In In re: Chipotle Mexican Grill, Inc., Case No. 17-1028 (10th Cir. March 27, 2017), the Tenth Circuit Court of Appeals reiterated its holding in Theissen v. GE Capital Corp., 267 F.3d 1055 (10th Cir. 2001), that a district court may utilize a variety of approaches to identify similarly situated workers for purposes of authorizing facilitated notice in FLSA collective actions.

The Tenth Circuit reaffirmed its position when denying Chipotle’s petition for a writ of mandamus. There, the district court issued an order in Turner v. Chipotle Mexican Grill, Inc., 123 F. Supp. 3d 1300 (D. Colo. 2015), authorizing notice in a collective action resulting in 10,000 opt-in plaintiffs.  As part of its petition, Chipotle sought a writ of mandamus to dismiss the district court’s joinder of 10,000 opt-in plaintiffs, or, in the alternative, to remand to permit discovery to ascertain if the opt-ins are similarly situated and to provide an opportunity to file a motion to decertify the collective action.  The Tenth Circuit rejected Chipotle’s application because the district court’s order was “not such a gross abuse of discretion” to warrant mandamus relief.

That the Tenth Circuit denied mandamus relief is unremarkable based on factors presented. Of significance, however, is the court’s discussion and acknowledgment that Theissen’s three approaches (the ad hoc approach; Rule 23 approach; and spurious approach under pre-1966 Rule 23 amendments) remain available to district courts to use to determine who is similarly situated under FLSA Section 216(b) for purposes of facilitated notice.

In Turner, plaintiffs allege that Chipotle’s company-wide automated computer timekeeping system “arbitrarily cuts off the time clock at half past midnight,” allegedly resulting in some shift-closing hourly employees working off-the-clock without being compensated.

The district court analyzed “the proper procedural mechanism for pursuing a representative action ‘on behalf’ of employees similarly situated.” 123 F.Supp. 3d at 1305.  The court rejected so much of plaintiffs’ motion insofar it was characterized as one for conditional certification under a lenient standard of “substantial allegations” that the plaintiff and those similarly situated were victims of “a single decision, policy or plan.”  It also rejected Chipotle’s request for a stricter standard of review of plaintiffs’ motion for facilitated notice, as plaintiffs had discovery, and that certification should be limited to stores where there is “substantial evidence” of a common decision, policy or plan. Id.

The district court proceeded to identify the proper standard to authorize notice of collective action. It specifically rejected the two-step ad hoc conditional certification rubric as well as the Rule 23 approach to facilitate notice of the collective action because such approaches conflate the Rule 23 class certification standard with Section 216(b)’s permissive joinder standard.  Rather, it found that Section 216(b) collective action may be analogized under the spurious class action approach (old Rule 23(a)(3)), as both were “‘aggregated damages claims for only those who opted in and both were joinder liberalizations.’” Id. at 1306 (citation omitted).  It concluded that the proper approach in deciding a motion to facilitate notice “is to presumptively allow workers bringing the same statutory claim against the same employer to join as a collective, with the understanding that individuals may be challenged and severed from the collective if the basis for their joinder proves erroneous” (emphasis supplied).  The court placed the burden on Chipotle to “winnow” the collective at some later point in the proceeding through F.R.Civ.P. Rules 21 (misjoinder) and Rule 42 (severance) procedures.

The Tenth Circuit found that the district court’s “presumptive” approach to facilitate notice, which it likened to the “spurious” approach, complies with Section 216(b). It noted that “under the spurious approach, courts incorporate into § 216(b) the pre-1966 requirements of Rule 23 based on Advisory Committee notes which are: (1) “the character of the right sought to be enforced … must be several,” (2) “there must be a common question of law or fact affecting the several rights,” and (3) “a common relief must be sought.”

The district court’s departure from the ad hoc/two-step approach is notable.  Under the ad hoc approach, the first step requires a named plaintiff to make a modest factual showing that the named plaintiff and potential opt-in plaintiffs are victims of a common decision, policy, or plan.  If shown, court-approved notice to potential collective action members will issue.  The second step, occurring after the completion of discovery, requires the district court, applying a more stringent standard of proof, to make factual findings whether the opt-in plaintiffs are in fact similarly situated to the named plaintiff.  The ad hoc approach is used by many district courts and has been acknowledged by a number of circuit courts, in addition to the Tenth Circuit, as an acceptable approach. See e.g. Zavala v. Wal Mart Stores Inc., 691 F.3d 527 (3d Cir. 2012); Myers v. Hertz Corp., 624 F.3d 537 (2d Cir. 2010).

The Tenth Circuit in In Re Chipotle repeated its position in Theissen, “that the two-step process is arguably the best of the three approaches we have experienced,” but, at the same time, noted that the differences between the approaches were minimal, as “[a]ll approaches allow for consideration of the same or similar factors.”  It deferred to the district court’s discretion whether to deny collective action treatment “for trial management reasons.” The Tenth Circuit rejected Chipotle’s argument that the ad hoc approach is mandated by Theissen.

Also, the Tenth Circuit rejected Chipotle’s argument that the spurious approach violates its due process rights because there is no threshold determination if the matter is suitable for collective action treatment and it places the burden on Chipotle to “winnow” the collective action thereafter. Acknowledging that the winnowing process may be burdensome, the circuit court observed that, at this stage of the litigation, Chipotle had not identified a basis relieving it from this task.

The Tenth Circuit concluded by opining that it made “no definitive determination of the merits of using the spurious approach as opposed to either of the others”, and noted that the district court’s approach “may be debatable”. Nevertheless, the Turner case proceeds as a collective action with 10,000 opt-in plaintiffs.

Takeaways

  1. Trial courts are given wide latitude in deciding how to identify and provide notice to similarly situated litigants of FLSA collective actions. In the Tenth Circuit, no one method is mandated under § 216(b).  Nevertheless, the Turner district court decision, if followed, may signal even larger collective actions.  The ad hoc or two step approach has enjoyed wide acceptance at the district court and, more important, acquiescence at the circuit level.  The standard of proof at the initial certification stage is low to meet its purpose “to determine whether ‘similarly situated’ plaintiffs do in fact exist.” Myers, 645 F.3d at 555 (emphasis in original).  Although the plaintiff’s initial burden is modest, “it is not non-existent.” Khan v. Airport Mgmt. Servs., LLC, No. 10-CV-7735, 2011 WL 5597371 at *5 (S.D.N.Y. Nov. 16, 2011).  The “modest factual showing” to support conditional certification at the first stage inquiry starts the winnowing process by determining “whether, ‘similarly situated’ plaintiffs do in fact exist.” Myers, 624 F.3d at 555 (citations omitted; emphasis in original).  Under the Turner district court decision, the winnowing process will start later through misjoinder and severance motion practice, possibly on an individualized basis.
  2. The Turner case highlights the risk associated with utilizing automated time and attendance tracking systems. The administrative efficiencies that such systems bring to the workplace can be offset by lawsuits alleging inaccurate recording of working time.  An automated timekeeping system may reduce administrative overhead and control payroll, but it may lead to incidents of off the clock work, when, for example, meals are not taken, but recorded as having occurred.  Or, as alleged in Turner, an employee working a closing shift cannot record time, because the automated timekeeping system is not operational after a certain hour.  Some employers have learned this lesson the hard way in auto-deduction class and collective actions, involving meal breaks, particularly where a monitoring system is not in place to verify that all hours worked are recorded.

Our colleagues Brian G. Cesaratto and Adam S. Forman, at Epstein Becker Green, have a post on the Technology Employment Law blog that will be of interest to many of our readers in the retail industry: “Phishing Scam Targets Human Resources and Payroll Departments.”

Following is an excerpt:

Human Resources and Payroll should advise employees in their departments to be on the lookout for the latest tax season phishing scam designed to steal employees’ tax related information and social security numbers. Given the regular frequency of these types of attacks, employers should be taking appropriate steps to safeguard employee Personally Identifiable Information (“PII”).  At a minimum, Human Resources should have in place written policies regarding the handling of employee PII and provide training designed to protect employee PII against a data breach.  Because Human Resources works with employee PII on an everyday basis, it may be the best equipped to secure sensitive personnel information against the type of fraudulent scheme highlighted in the recent IRS alert. …

What preventative steps can be taken to guard against these attacks? Human Resources should ensure that policies and procedures are in place requiring that the sending of employees’ confidential tax related information by email only be done with 100% confidence that the intended recipient is within the organization and has requested the information. Indeed, the IRS advises that employers consider adopting written policies that govern the electronic distribution of confidential employee Form W-2s and tax related information. …

Read the full post here.