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June 07, 2012
Did Rite Aid Misclassify Assistant Managers?

Several Rite Aid assistant managers sued the company for classifying them as salaried, exempt employees, depriving them of overtime pay. They first filed a class action suit under the federal Fair Labor Standards Act (FLSA). Then some of them also sued under two states’ wage-and-hour laws. Since the same facts and plaintiffs were behind all the suits, could they be tried together? That’s a controversial question.

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What happened. The FLSA suit was filed in a Pennsylvania federal district court. When some of the plaintiffs then filed suits for violation of Ohio and Maryland laws, all the suits were consolidated in the same Pennsylvania court. That’s because of the Class Action Fairness Act of 2005, which provides that a federal court has jurisdiction over such a suit where more than $5 million is in dispute and any defendant does business in a state different from that of any plaintiff.

But the state suits were filed under Rule 23 of the Federal Rules of Civil Procedure, which has different requirements than those of FLSA. Class members must opt in, in writing, to a Rule 23 suit, while they must opt out of an FLSA suit. In many recent years, judges have ruled that such different requirements can’t be combined in court; they are incompatible. And, that’s the way the Pennsylvania district judge ruled in the Rite Aid suits. But plaintiffs appealed to the 3rd Circuit, which covers Delaware, New Jersey, and Pennsylvania.

What the court said. Appellate judges reviewed the language of FLSA and Rule 23 regarding the class opting differences. They noted that FLSA’s opt-in procedure came about in 1947 in connection with the Portal-to-Portal Act and was meant to discourage suits filed by third-party unions, as well as plaintiffs who didn’t join the class until after a successful judgment. Rule 23 is more recent and was meant to broaden the number of plaintiffs in a class.

In fact, one expert said, surveys have shown that just 30 percent or fewer potential class members opt into an FLSA suit, whereas the opt-out rates from Rule 23 classes are less than 1 percent. Here, judges ruled there is no inherent incompatibility between the two procedures. They are the 5th panel to rule that way, along with the 2nd (CT, NY, VT), 7th (IL, IN, WI), 9th (AK, AZ, CA, HI, ID, MT, NV, OR, WA) and DC Circuits. Knepper and Fisher v. Rite Aid Corp., U.S. Court of Appeals for the 3rd Circuit, Nos. 11-1684 & -1685 (2012).

Point to remember: Many see these rulings as bad for employers; damages could explode if they lose. One expert noted a possible reason for the new approach to the issue: The Class Action Fairness Act has changed the landscape.

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