The decision is particularly notable because it is one of the earliest to apply the Fifth Circuit’s new standards for class certification. Some have speculated that the methodology outlined in Swales v. KLLM Transp. Servs., L.L.C. could seriously disadvantage workers. So far at least, the fallout does not seem to be as damaging as first feared.
Long hours and bonuses; short overtime
Justin Young worked as a driller and toolpusher for Energy Drilling Company. He and other drillers worked a punishing schedule – 10 to 12 hour shifts for up to seven days a week for weeks at a time. Each week, they regularly put in as much as 70 hours. The workers were paid $150 a day in “Safety” and “Beat the Curve” bonuses in addition to overtime.
Their overtime pay was calculated at one-and-a-half times their regular hourly rate, but did not include the bonuses. The difference could obviously be significant. More to the point, it allegedly does not meet the requirements of the FLSA.
FLSA overtime formula
The basic FLSA rule for calculating overtime is that non-exempt employees must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. The “one-and-a-half times” part of the rule is easy. Counting hours and calculating the regular rate of pay are the hard parts. The substance of this lawsuit is about whether the drillers regular rate of pay should have included the bonuses.
The FLSA distinguishes between discretionary and non-discretionary bonuses. Discretionary bonuses generally are not included in the regular rate of pay. Non-discretionary bonuses, including safety bonuses, are.
If Young were to go to trial, the question of whether the bonuses were discretionary or non-discretionary would be key. First, however, it has to be feasible for the workers to continue their lawsuit. Certification as a collective action is an essential part of this. This is where Swales becomes important.
New rules for class certification
Since 1987 most federal district courts have applied a two-step process to determine who is “similarly situated” and may potentially be included in the class of plaintiffs. This process was first established in Lusardi v. Xerox Corporation.
Under Lusardi, the first step requires only that a court decide whether the proposed members of a class of employees are similar enough to receive notice of and the right to opt-in to the pending action. This “first cut” is often based on initial pleadings. If the plaintiffs meet this burden, the court conditionally certifies the collective action, authorizes counsel for the representative plaintiff to send notice of the case inviting potential members to participate in the lawsuit, and permits the parties to proceed with the further fact-finding. Step one casts a wide net to locate all possible plaintiffs.
The defendant employer typically objects to the inclusion of some of those who have opted-in. As a second step, the court then applies a stricter standard to decide whether the members in question are, in fact, similar enough to proceed as a group. The “second cut” reduces the size of the potential class.
Swales compresses this two-step process into one step. The effect is to reduce the size of the class from the beginning, rather than waiting until the second review.
New concerns for collective actions
Plaintiffs’ lawyers identified several potential pitfalls in the new Fifth Circuit process:
- There appears to be a greater risk of missing a group of similarly situated participants by notifying too few.
- There is a greater risk that some potential plaintiffs will have their recoveries limited or barred by the statute of limitations. The statute of limitations for FLSA actions is quite short – only two years from the date of the violation (or three years if the employer’s action is willful). The time continues to run until an individual opts into the lawsuit. A protracted process may make it impossible for some of those affected to join.
- The Swales process shifts the costs of initial discovery from the defendant to the presumably shallower-pocketed plaintiffs because of the stage of the process in which it occurs.
- The new process introduces a new level of uncertainty. With different federal courts interpreting and applying the same federal law differently, challenges seem a near-certainty.
District Court grants conditional certification
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Assessing the outcome
On one hand, the size of the proposed class does not seem to have been significantly reduced. The fact that the District Court did not call for additional discovery also lessens the chance that legitimate unpaid wages claims will be time barred.
On the other, the plaintiffs have presumably already had to incur increased discovery costs in order to assemble the evidence of pay practices. The Fifth Circuit’s certification process is still an outlier and the risk of uncertainty remains.