The Employer’s Wage and Hour Advisor

At issue in Clark was the standard for determining when potential plaintiffs can receive notice to join a Fair Labor Standards Act (“FLSA”) collective lawsuit. Collective actions under the FLSA are “opt in” lawsuits, meaning that individual employees must formally consent to join the lawsuit, usually after they receive a court-approved notice. Whether notices issue to current and former employees is critical to such lawsuits, because it can make the difference between “bet the business” mass litigation versus resolving individual claims with one employee or a handful of employees. Prior to Clark, courts in the Sixth Circuit generally permitted notices based on very little (if any) evidence that the individuals receiving the notice were proper participants in the action who were “similarly situated” to the lead plaintiff. Only later, in a second stage of the case –  after extensive and costly discovery –  would the court revisit the question of whether the opt-in plaintiffs even belonged in the lawsuit. In Clark, the Sixth Circuit ended that practice.

Clark sets a new standard for deciding whether opt-in notices can issue to current and former employees. Going forward, before notices will issue the plaintiff must present evidence of a “strong likelihood” that the notice recipients are similarly situated to the plaintiff. In other words, while the plaintiff does not need to prove conclusively that the recipients are similarly situated, the plaintiff will need to present clear evidence showing it is very likely that each recipient will have claims similar to the plaintiff’s claims. The court analogized the standard to the requirements for issuing preliminary injunctions, which require a strong likelihood that the party seeking an injunction will prevail on its claims. This is a far more demanding standard than the prior approach, where plaintiffs sometimes obtained the benefit of a notice process without presenting any evidence other than a single affidavit or conclusory allegations.

Clark also addressed the role that arbitration agreements may play in FLSA disputes going forward. The defendants in Clark contended that because a portion of the company’s employees had signed arbitration agreements, those employees could not receive notices to join the lawsuit. The court declined to hold categorically that any party who signed an arbitration agreement could not receive notice, but recognized that arbitration agreements may make employees who sign them no longer “similarly situated” to the lead plaintiff. The Sixth Circuit took pains to emphasize that the lead plaintiff has the burden of presenting evidence that, despite the arbitration agreements, employees who signed them should still receive notice. In practice that will be a difficult standard for plaintiffs to meet.

Before Clark was decided, whether the opt-in plaintiffs were similarly situated to the lead plaintiff was rarely decided because most lawsuits would settle after notice issued. This new decision gives employers a better opportunity to defeat collective actions early in the litigation. It also means that courts will provide more guidance about what it means for plaintiffs to be “similarly situated,” as the issue will need to be addressed in greater depth earlier in every case. By any measure, the Sixth Circuit’s new standard offers employers better, quicker and less costly opportunities to defend against the current rash of wage and hour lawsuits.