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We’ve commented many times before that relatively few collective actions survive the “second stage” motion to decertify or, relatedly, an unofficial “third stage” when the trial court actually considers how the matter will be managed at trial. Here is another variation on that theme – an unusual case involving a lender’s claimed involvement in the failure to pay wages.

The case of <a href="/wp-content/uploads/sites/7/2023/07/1185000-1185546-https-ecf-txsd-uscourts-gov-doc1-179133664170.pdf"><em>Garcia v. Peterson</em>, Civil Action H-17-1601 (S.D. Tex., August 5, 2019)</a>, arose out of the wind-down of Graebel Van Lines, which once billed itself as the largest privately owned moving company in the United States. The company operated through its own employees, through affiliates and by independent contractor arrangements. According to the 31 plaintiffs, all of whom worked as independent contractors for Graebel affiliates, they received limited payment or no payment at all for the services they performed during the last three to four months of the company’s operation. They settled their claims against both Graebel and its affiliates, but continued the litigation against one of its secured lenders, contending that controlled Graebel’s operations during its final months and should be liable to them.

The plaintiffs thus had the difficult task of asserting that they were actually employees of Graebel Van Lines and that the lender was responsible for Graebel’s failure to pay the amounts due.

The district court conditionally certified an FLSA collective action, and approximately 125 individuals opted in, in addition to the 31 named plaintiffs. After the other parties had settled, the lender moved to decertify.

The district court found numerous problems with the case continuing as a collective. First, the parties had significant disputes over what pay policy was in effect at what time, what the payments represented and what was actually paid. Second, the court analyzed the relationship between the drivers and the trucking company under various tests, such as economic realities, company procedures, the ability to turn down other work, profitability and skill. The court found that while the various factors pointed in different directions, on balance they demonstrated that the various drivers were not similarly situated as to the issue of whether they were independent contractors or employees. Ultimately, the court found that the need to make individual inquiries rendered collective treatment procedurally difficult at best and likely unfair at worst. Due to the dissimilarities among the class members, the court decertified the collective class and dismissed the opt-ins’ claims without prejudice. The court apparently found no need to go over the additional hurdle the plaintiffs faced in holding the lender liable for Graebel’s alleged failure to pay.

While the court reached the right conclusion, one can reasonably question why conditional certification was granted in the first place. While there may have been a failure to pay, the ultimate problems with the class, particularly as to independent contractor status, should have been apparent from the outset. Further exploration of that point earlier in the case might have saved the court and the parties considerable cost and expense.

The bottom line: Conditional certification isn’t the end, and problems with a collective action are likely to grow over time, leading to decertification.

District Court Decertifies FLSA Collective Action With Independent Contractor Issues