Third Circuit Opens the Door for “Hybrid” Wage & Hour Claims in New Jersey, Pennsylvania, Delaware, and the U.S. Virgin Islands
On March 27, 2012, the United States Court of Appeals for the Third Circuit issued a precedential decision in Knepper v. Rite Aid Corp. which dramatically alters the landscape for wage and hour litigation for employers operating in the jurisdictions within the Third Circuit, i.e., in New Jersey, Pennsylvania, Delaware, and the U.S. Virgin Islands. Specifically, the Third Circuit ruled that the procedures for litigating a class action alleging state wage and hour violations is not “inherently incompatible” with the procedures for litigating a collective action under the federal Fair Labor Standards Act (“FLSA”). As a result, courts in these jurisdictions may well see a wave of hybrid class/collective actions alleging wage and hour violations under both the FLSA and the corresponding state wage and hour laws in the same complaint.
The Knepper plaintiffs are assistant store managers who had “opted in” to a national FLSA collective action filed against Rite Aid in the Middle District of Pennsylvania. Under the FLSA, courts can assert jurisdiction only over those employees who affirmatively “opt in” to the lawsuit. The lawsuit alleged that Rite Aid misclassified the plaintiffs as exempt from the federal overtime and minimum wage requirements. Subsequently, these individuals filed their own separate class actions in federal courts in Maryland and Ohio under Rule 23 of the Federal Rules of Civil Procedure alleging violations of those states’ wage and hour laws. In a class action certified under Rule 23, the court acquires jurisdiction over all class members, but individual members may elect to “opt out” of the lawsuit. These newly filed lawsuits were ultimately transferred to the Middle District of Pennsylvania. That court dismissed the state law claims because, in its view, the Rule 23 “opt-out” process for litigating class actions under the state-law claims was “inherently incompatible” with the “opt-in” process utilized in FLSA collective actions. Over the years, numerous federal district courts in the Third-Circuit have reasoned that the contrast between an opt-in and opt-out procedure bars federal courts from hearing such dual-filed wage and hour actions.
The Third Circuit Decision
After analyzing the text and legislative history of the FLSA, the Third Circuit found no evidence of Congressional intent to preclude the joinder of “opt out” class action claims under state law with “opt in” FLSA claims. Thus the Third Circuit reversed the district court, stating: “[i]n sum, we disagree with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure.” Moreover, the Court noted that many other circuits, specifically, the Second, Seventh, Ninth, and D.C. circuits have found that such dual filing “does not defeat otherwise available jurisdiction.” In reversing the District Court, the Court of Appeals opened the door for dual-filed and hybrid wage and hour actions in the Third Circuit.
In light of this development, employers with operations in the Third Circuit may be forced to litigate wage and hour claims under both federal and state law as part of the same lawsuit. The differing statutes of limitations, recoverable damages and burdens of proof as between the FLSA and the various state laws will certainly complicate the litigation of these claims, making them more costly for employers to litigate and more difficult to settle and subjecting employers to a wider array of damages.
Given this development, now is a good time for employers with operations in New Jersey, Pennsylvania, Delaware, and Virgin Islands to communicate with experienced wage and hour counsel regarding strategies to avoid wage and hour litigation. If you have any questions, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.