Settling Rule 23 opt-out class actions is straightforward: the agreed-upon settlement is presented to the court for preliminary approval of a Rule 23(e) settlement class and — if the settlement is not approved — the parties return to their pre-settlement status: i.e., there is no class. But, following the conventional wisdom on FLSA opt-in rules makes it impossible to do that.

Not only is the conventional wisdom wrong, it isn’t even uniform. There is no standardized protocol for settling putative collective actions under the FLSA. Courts currently apply varying (but equally unsatisfactory) procedures in settling FLSA collective actions:

Option A – Follow Rule 23 model: Chemi v. Champion Mortg., 2009 WL 1470429, at *2 (D.N.J. May 26, 2009) (granting preliminary approval of settlement before certifying collective action and notice to be followed by final settlement approval hearing);

Option B – Stipulated notice first: Su v. Elec. Arts, Inc., Case. No. 6:05–cv–131–Orl–28JGG, 2006 WL 4792780, at *1, 2 (M.D. Fla. Aug. 29, 2006) (authorizing notice to the class members giving them the opportunity to opt in but without prior approval of settlement); Leigh v. Bottling Group, LLC, Case No. DKC 10–0218, 2011 WL 1231161 (D. Md. Mar. 29, 2011) (same);

Option C – Purported settlement moots case and forecloses notice: Perez v. Avatar Props., Inc., 2008 WL 4853642, at *3–4 (M.D. Fla. Nov. 6, 2008) (rejecting motion to conditionally certify and send notice of already settled action; FLSA’s opt-in nature “argues against approval of a settlement and facilitation of court notice of same, before those claims have even been filed [by prospective opt-in plaintiffs]”).

Option A simply ignores the problem; Option B is an untenable risk for defendants; Option C is an untenable risk for plaintiffs. There ought to be another way and there is: it is just under-recognized. There are three separate justifications for alternatives that skip over the opt-in process in settlements.

zoom-61715774-3First, under the FLSA, the opt-in process is not a provision to protect employee-class members. Rather, Congress added that provision to protect employers. The Supreme Court emphasized precisely that point: Congress created the FLSA’s opt-in requirement as part of the Portal–to–Portal Act of 1947 “for the purpose of limiting private FLSA plaintiffs to employees who asserted claims in their own right and freeing employers of the burden of representative actions.” Hoffman-La Roche, 403 U.S. 165, a 173 (1989). The upshot of that history is that employers should be able to waive that protection.

Second, a class release of state law claims (for which Rule 23 opt-out only class treatment is appropriate) properly bars FLSA claims (for which opt-in only collective action treatment is merely the conventional wisdom). Keeler v. AIG Domestic Claims, Inc., Case No. B226691, 2011 WL 6318485, at *13-15 (Cal. Ct. Appeal Dec. 19, 2011) (permitting parties in state wage law class action to include release of future FLSA claims in settlement without requiring FLSA opt-ins); Lipnicki v. Meritage Homes Corp., Case No. 3:10-CV-605, 2014 WL 923524 (S.D. Tex. Feb. 13, 2014) (where plaintiffs had been class members of class action in California court under state wage law and settlement provided for blanket release of all claims with a similar factual predicate, plaintiffs were barred from later pursuing FLSA even though class action did not require opt-in); Frank v. Eastman Kodak Co., 228 F.R.D. 174, 179 (W.D.N.Y. 2005) (opt-out notices could be used to settle both FLSA and state law claims).   Thus, in hybrid cases, Rule 23 settlement structures alone can properly settle FLSA claims without the need for opt-ins..

Finally, if more is desired, FLSA compliance is even more secure where a check is delivered to each Rule 23 class member (who does not opt-out) with a legend on the check confirming that cashing that check not only releases any FLSA claims but also confirms that individual’s choice to opt-in. Lazarin v. Pro Unlimited, Inc., 2013 WL 3541217 (N.D. Cal. July 11, 2013) (approving class action settlement in hybrid FLSA/state law class action without separate FLSA notice, where class members opt-in and release their claims under the FLSA by cashing their settlement checks); Franco v. Ruiz Food Products, Inc., No. 1:10-CV-02354-SKO, 2012 WL 5941801, at *24 (E.D. Cal. Nov. 27, 2012) (same); but see Wright v. Linkus Enterprises, Inc., 2009 WL 1705721, at *2 (E.D. Cal. June 17, 2009) (opt-in procedures “must be provided for the release of the instant FLSA claims.”).

How does this work in practice? It is a three-step process in the typical hybrid class/collective action: (1) conditionally certify the entire class under Rule 23 for settlement purposes only; (2) send notifications to all class members of the pending settlement and their rights to opt-out; and — if you want belts and suspenders — (3) tie the act of cashing a settlement check to an affirmative opt-in with a reversion for uncashed checks (because those are now unreleased claims).

But, what if this is only an FLSA-only case? In that context, it is necessary to amend the complaint to add Rule 23 classes under state law (e.g., state wage hour statutes, common law claims of unjust enrichment, breach of contract, etc.), thereby creating complete preclusive effect, with a settlement binding all class members except those who opt-out. In re Sulzer Hip Prosthesis & Knee Prosthesis Liab. Litig., 1:01-CV-9000, 2001 WL 1842315 (N.D. Ohio Oct. 20, 2001) (granting motion to amend complaint to add additional Rule 23 subclass for purposes of settlement and simultaneously granting preliminary approval of settlement).

In Moneyball: The Art of Winning an Unfair Game, Michael Lewis quotes baseball statistician Bill James: “If you challenge conventional wisdom, you will find ways to do things much better than they are currently done.”   The number of FLSA and other wage-hour lawsuits is large enough to make following the conventional wisdom the dumbest thing since watching a called third strike.