Last month, the United States Supreme Court (Supreme Court) provided an unexpected gift to entities facing collective actions under the Fair Labor Standards Act (FLSA) by holding that defendants may moot such a case by making an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure. This ruling could have application to the more common vehicle for multiple plaintiff claims, class actions under Rule 23, but that has yet to be tested. Nonetheless, this is an important case for any defendant facing multiple plaintiff claims because of its potential application to class actions.

In Genesis Healthcare Corp. v. Symczyk, No. 11-1059 (Apr. 16, 2013), the plaintiff brought FLSA claims arising out of an employer’s use of an “auto-deduct” policy for meal periods. This means that the employer would automatically deduct the meal period from the employee’s shift, even when the employee performed compensable work during those breaks. The plaintiff-employee, on behalf of herself and others similarly situated, sought statutory damages for the alleged violations.

Along with its answer, the employer simultaneously served on the employee an offer of judgment under Rule 68, which included $7,500 for alleged unpaid wages, in addition to “such reasonable attorneys’ fees, costs, and expenses . . . as the Court may determine.” The employer stipulated that if the employee did not accept the offer within 10 days of service, the offer would be withdrawn. When the employee ignored the offer, the employer filed a motion to dismiss based on lack of subject matter jurisdiction. The employer argued that because they offered the employee complete relief on her individual damages claim, she no longer possessed a personal stake in the outcome of the suit, rendering the action moot. The employee objected and asserted that the employer was inappropriately attempting to “pick off” the named plaintiff.

The trial court found that no other individuals had joined the employee’s suit and that the Rule 68 offer fully satisfied her individual claim; therefore, the offer mooted the employee’s suit, which was then dismissed for lack of subject-matter jurisdiction. The appeals court reversed, holding the collective action was not moot. The appeals court said “calculated attempts by some defendants to ‘pick off’ named plaintiffs with strategic Rule 68 offers before certification would short-circuit the process and frustrate the goals of collective actions.” The appeals court remanded the case to allow the employee to seek “conditional certification.”

The Supreme Court found the district court correctly dismissed the case. Because the employee did not contest that her own personal claim would have been satisfied by the offer, the majority of justices assumed that it did; therefore, the offer mooted her individual claim. The dissenting justices, as well as many commentators, have noted this assumption is significant because not all circuits agree an unaccepted offer will moot a plaintiff’s claim. Since the claim was moot, the employee had no stake in the outcome of the remainder of the case.

Despite the employee’s argument that upholding the trial court’s ruling could allow employers to “pick off” plaintiffs, the Supreme Court rejected this argument. The Supreme Court concluded such concerns could arise under certain types of Rule 23 cases seeking certain types of relief, but FLSA claims involving money damages did not trigger these concerns. Accordingly, a Rule 68 offer that satisfies the representative employee’s claims moots a putative collective action under the FLSA.

Employer Lessons

This decision does not resolve the preliminary question facing employers when they must decide whether to make a Rule 68 offer: what is the effect of an unaccepted or rejected offer of judgment? Division remains among the courts regarding the impact of a rejected offer, and even then, some courts are skeptical of Rule 68 offers on a routine matter. Employers need to explore the effect of a Rule 68 offer in their respective jurisdictions.

An additional point to highlight involves the appropriate amount of such an offer, which must include the claim amount and attorneys’ fees. Depending on the type of employee asserting the claim, which can have a three-year statute of limitations, the amount of the offer could be significant. The defense is also taking on the risk of an unknown quantity of fees. Certain types of cases are right for these offers, but others are not.

Finally, employers need to keep in mind defensible claims are not necessarily appropriate for Rule 68 offers. The employer will not be able to assert its defenses if it makes a Rule 68 offer, nor will it be able to show the amount of hours worked is lower than the employee claims. A Rule 68 offer essentially accepts the plaintiff was injured exactly as he or she claims. These questions need to be reviewed in short order when employers receive these complaints.

The Supreme Court’s decision is significant for employers and others, and it should be used in FLSA cases where appropriate. This case may also commence a softening of the reticence to Rule 68 offers among courts that view them unfavorably. You might be able to pick off your plaintiff and avert a significant lawsuit, but only in the right case.