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Are state wage & hour class actions compatible with the FLSA? The DOL certainly thinks so.

January 27th, 2010  |  Lucas Otto

>On January 21, 2010, the Department of Labor (DOL) officially threw its support behind the notion that an opt-in class action suit under the Fair Labor Standards Act (FLSA), as well as a related state law class action, can both be pursued within the same lawsuit. To that end, the DOL filed an amicus brief in support of Plaintiffs-Appellants in the case of Parker v. NutriSystem Inc, (3d Cir, No. 09-3545).

The case originated when an employee for NutriSystem argued that he, along with current and former employees employed in a call center, was not paid overtime wages for working hours beyond the required 40 hours per week. The employee contended that this was a clear violation of both the FLSA and the Pennsylvania Minimum Wage Act (PMWA), and he wanted to bring a class action suit under both laws.

Appearing before the United States District Court for the Eastern District of Pennsylvania on September 26, 2008, the employee first sought class certification under the FLSA, which the court granted conditionally, but on July 25, 2008, the employer’s motion for summary judgment as to the state wage class action under the PMWA was granted. The court reasoned that “a state law opt-out class action [is] incompatible with an FLSA opt-in collective action and [courts] have declined to exercise supplemental jurisdiction over the state law claims.”

The case then moved forward to July 30, 2009, where the court then ruled that, because the employees were paid commissions for all orders that they took, their positions fell within the FLSA’s retail commission exception. In so finding, NutriSystem’s request for summary judgment with regard to the FLSA overtime pay and class participants was granted.

The ensuing appeal was then brought before the Third District Court of Appeals, of which the DOL filed its amicus curiae brief in support of the Plaintiffs-Appellants. The DOL’s argument rests mainly on its conclusion that “state law class claims are not incompatible with the FLSA, and that the FLSA’s section 7(i) exemption for commission-paid employees of retail and service establishments, 29 U.S.C. 207(i), does not apply to flat-fee compensation schemes that bear no relationship to the cost of the goods sold.” In particular, the DOL finds nothing within the text of the FLSA, nor within the legislative history of section 16(b), that supports the lower court’s conclusion that the provision for an “opt-in collective action under the Act is incompatible with a Rule 23 opt-out class action brought under analogous state wage laws.”

In addition, the DOL argued that the straight flat-fee payments have routinely been considered synonymous with piece-rate compensation, which is governed by the piece-rate overtime requirements. As such, reasoned the DOL, the fees paid to the employees in this case are more similar to flat-fee compensation and, as such, flat fees “which are paid without regard to the value of the service performed do not represent ‘commissions on goods or services’ for purposes of Sec[tion] 7(i). Such employees are considered to be compensated on a piece rate basis and not on the basis of commissions.”

A lot of information to digest, no doubt, and yet it is easy to see that there is a lot riding on all this for both employers and employees. If the Third Circuit agrees with the DOL’s position, employers can expect to face collective class actions for wage and hour issues under both federal and state law, and so the costs associated with these claims are sure to increase, and compliance with these rules is sure to be checked heavily by employers. Conversely, employees will have another avenue on which they can base their collective wage claims, which certainly would seem to strengthen their positions both inside and outside the courts.