Understanding FLSA and the Collective Action Process

In-House Texas

In May 2005, the U.S. District Court for the District of Oregon entered a judgment in a collective action against Farmers Insurance Exchange for $54.5 million for unpaid overtime. Even more remarkable, the Judgment does not include $210 million Farmers paid to resolve overtime claims in California. Many times, companies ignore large judgments and settlements, because they often involve resolution of California state overtime claims.

The recent Farmers judgment proves this way of thinking is risky. To understand and manage risks associated with the Fair Labor Standards Act, corporate counsel need to understand the FLSA and the collective action process. Collective actions under the FLSA are very different from a traditional class action. The standard certification process for an FLSA collective action is lenient — generally that the potential members are "similarly situated." Based on this standard, courts will usually conditionally certify the class and order notice to all potential members of the action. Note that the FLSA does not follow the class action procedures in Federal Rule of Civil Procedure 23. In a Rule 23 class, patential members of the class are bound by the results unless they opt-out of the class. The end of the case generally means the end of potential liability with respect to the class certified unless someone specifically opted out of the class.

Not so with an FLSA collective action. Under §16(b) of the FLSA, a potential member must opt-in to the suit or will retain his or her rights to file an individual suit or separate collective action.

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