The Journal of The DuPage County Bar Association

Back Issues > Vol. 23 (2010-11)

Double Whammy: Employers Engaged In Systematic Wage Theft Best Beware
by Glenn R. Gaffney

In a bad economy, employers do what they must to survive. Layoffs, reductions in force and reduction of other capital expenses are all legal. However, hiring illegal aliens and others to work at less than minimum wage, failure to pay overtime to non-exempt employees, misclassification of employees as independent contractors, refusal to pay job preparation or work travel time , failure to pay for working lunches and other such missteps run afoul of the Fair Labor Standards Act (FLSA),[1] as well as the Illinois Minimum Wage Law (IMWL).[2] Employers who perceive that it is worth the risk to engage in such practices should now think twice. A recent Seventh Circuit Court of Appeals decision now allows plaintiff class action lawyers to combine FLSA collective “opt-in” actions with state law “opt-out” class actions. Threat of such a federal suit resulting in notice of joinder to all potentially impacted employees should be scary enough, but when combined with the passage of Senate Bill 3568 effective January 1, 2011, amending the Illinois Wage Payment and Collection Act,[3] these changes in the law constitute an uninsurable “double whammy,” significantly raising the stakes on a failure to follow state and federal wage laws.

Seventh Circuit Allows Combined FLSA “Opt-in” and State Law “Opt-out” Collective Class Actions. In January, 2011, the Seventh Circuit Court of Appeals in Ervin v. OS Restaurant Services, Inc.[4] held that a District Court could certify a state law class action under the Illinois Minimum Wage Law, along with a combined FLSA collective action. The decision in Ervin is viewed as a significant victory for plaintiff FLSA class action lawyers in Illinois. In an FLSA action, a class of plaintiffs receives a notice which then allows them to “opt-in” to the litigation. State law claims, which otherwise require diversity jurisdiction, can now be combined under the federal court’s “supplemental jurisdiction,” requiring the individual plaintiff employees within the class to take affirmative action or “opt-out” in order to not have all class employees’ claims adjudicated in the combined state and federal action.

In Ervin, plaintiffs were former employees of an Outback Steak House who had filed suit on behalf of themselves and all others who had previously worked or were currently employed at Outback as hourly or tipped employees, alleging that Outback’s policies ran afoul of the FLSA and Illinois Minimum Wage Law. Plaintiffs moved for conditional approval of a federal collective action under Section 16(b) of the FLSA[5] which authorizes employees to act together to seek redress for violations of the FLSA. When appropriate, others similarly situated then receive a notice to “opt-in to the collective action.”[6] At the same time, plaintiffs also sought certification under Federal Rule of Civil Procedure 23(b)(3) for a class action on state law claims under the IMWL and the Illinois Wage Payment and Collection Act. The United States District Court for the Northern District of Illinois refused to certify the class, suggesting incompatibility between the “opt-out” nature of a Rule 23 state law action and the “opt-in” nature of an FLSA Section 216 action. The District Court reasoned that the collective action authorized by the FLSA would be undermined if supplemental state-law class actions were pursued in the same case because FLSA authorizes only “opt-ins” while the state-law action under Rule 23(b)(3) which has a “Default Rule of Inclusion and demands affirmative action to stay out of the case.”[7] Thus, the District Court believed that including the state-law claim undermined the intention of Congress under the FLSA.

The Seventh Circuit disagreed and reversed, finding that a combined action is consistent with the intent of Congress under the FLSA and that it does not run astray of either Rule 23(b)(3) or the FLSA to require potential participants to make two choices: (1) decide whether to opt-in and participate in the federal action; and/or (2) decide whether to opt-out and not participate in the state-law claims.[8] The Seventh Circuit opined about a “worse problem of confusion” if plaintiffs receive both a federal FLSA claim notice from a federal court and also a separate state class action notice, as opposed to one federal court notice properly drafted to address both state and federal claims.

The Court further held that plaintiffs need not meet the diversity of citizenship requirements to obtain federal court jurisdiction over the state law class action as the Court’s “supplemental jurisdiction” is available when state-law wage claims are closely related to the FLSA collective action.[9] As a result, Illinois employers who fail to abide by the federal and state wage acts may find themselves subject to defending a multi-count federal action combining both a federal “opt-in” class action and a state law FRCP Rule 23 class action seeking to certify all potential plaintiffs who may, if approved, ultimately receive a notice advising them that they need to affirmatively “opt-out” if they do not want to receive the benefits of the class litigation. This combined action greatly enhances the potential liability of the employer as many employees who may be “loyal” enough to not affirmatively “opt-in” to an FLSA action may be more than willing to stand mute and thereby not “opt-out” of a Rule 23 state law claim.

Illinois Amendment to Wage Payment and Collection Act Creates a Potential Double Whammy. Effective January 1, 2011, SB 3568 amended the Illinois Wage Payment and Collection Act.[10] The amendment establishes a two per cent penalty of the unpaid wages due an employee for each month of underpayment, which is now payable by private cause of action to the employee.[11] In addition to stronger enforcement and criminal penalties and fines, the Act also now provides that employees need not file a claim with the Department of Labor prior to filing a private right of action. It also allows an employee to recover costs and all reasonable attorneys’ fees. No longer does an employee have to submit a written demand prior to bringing suit, in order to obtain attorney’s fees for an employer’s failure to timely pay wages.[12]
The amendment further defines the term “employer” to maintain consistency with both the Illinois Minimum Wage Law and the FLSA. The term “employer” under the Act now includes officers of a corporation or agents of an employer who “knowingly permit” the employer to violate the law which results in individual joint and several liability with the corporate entity.[13] There is also a statutory private cause of action for any employee who has been unlawfully retaliated against for bringing a demand or claim.  If successful, such a claimant is entitled to “all legal and equitable relief as may be appropriate” as well as costs and reasonable attorney’s fees.[14]

Conclusion. When Governor Quinn signed SB 3568 on July 30, 2010, he stated that “Illinois workers deserve every penny they have earned, on time and in full.... This important legislation will help Illinois workers recover unpaid wages faster and will further crackdown on wage theft throughout our state.”[15] Undoubtedly, employers not only need to fear the amendments to the Illinois Wage Law, but also the potential for combined FLSA/IMWL and IWPCA class actions, both opt-in and opt-out, in the same Illinois Federal District Court action.

Employers and officers must understand that these laws provide powerful protections for employees. Failure to comply with the state and federal wage laws could have a devastating impact on a business, so employers are well-advised to ensure that they take these laws seriously.

[1] 29 U.S.C. § 201, et seq.
[2] 820 ILCS 105/1, et seq.
[3] 820 ILCS 115/1, et seq.
[4] Ervin v. OS Restaurant Services, Inc., ___ F.3d ___, 2011 WL 135708 (7th Cir.; Jan. 11, 2011).
[5] 29 U.S.C. § 216(b).
[6] Ervin, 2011 WL 135708 at *2
[7] Ervin, 2011 WL 135708 at *5.
[8] Ervin, 2011 WL 135708 at *6.
[9] See 28 U.S.C. § 1367(c); Wang v. Chinese Daily News, Inc., 623 F.3d 743, 761-62 (9th Cir. 2010).
[10] 820 ILCS 115/1, et. seq.
[11] 820 ILCS 115/14(a).
[12] See 705 ILCS 225/1 (egarding written demand requirement)
[13] 820 ILCS 115/13.
[14] 820 ILCS 115/14(c).
[15] Press release, Office of Illinois Governor Pat Quinn, July 30, 2010.
DCBA Brief