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Third Circuit Limits Nonresident Opt-In Plaintiffs’ Ability to Join FLSA Collective Actions, Deepening Circuit Split


Q: Can an employee opt into an FLSA collective action if the employee does not reside in the state in which the action is pending?

A: Unless an action is filed in the state in which an employer is incorporated or headquartered, the answer to this question varies by jurisdiction. In August 2021, both the Sixth Circuit (covering federal courts in Kentucky, Michigan, Ohio, and Tennessee) and the Eighth Circuit (covering federal courts in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) answered this question in the negative, requiring that opt-in plaintiffs under the Fair Labor Standards Act (FLSA) reside in the state in which an action was filed for a court to exercise personal jurisdiction. Earlier this year, the First Circuit (covering federal courts in Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode Island) reached the opposite conclusion, reasoning that disallowing nonresident opt-in plaintiffs from joining FLSA collective actions would frustrate the purposes of the collective action mechanism.

On July 26, the Third Circuit (covering federal courts in Delaware, New Jersey, and Pennsylvania) sided with the Sixth and Eighth circuits, further nudging the existing circuit split in favor of employers.

Legal Background

For a court to adjudicate a lawsuit and bind a defendant, it must have personal jurisdiction over the defendant. There are two types of personal jurisdiction: specific jurisdiction and general jurisdiction. Specific jurisdiction requires that the claims in the lawsuit arise out of the defendant’s activities in the state in which the lawsuit is pending. General jurisdiction, by contrast, requires that the defendant maintain contacts with the forum state that are so constant and pervasive that the defendant could be fairly regarded as “at home” in the state, which is generally limited to a corporate defendant’s state of incorporation or principal place of business. If a court cannot exercise specific jurisdiction or general jurisdiction over a defendant in a lawsuit, the lawsuit is subject to dismissal for lack of personal jurisdiction.

Applying these principles, in 2017, the Supreme Court oversaw a case originally filed in California in which hundreds of plaintiffs, made up of both residents and nonresidents of California, advanced aggregated claims against a pharmaceutical company that was neither incorporated nor headquartered in California. The claims of the nonresident plaintiffs were not based on harm suffered or treatment that occurred in California. In holding that the California court lacked personal jurisdiction as to the claims of the nonresident plaintiffs, the Supreme Court clarified that mere overlap between the claims of residents and nonresidents is not sufficient to establish personal jurisdiction. However, the Supreme Court’s decision, based on claims arising under state law, left open the question as to how personal jurisdiction should be assessed in lawsuits arising under the FLSA, a federal statute with a collective action mechanism.

Third Circuit Decision

In the case before the Third Circuit, a Pennsylvania resident filed a collective action under the FLSA in the U.S. District Court for the Eastern District of Pennsylvania, alleging that the employer misclassified employees in her position as exempt under the FLSA. The employer was incorporated in Delaware and maintained its principal place of business in Tennessee, but it operated and employed employees nationwide. Months after the lawsuit was filed, employees from New York and Maryland opted into the action. The out-of-state employees did not work for the defendant or otherwise have any connection to the defendant in Pennsylvania.

Relying on the Supreme Court’s 2017 decision, the district court only certified the collective action and authorized notice as to employees in Pennsylvania, holding that it lacked personal jurisdiction with respect to the claims of putative opt-in plaintiffs who did not reside in Pennsylvania. On appeal, the Third Circuit affirmed the district court’s decision, concluding that the district court lacked general jurisdiction and specific jurisdiction over the nonresident opt-in plaintiffs’ claims, as the defendant was not incorporated or headquartered in Pennsylvania, and the claims did not arise out of work performed in Pennsylvania.

In affirming that the district court lacked personal jurisdiction over nonresident opt-in plaintiffs, the Third Circuit distinguished FLSA collective actions, wherein opt-in plaintiffs are considered “party plaintiffs,” from Rule 23 class actions, wherein the named plaintiff acts as the representative party and class members are not considered “parties” for jurisdictional purposes. The Third Circuit also analogized the FLSA collective action mechanism to the state law procedural tool used by the plaintiffs in the 2017 Supreme Court case, which likewise treated all allegedly aggrieved litigants as parties. The Third Circuit rejected appellants’ argument that personal jurisdiction was established because the resident and nonresident opt-in plaintiffs suffered from the same unlawful policy, relying on the Supreme Court’s holding that mere overlap between claims does not establish personal jurisdiction. The Court also rejected the argument that service alone suffices to confer personal jurisdiction.

Takeaways

As referenced above, the Third Circuit joined the Sixth and Eighth circuits in limiting nonresident opt-in plaintiffs’ ability to participate in FLSA collective actions. By contrast, the First Circuit has permitted nationwide jurisdiction. Dozens of district courts outside of these circuits also have weighed in on the issue. Unless and until the Supreme Court settles the circuit split, employers with operations in multiple states face some degree of inconsistency.

Though the issue varies by jurisdiction, the Third Circuit decision further pushes the circuit split in favor of employers, providing a potential argument to significantly limit the size and scope of multistate FLSA collective actions in circuits that have not yet decided this issue. Employers facing FLSA collective actions should consider whether and how to use the argument to reduce exposure. In doing so, employers should carefully evaluate all relevant considerations, including the effect of any corresponding claims asserted on a class-action basis and the risk of duplicative actions in multiple jurisdictions.



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