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By a tight five-to-four decision, the United States Supreme Court's Genesis Health Care Corp. v. Symczyk decision provides employers a method to "pick off" the lead plaintiff in an FLSA collective action using a Federal Rule of Civil Procedure 68 offer of judgment and by doing so, take out the remaining collective action. For reasons we will explain in a bit, however, the Court merely "assumed" -- without deciding -- that an unaccepted Rule 68 offer of judgment that offers complete relief moots the named plaintiff's individual claim and, in the absence of any other claimant having opted into the action, the individual plaintiff lacks any personal interest in representing others in the case. Because the Court was unwilling to resolve the predicate issue as it was anticipated it would, however, there remains a split among the circuit courts of appeal as to the effect of the Rule 68 offer of judgment under this scenario. As a result, the four dissenting justices argued, the decision “aids no one, now or ever” and should simply be forgotten.

Because the circuits are split on the mootness issue, employers should take Genesis for what it is: A potential weapon to stop frivolous wage/hour cases before they become expensive collective actions and further indication of the Supreme Court's efforts to limit the ability to bring class and collective actions – at least in those Circuits -- the Third, Fourth, Seventh (and perhaps the Fifth, which appears to be leaning this way) – that already have held that an unaccepted offer of judgment moots an individual plaintiff's claims. Unfortunately for those employers in Ohio, the Sixth Circuit, along with the Second, has gone the other way, rendering this strategy useless here – until the Supreme Court ultimately decides to actually resolve the split.

The Back Story: This case originated when respondent Laura Symczyk ("Symczyk") filed this case on behalf of herself and "all other persons similarly situated" as a collective action under the Fair Labor Standards Act ("FLSA") against her former employer, the petitioners, alleging the company's automatic meal break deduction policy violated the FLSA because it failed to pay employees for compensable work. While Ms. Symczyk purported to bring the case as a collective action, rather than a single-plaintiff lawsuit, she remained the sole plaintiff.

When the petitioners answered the complaint, and before Symczyk could move for conditional certification, they served Symczyk a Federal Rule of Civil Procedure Rule 68 offer of judgment and offered her $7,500 for her alleged unpaid wages, "reasonable attorneys' fees, costs, and expenses" as the Court would determine. The petitioners gave Symczyk ten days to respond, and when she did not, petitioners filed a motion to dismiss for lack of subject matter jurisdiction arguing they had offered Symczyk complete relief on her individual damages claim and she no longer had a personal stake in the outcome of the case. Symczyk argued in response that the petitioners were trying to "pick off" the named plaintiff before the collective action could play out.

The District Court found that because no other individuals had joined the suit and the Rule 68 offer of judgment fully satisfied Symczyk's individual claim, Symczyk's claim was moot and it dismissed her suit for lack of subject matter jurisdiction.

On appeal, the Third Circuit reversed. In holding that the case was not moot, the Third Circuit explained that the defendants' attempts to "pick off" the named plaintiff with a Rule 68 offer could short circuit the collective action process and frustrate the goals of collective actions. The Third Circuit remanded the case to allow Symczyk to seek conditional certification.

The Supreme Court's Decision: The Supreme Court overturned the Third Circuit. While most waiting for this decision expected the Supreme Court to resolve the issue of whether an unaccepted offer of judgment under Rule 68 that fully satisfied a plaintiff's claim renders a claim moot, it did not. While recognizing this is an issue on which the circuit courts remain split, the Court refused to decide this significant issue. Rather, the Court chose to "assume" Symczyk's individual claims were moot because she had conceded the point at the district court level and had not filed a cross-petition challenging it. The majority then determined that Symczyk had no "personal interest" left in the case to represent the other employees who had failed to join the suit, and therefore had no other "continuing interest to preserve her suit".

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The Northern District of Ohio is the latest in a long line of courts to send the following message to nationwide collective class plaintiffs: Stop seeking nationwide class certification where the plaintiffs are spread across facilities and have too many factual differences to be "similarly situated" and to have experienced a common injury under the Fair Labor Standards Act ("FLSA").

In Creely v. HCR ManorCare, Inc. (N.D. Ohio Jan. 31, 2013), a group of 318 nurses, licensed practical nurses, certified nursing assistants, and admissions coordinators opted into a collective action lawsuit alleging that their employer, HCR ManorCare, Inc. ("HCR"), a nationwide provider of short- and long-term medical and rehabilitation care, violated the FLSA by not paying them for all time worked because of HCR's improperly-administered automatic meal break deduction rule. After the notice stage, the parties sent notices to 3,239 current and former HCR employees from 29 facilities located in 28 states. Of those 3,239, 318 opted into the suit.

Sound familiar? It should. The case is similar to two recent Sixth Circuit cases that also concerned auto-deduct meal policies in the health care industry, Frye v. Memorial Baptist Hospital, which we blogged on here, and White v. Memorial Baptist Hospital, which we blogged on here.

The Creely plaintiffs tried to set their case apart from Frye by not arguing that the auto-deduct policy itself was per se illegal — a contention pointedly rejected in Frye. Rather, plaintiffs argued that, because they were subject to HCR's uniform auto-deduct policy, they either missed or worked though meal breaks, were not paid and that HCR illegally shifted the burden of monitoring "compensable work time" to them by requiring them to cancel the automatically deducted 30 minutes when they did not receive an uninterrupted meal break using its "missed punch" card system. The plaintiffs also argued that HCR failed to monitor them to determine if they actually received their meal breaks; that HCR failed to train or inform them what to do if they missed a meal break; and that they did not report missed or interrupted meal breaks because HCR did not train them or discourage them from doing so.

Plaintiffs' arguments highlight the problems for employers defending FLSA suits —the FLSA places the burden upon employers, not employees, to accurately record time worked and to ensure that employees are paid for all compensable time worked.

For its defense, HCR focused on the fact that plaintiffs' ability to take uninterrupted breaks depended on their particular facility, unit, shift, patient population served, job duties, and individual habits. Given the variables, HCR argued that the nationwide class could not be "similarly situated" because plaintiffs' ability to take breaks, and HCR's knowledge of plaintiffs' missed breaks, if any, depended on individual circumstances that could not be represented in a single class. This argument eventually won the day.

The Creely plaintiffs also took issue with HCR's "missed punch" form, which employees were to submit if they did not receive their meal breaks. Plaintiffs argued they were discouraged from submitting the forms, but from the testimony it was unclear whether this was actually the case.
What the evidence did demonstrate was that HCR – at the corporate level at least – had numerous, consistent policies on the "missed punch" policy, which were available to the employees. For example, HCR's Employee Handbook provided: "Occasionally, you will be unable to take a meal break or will be interrupted for an emergency. When this happens you must inform your supervisor that you were unable to take the scheduled break". My favorite, and what I thought was really smart on the part of the employer, was its "Letter of Understanding" it had some employees sign that provided: "I understand a 30-minute meal break will be deducted for every shift I work over five hours. I will notify my supervisor and complete the proper paperwork for any occasion where I do not receive my full meal break." Even though the evidence was scattered as to how many of the 318 plaintiffs signed the Letter of Understanding, or signed acknowledgments indicating they received any of HCR's numerous policy on the issue, the court found that the documents reflected a corporate-wide position to implement and enforce a "lawful" auto-deduct policy.

While the court recognized that the fact that individual proofs exist in a case will not defeat final certification because they always play a role in collective actions, the court noted that where the application of an auto-deduct policy is so varied based on several factors, including job duties and individuals managers at the various HCR facilities, plaintiffs are just not similarly situated to form a proper class.

The court looked to Frye and White to demonstrate what kind of factual distinctions weigh against "similarly situated" and, thus, against final certification. The court noted that in Frye, the court decertified an auto-deduct class where the employer implemented its auto-deduct policy on a facility-by-facility basis where each facility "maintained its own finance and human resources functions." The court cited to White for its finding that differences in job duties determined whether and why an employee would miss or have an interrupted meal break. The court went through numerous other cases to support its decision to decertify a class where company-wide policies were implemented in a decentralized manner.

Although Judge Zouhary had ordered the parties to brief the impact, if any, of the Brinker v. International Inc. v. Superior Court decision where the California Supreme Court clarified the meal break standard under California law, the Judge did not cite Brinker in his opinion.

Key Takeaways

Here, the fact that the employer had clear company-wide policies directing employees how to adjust for missed or interrupted meal breaks was key to the court's decision decertifying the class. I've said it before and I'll say it again: Have proper policies in place. If you are an employer that has an auto-deduct policy with a method for employees to signal that they did not get a meal break or had an interrupted meal break, put it in writing and make sure your employees get a copy of it. If you can, have your employees sign something similar to HCR's Letter of Understanding where your employees can acknowledge that they understand a 30-minute meal break will be deducted for every shift they work over five hours and that they will notify their supervisor and complete the proper paperwork for any occasion where they do not receive my full meal break.

The Future

This case begs the question, will these cases go away or did the plaintiffs simply aim too high. The court distinguished Creely from Berger v. Cleveland Clinic, another case out of the Northern District of Ohio, where the same court granted certification, because the plaintiffs in Berger all worked at the same facility, "in the same department within the same building, had the same supervisor, and their job duties overlapped significantly." With this, two big questions come to mind: (1) had plaintiffs sought to certify a small class based on the goings on of just one facility, would the proposed class have been decertified?; and (2) does this mean that instead of plaintiffs aiming to certify a large nationwide collective action, the trend will be for plaintiffs to bring numerous collective actions in each of the districts where an employer has its individual facilities?

The two more immediate questions are: (1) will plaintiffs appeal to the Sixth Circuit in light of Frye and White; and (2) will HCR seek their fees and costs like the defendant in Frye did to the tune of over $55,000, which we blogged on here?
 

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In Frye v. Baptist Memorial Hospital, Inc., the United States District Court for the Sixth Circuit handed down not one, but two favorable rulings for employers in an FLSA collective action. First, in considering an automatic pay deduction policy for unpaid meal breaks in a collective action for the first time, the Court held that such a policy does not automatically, or per se, violate the FLSA. Second, a class representative plaintiff must formally opt-in to their own case to "commence" suit and stop the running of the statute of limitations.

1.  The Sixth Circuit Holds that Automatic Pay Deduction Polices are Not Per Se Illegal

In Frye, the plaintiff brought a putative collective action against her hospital employer challenging its 30-minute automatic meal break deduction from pay policy claiming that it violated the FLSA's requirement that employees be paid for all time worked. Specifically, Frye argued that employees worked during their lunch breaks and were not properly paid. The hospital's policy on automatic deductions, however, did not ignore the possibility that employees may sometimes work during their lunch breaks and, as is common with these types of policies, the hospital had an exception procedure whereby employees were instructed to report such work so they could be paid for it. These exception procedures, however, varied significantly by department, e.g., some employees could make an exception by submitting a written notice, some could do it through verbal notice to their supervisor, etc. The point being, there was no universal policy regarding how these exceptions could be made.

The district court granted conditional certification of the class at the initial notice stage, but decertified the class after discovery. The district court determined that the plaintiff had failed to demonstrate that the employer applied a uniform policy, or that the over 400 would-be class members (made up of workers in various departments and positions) were similarly situated. While the plaintiff relied heavily on the automatic deduction policy itself to link the putative class members, the district court disagreed. More important, it noted that automatic deduction policies are lawful under the FLSA. So, to recover, the plaintiff had to show that the employer implemented its policy in such a way as to violate the FLSA.

The Sixth Circuit agreed and, in addition to holding that automatic break deduction policies are not per se unlawful under the FLSA, also found that the class was properly decertified because there was insufficient evidence of a common injury among class plaintiffs as a result of the automatic deduction policy.

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