Third Circuit Holds FLSA Collective Actions and State Law Class Actions Are Not Inherently Incompatible

In the recent case of Knepper v. Rite Aid Corp., — F.3d — (3d Cir. 2012), the Third Circuit Court of Appeals joined the Second, Seventh, Ninth and D.C. Circuits in holding that Fair Labor Standards Act (“FLSA”) collective actions and state law class actions are not inherently incompatible.  While at first glance the decision may seem significant, in actuality, it is not a change in controlling law, but rather, reaffirms and clarifies existing and well established case law.

The FLSA provides, among things, that employers must pay minimum wages and overtime to non-exempt employees.  In many respects the FLSA overlaps with state wage and hour laws.  As a result, in actions alleging violations of the FLSA, plaintiffs’ counsel also often assert claims for alleged violations of comparable state laws.  These actions can be filed on behalf of the named plaintiffs individually and as representatives for similarly situated individuals – i.e., a class action for the state law claims and a collective action for FLSA claims.  Such combined actions are called “dual” or “hybrid” actions. 

Because of the original jurisdiction vested with the federal courts over FLSA claims, these dual-actions are filed in the federal district courts.  In so doing, plaintiffs ask the district court to exercise supplemental jurisdiction over the state law claims, which allows the courts to hear cases over which they do not have original jurisdiction.  Federal district courts can exercise supplemental jurisdiction where the state law claims are part of the same case or controversy as the claims of original federal question jurisdiction.   28 U.S.C. §1367.  As explained by the Third Circuit, in determining the propriety of supplemental jurisdiction, “[t]he issue is whether there is a ‘common nucleus of operative fact’ and whether the claims are part of the ‘same case or controversy under Article III.’”  DeAsencio v. Tyson Foods, Inc., 342 F.3d 301, 308 (3d Cir. 2003)(quoting In re Prudential, 148 F.2d at 303 (3d Cir. 1998)).

There are, however, inherent differences in how a federal or state law class action works compared to the FLSA equivalent, which is termed a collective action.  In a class action, similarly situated individuals are automatically members of the class, unless they opt-out of the class.  By contrast, in a FLSA collective action, individuals must affirmatively opt-in to be members of the collective.  Depending on the circumstances, this can create a disproportionate number of members between a FLSA collective and a state law class.  As a result, defense counsel will sometimes ask a district court to refuse to exercise supplemental jurisdiction over state law claims in a dual action, relying upon 28 U.S.C. §1367(c).

Under 28 U.S.C. §1367(c)(2), a district court may decline to exercise supplemental jurisdiction when, among other reasons, “the claim substantially predominates over the claim or claims over which the district court has original jurisdiction[.]”  In DeAsencio, the Third Circuit recognized that due to the differences between a FLSA opt-in collective and a state law opt-out class that “the disparity in numbers of similarly situated plaintiffs may be so great that it becomes dispositive [of predomination] by transforming the action to a substantial degree, by causing the federal tail represented by a comparatively small number of plaintiffs to wag what is in substance a state dog.”  DeAsencio, 342 F.3d at 311.  Thus, the  DeAscencio court directed district courts “faced with the prospect of dual certification of a FLSA class and a state-law based class to determine, on a case-by-case basis, whether to exercise supplemental jurisdiction over such state law claims.”  White v. Rick Bus Co., 743 F.Supp.2d 380, 385 (D.N.J. 2010)(citing DeAsencio, 342 F.3d at 312).

Some district courts have misinterpreted DeAsencio to stand for the proposition that dual actions are always “inherently incompatible” and automatically barred.  That was the issue in Knepper, where the district court held that the state law class action was inherently incompatible with the FLSA collective.  On appeal, however, the Third Circuit rejected that notion, stating that “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.”  Knepper at *8.

Although Knepper is the first time that the Third Circuit joined other Circuit Courts in expressly rejecting an inherent incompatibility argument, Knepper does not change the law. Rather, Knepper clarifies what the Third Circuit already held in De Asencio, namely that the propriety of dual certification must be determined “on a case by case basis” to determine whether dual certification is consistent with Article III jurisdiction of the district courts.  Knepper at * 8 DeAsencio, 342 F.3d at 312.