Businesses and individuals in the restaurant industry are often forced into wage and hour litigation under provisions of the Fair Labor Standards Act (FLSA). While some FLSA litigation is initiated by individuals seeking damages, most FLSA cases are filed seeking a class or collective classification—whereby all similarly situated employees (both past and current) can opt into the litigation, also seeking damages against a restaurant. For many restaurants, the mere existence of a class or collective litigation initiated against them, whether viable or not, creates such a financial burden that they’re often forced to pursue unfair and otherwise unwarranted settlements.
But a soon to be published legal decision, recently handed down in a Fair Labor Standards Act (FLSA) case, may have far-reaching implications for employers in class action suits. And because the FLSA applies to all employers, this case precedent can be universally asserted among Restaurant chains, owners and franchisees to limit the exposure of sensitive and proprietary corporate data they store on customers, vendors, contracts and business operations.
A Landmark Decision
In Laney et al v. Clements Fluids, Inc et al (6:18-cv-00497-JCB-KNM), a litigation matter pending in the United States District Court for the Eastern District of Texas, Tyler Division, the Court recently and favorably considered arguments that the Defendants would be deprived of their due process rights, if the Court declined to timely consider merit-based arguments that the four (4) individuals pursuing the litigation and seeking a class or collective designation were without any viable claims against Clements Fluids, thereby negating their standing to proceed. The Court determined that a “fishing expedition” would not be sanctioned by it after essentially declining to approve a Notice and, thereafter, requiring that the Notice should be sent to all past and current employees inviting them to join the litigation.
In breaking down this decision, consider the following summation. What it states is that class action Defendants (such as franchisees and restauranteurs) are now owed due process rights to merit-based claims resisting court-sanctioned production and dissemination of protected and confidential information. And it represents a dramatic reining-in of Plaintiff demands, thereby securing protections and safeguards not just among restaurants as a business category, but across multiple trade industries as well.
The Way It Was
Regrettably, courts have historically and, until recently, steadfastly avoided any merit-based consideration of the individual seeking a class or collective designation because of various judicial interpretations suggesting that merit-based reviews are prohibited. As a consequence, many plaintiffs’ lawyers operated as if they have a blank check during the conditional class certification process to undertake a “fishing expedition” for additional litigants and clients. The “fishing expedition” is made possible by a disclosure requirement imposed upon employers in which they must disclose the names of and all contact information for past and current employees.
An additional burden for employers is the essential denial of due process of law, given the prohibition against employers’ timely ability to press courts for a merit-based decision concerning the viability of the claim of the individual initiating the litigation. If a favorable merit-based decision to the effect that the individual initiating the litigation lacked a viable claim was available, employers could eliminate the “fishing expedition” sought by plaintiffs’ lawyers for new litigants and clients.
This decision represents an extraordinarily significant shift in judicial precedent and constitutes a new and very useful tool for employers seeking to avoid a class or collective designation in the litigation phase. As previously mentioned, litigation involving a class or collective is particularly protracted, expensive, distracting and frequently constitutes a substantial risk of exposure to a business’ enterprise. And while employers will continue to bear the burdens of defending the claims of individuals initiating class action litigation, they can now cite a valuable precedent that helps them avoid the considerable expense and distraction caused by a class or collective designation.
Dan Pipitone is a shareholder and leader in the Labor & Employment practice group in the law firm of Munsch Hardt. His practice includes the representation of both individuals and companies charged with violations of the Fair Labor Standards Act (FLSA) and his team successfully persuaded the court to hand down the landmark decision in this column, as well as a 2014 landmark decision in which he persuaded the court to established independent contract exemption. He can be reached at firstname.lastname@example.org. Amber Karns is an associate in the Labor & Employment practice group in the law firm of Munsch Hardt. She has extensive experience representing clients in Fair Labor Standards Act (FLSA) collective actions and helped persuade the court to hand down the decision in this column. She can be reached at email@example.com.