The Supreme Court dealt a blow to New York wage-and-hour defendants sued in federal court last week, overruling established precedent requiring plaintiffs bringing New York Labor Law (“Labor Law”) class actions in federal court to waive the 25% liquidated damages “penalty” in order to proceed on a class basis. In Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 2010 U.S. LEXIS 2929 (U.S. Mar. 31, 2010), the Supreme Court applied the age-old test from Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and held that the state law rule requiring such a waiver is “procedural” as opposed to “substantive”, and has no application in federal court, where opt-out class actions are governed by Federal Rule of Civil Procedure 23.
Class action Labor Law plaintiffs in federal court now may seek a 25% penalty in behalf of all class members, increasing the potential class-wide damages. It remains a divided question, unanswered by the higher courts, as to whether any wage-and-hour plaintiff may recover the 25% penalty and the 100% liquidated damages under the FLSA for the same time period. Compare Yu G. Ke v. Saigon Grill, Inc., 595 F. Supp. 2d 240, 261 (S.D.N.Y. 2008) with Jin v. Pac. Buffet House, Inc., 2009 U.S. Dist. LEXIS 74901 at * 24 (E.D.N.Y. Aug. 24, 2009).
Other states containing class action limitations in their state procedural codes, whose federal courts previously had deferred to the state rule, may now also be subject to class actions in federal court seeking relief under the state’s wage-and-hour laws. However, the Court did not conclusively state that all such provisions were unenforceable but rather focused its analysis on the intent of the New York provision requiring waiver of penalties.