just what it was before. … An unaccepted settlement offer … is a  legal  nullity,  with no operative effect. As every first-year law student learns, the recipient’s rejection of an offer ‘leaves the matter as if  no  offer had ever been made.’” Id. at 954, citing Genesis Healthcare, 133 S. Ct. at 1528-29, Minneapolis & St. Louis Ry. Co. v. Columbus Rolling Mill Co., 119 U.S. 149, 151 (1886).

The 9th Circuit also  credited  Justice Kagan’s analysis of Rule 68, which noted  that nothing in the rule authorized the court to enter judgment if  the  plaintiff  refused to accept  the  offer  and  acknowledged  that a  court  may  have  “discretion  to  halt a lawsuit by entering judgment for the plaintiff when the defendant unconditionally surrenders and only the plaintiff’s obstinacy or  madness  prevents  her  from   accepting total victory.” Genesis Healthcare, 133 S. Ct. at 1536.

Of the post-Genesis Healthcare district court decisions, several in particular stand out.

In Smith v. ABC Training Center of Maryland Inc., 2013 WL 3984630 (D. Md. Aug. 1, 2013), the court rejected the defendant’s argument that the plaintiffs’ claims were moot. The defendants argued that their inability to access their funds, which had been frozen, rendered the plaintiffs’ claims moot, relying on the Genesis Healthcare court’s holding that “[i]f an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during the litigation, the action can no longer proceed and must be dismissed as moot.”

The court rejected their argument, saying it was the defendants’ own fault that their assets had been frozen and that ultimately, the plaintiffs’ claims were not moot because they were entitled to additional damages under the state wage law that the FLSA did not afford.

(Other types of damages, including attorney fees and actual damages, salvage claims from being moot. “As long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot.” Id. at *6.).

Moreover, in Will v. Panjwani, 2013 WL 5503331 (S.D. Ind. Oct. 1, 2013), the    court rejected the automatic application of the Genesis Healthcare holding to cases in which the plaintiffs had already moved for conditional certification. Unlike in Genesis Healthcare, in this case the plaintiffs moved for conditional certification weeks before the defendants made their offer. Therefore, Genesis Healthcare is not directly on point.

The lessons for plaintiffs’ counsel in the wake of the Genesis Healthcare decision are clear: Caution a plaintiff to consider carefully any Rule 68 offers of  judgment,  select  more than one lead plaintiff, and file for conditional certification as soon as practical in the litigation, preferably as soon as the defendant has answered or otherwise filed a responsive pleading.