Seventh Circuit test for issuance of notice to prospective ADEA/FLSA collective plaintiffs balances employee and employer interests, offering employers a chance at pre-notice rebuttal evidence

Background

In actions under both the Age Discrimination in Employment Act and Fair Labor Standards Act, employees may bring a “collective action” claim on behalf of themselves and other employees similarly situated. Unlike a federal Rule 23(b)(3) class action, where a representative plaintiff’s actions bind all class members unless they opt-out, these collective actions require that collective plaintiffs opt-in to participate and afford each plaintiff party status. Historically, Supreme Court precedent has permitted district courts to be involved in the issuance of notice to proposed classes of ADEA/FLSA collective plaintiffs on the justification that district courts have a managerial responsibility to oversee the joinder of additional parties.

Traditionally, the Seventh Circuit’s district courts have largely followed the “Lusardi approach” for court-issued notice which required a two-step analysis. At the first step, the plaintiff needed to make a “modest factual showing sufficient to demonstrate that they and potential plaintiffs together were victims of a common policy or plan that violated the law.” Generally, unless significant discovery had already occurred, this low burden was sufficient for the court to issue notice to the proposed collective class. Only then at step-two, after notice and opt-ins by the collective class, did most courts allow defendants the chance to move to sever the class by demonstrating the collective class of employees is not actually similarly situated. By this point, of course, the damage to employers was done, generating potential further lawsuits regardless of whether the plaintiffs were ultimately allowed to proceed with collective class status.

Recently, multiple circuits have begun examining the plaintiff’s burden before a Court can issue notice to a class of potential collective plaintiffs. Now, under Richards v. Eli Lilly & Co., the Seventh Circuit has joined the discussion.  

Richards v. Eli Lilly & Co.

In Richards v. Eli Lilly & Co., plaintiff Monica Richards was working as an interim District Sales Manager for one of Eli Lilly’s sales teams for nearly six months when she applied for official promotion to that position. Ms. Richards was in her early fifties and had been with the company for six years. Despite her experience and already occupying the role, she was passed over for promotion in favor of a younger employee with less experience. Ms. Richards alleged that the denial of her promotion was based on a companywide initiative to support and retain “Early Career Professionals” with less than two years of postgraduate experience. Based on the alleged policy, Ms. Richards filed her claim and requested the District Court issue notice to a proposed collective class of "Eli Lilly employees who were 40 or older when they were denied promotions for which they were qualified, since February 12, 2022." The District Court employed the Lusardi approach and found that Richards had made the requisite showing for notice to issue but certified an interlocutory appeal to the Seventh Circuit in an invitation for the Court to establish precedent for the standard to apply for a plaintiff’s burden of proof to show such a collective class was “similarly situated” prior to notice.

On appeal, the Seventh Circuit addressed the tension between the competing interests of plaintiff employees and defendant employers. On one hand, plaintiffs have strong incentive to get notice issued to a collective class because it lowers individual cost to litigate, makes it easier to retain suitable counsel, and particularly creates settlement leverage against defendants; whereas, on the other hand, defendants have an interest in avoiding larger classes and the generation of new lawsuits regardless of whether new plaintiffs ultimately opt in or proceed with separate claims. The Seventh Circuit also articulated concerns about avoiding the appearance of the judiciary endorsing the lawsuits by issuing notice and the need to maintain flexible judicial discretion.

To resolve these concerns, the Seventh Circuit charted a middle course. The new approach rejected Lusardi as too lenient but treated the “heightened burden” and “preponderance of the evidence” standards adopted by sister Circuits as too strict. Similar to the standard on a motion for summary judgment, step-one of the Seventh Circuit’s new standard now requires plaintiffs to make a threshold showing that there is a material factual dispute whether the proposed class collective is similarly situated, i.e., that the plaintiffs were victims of a common illegal employment practice or policy, before a class can be conditionally certified for notice by the court. Significantly, defendants are now also permitted to offer their rebuttal evidence before notice issues. However, the Court also recognized this may mean parties simply submit affidavits and counter-affidavits.

What happens next after plaintiffs establish the existence of a factual dispute remains subject to judicial discretion. If the court believes the information needed to resolve the dispute is in the hands of the yet-to-be-noticed plaintiffs, it may still issue notice and follow a two-step approach to postpone final determination until after opt-in and discovery are complete. Here, plaintiffs would bear the burden at the second step to move to certify their class themselves and establish commonality by a higher “preponderance of the evidence” standard. (In a concurring opinion, one of the Seventh Circuit judges questioned this portion of the Court’s analysis and stated that since this two-step process was not actually applied in this case, the Court should not have ruled on this point, and this part of the opinion was mere dicta, i.e., non-binding commentary. So there may be room for argument in future cases that this part of the Court’s analysis was not binding precedent, and should be revisited.)

Alternatively, a trial court may instead determine limited discovery would be sufficient at step-one to resolve the dispute before notice. However, in commentary that perhaps signaled the scales remain slightly tipped in favor of plaintiffs, the Seventh Circuit also cautioned lower courts to consider that delays in notice for conducting discovery could jeopardize the potential expiration of the statute of limitations on FLSA claims for prospective plaintiffs.

What does it mean for employers?