In Genesis Healthcare Corp. v. Symczyk, just decided on April 16, 2013, the U.S. Supreme Court held that, in a Fair Labor Standards Act (“FLSA”) case, an early settlement offer to an employee which moots his or her individual FLSA claim will preclude the employee from continuing with a larger collective action on behalf of other employees.

Under the FLSA, most employees who work more than 40 hours in a week are entitled to overtime compensation at one and one-half times their regular rate of pay.  An employee who files a lawsuit can bring it as a “collective action” on behalf of other similarly situated fellow employees, thereby converting a lawsuit by one employee for unpaid overtime into a significantly larger case.  The other employees will have the choice to opt in to the case if the Court conditionally “certifies” the matter as a collective action, i.e., confirms that the potential opt-ins are similarly situated to the named plaintiff and that other requirements are met.

Under long-established principles of law founded in the U.S. Constitution’s Article III, however, federal courts cannot hear “moot” cases, i.e., ones in which the plaintiff does not actually have anything sufficiently substantial to gain by winning the lawsuit.  Management lawyers have been able to use this principle to obtain early dismissals of FLSA cases before they can be certified as collective actions.  This can be done by offering the lone initial plaintiff everything he or she could win for themselves through the lawsuit – claimed overtime, liquidated damages, and attorneys’ fees.  Dismissal under these circumstances is hardly an unfair result, since the plaintiff has been offered everything he or she sought personally.  It may, however, be a disappointment to the plaintiff’s lawyers who sought to represent a larger class.

The underlying facts of Genesis Healthcare matched the fact pattern above.  The plaintiff, registered nurse Laura Symczyk, filed an FLSA lawsuit against her former employer for unpaid work time during breaks.  However, before she moved to certify the matter as a collective action, management made an offer of judgment to pay her $7,500 plus attorneys’ fees and expenses to satisfy all her claims.  She refused to accept the offer, and the offer lapsed.  The District Court dismissed the case as moot, because plaintiff had been offered all of what she sought for herself in the lawsuit.  The U.S. Court of Appeals in Philadelphia reversed, reasoning among other things that allowing such an easy dismissal of the lawsuit would frustrate the purpose of the collective action procedure authorized by the FLSA.

In a 5-4 decision, the U.S. Supreme Court reversed and found that the District Court had properly dismissed Symczyk’s lawsuit.  In an opinion by Justice Thomas, the Court described first that a split in authority existed over whether a settlement offer that was not accepted and then lapsed (like the one made to Symczyk) could moot an FLSA collective action.  The Court stated that it did not need to resolve the split, however, because the parties and the courts below assumed the offer made the case moot as to Symczyk.  The Court proceeded to reason that, if an individual FLSA plaintiff’s claim is moot, the fact that plaintiff still wants to serve as a representative for other members of the workforce in a collective action does not mean there is a still a “live” case for mootness purposes.  The case must be dismissed.

In a dissenting opinion joined by three other Justices, Justice Kagan seized on the fact that the majority opinion relied on an assumption by the parties and the courts below that the lapsed settlement offer mooted the case.  If the assumption was a mistaken one – if a case survives mootness after a settlement offer lapses without the plaintiff accepting it — then the majority was writing about a factual scenario that would not arise again unless the parties made a similar potentially mistaken assumption.  In very lively judicial writing, Justice Kagan’s dissent describes: “The Court today resolves an imaginary question, based on a mistake the courts below made about this case and others like it.”  The concurring opinion encourages readers: “Feel free to relegate the majority’s decision to the furthest reaches of your mind: The situation it addresses should never again arise.”

The majority opinion responds to Justice Kagan in a footnote.  It explains that, if an employer makes an offer to settle that completely resolves the plaintiff’s claims, and the plaintiff refuses to accept it, that does not necessarily end the matter.  There are procedures authorized by some lower courts under which the employer can require that judgment be entered along the lines of the settlement. The plaintiff may be effectively required to accept the offer, and this paves the way for a mootness dismissal.

Genesis Healthcare is a good case for an employer who knows it has potential FLSA liability and is willing up front to pay the plaintiff the full amount claimed to settle, and thereby potentially avoid conditional certification of a collective action.  An offer that will make the plaintiff whole and potentially moot the plaintiff’s claim would need to pay the plaintiff in full, which means the employer would have to consider paying not only claimed overtime, but also liquidated (double) damages and any attorneys’ fees plaintiff incurred.

Justice Kagan’s dissent points up major caveats for employers to consider in relying on this decision.  The U.S. Supreme Court’s opinion does not state what type of offer will make a case moot.  The answer is particularly uncertain when a plaintiff rejects the offer in question and it expires.  Because there are questions unanswered in the Genesis Healthcare opinion, employers will have to watch carefully for further developments in this area of the law.