The U.S. Court of Appeals for the Seventh Circuit has delivered a significant win for employers by ruling that the Supreme Court’s 2017 decision in Bristol-Myers Squibb Co. v. Superior Court of California applies to Fair Labor Standards Act (FLSA) collective actions. This 2-1 decision in Vanegas v. Signet Builders, Inc., No. 23-2964 (7th Cir. Aug. 16, 2024) brings the Seventh Circuit in line with rulings from the Third, Sixth and Eighth Circuits, holding that out-of-state plaintiffs must be dismissed from FLSA collective actions when the court lacks personal jurisdiction over the individual’s claims against the out-of-state employer, regardless of whether the individual is a representative or an opt-in.
For employers, this ruling is particularly favorable as it limits the ability of plaintiffs to bring nationwide FLSA collective actions in jurisdictions where the employer does not have substantial ties. Essentially, such actions can now only proceed in courts where the employer is “essentially at home” or where the employer consents to the court’s general jurisdiction. The decision reinforces the requirement that courts possess personal jurisdiction over claims individually, affirming that each employee’s claims in an FLSA collective action must meet jurisdictional requirements on their own.
This outcome is meant to deter forum shopping, preventing plaintiffs from selecting favorable courts within the Seventh Circuit where the employer has only minimal contacts. Without the employer’s explicit consent, nationwide collective actions in these jurisdictions are now much harder to pursue.
The broader impact of this decision is the tightening of the scope for FLSA collective actions, making it more difficult for plaintiffs to consolidate claims into a single court. While the Seventh Circuit has held that the Supreme Court’s Bristol-Myers Squibb decision does not require separately establishing personal jurisdiction over absent class members in a Rule 23 class action, it distinguished FLSA collective actions as fundamentally different. In collective actions, each participant is a “party plaintiff” with the right to present their own evidence, and the outcome does not bind absent plaintiffs.
This ruling is a clear victory for employers, reducing the threat of facing nationwide collective actions in unfavorable jurisdictions. However, it is not without potential drawbacks. By limiting the ability to consolidate claims in a single court, employers may find themselves facing fragmented litigation across multiple jurisdictions, which could increase legal costs and complexity. Strategic consideration is necessary to balance the advantages of this decision with the potential challenges of multiple uncoordinated lawsuits.
In conclusion, the Seventh Circuit’s decision adds to the growing judicial consensus that narrows the scope of FLSA collective actions, creating a more favorable legal environment for employers. As other circuits address this issue, they are likely to look to Vanegas for guidance, further diminishing the impact of the First Circuit’s outlier decision in Waters v. Day & Zimmermann NPS, Inc., 23 F.4th 84, 93 (1st Cir. 2022). This represents a significant and positive development for employers, although careful strategy is still required in its application.
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