Seventh Circuit Adopts More Flexible Standard for Issuing Notice in Collective Actions

In a significant shift from longstanding precedent, the U.S. Court of Appeals for the Seventh rejected the widely used two-step “Lusardi”¹ framework for issuing notice in collective actions under Section 216(b) of the Fair Labor Standards Act (FLSA), which applies to claims under the FLSA, the Age Discrimination in Employment Act (ADEA), and the Equal Pay Act. In Richards v. Eli Lilly & Co., the court introduced a new, flexible standard that empowers district courts to assess the substance of the putative collective’s similarity by giving weight to competing evidence of both the plaintiff and the defendant before authorizing notice to potential opt-in plaintiffs.

Background

The plaintiff, a 55-year-old sales employee, sought to represent a collective of older employees allegedly denied promotions in violation of the ADEA. Because the ADEA incorporates the FLSA’s collective action mechanism, the plaintiff moved for conditional certification under Section 216(b) of the FLSA, requesting that notice of the action be sent to all employees 40 and older who had been denied promotion since February 2022 making them aware of their right to opt in to the case.

Before the district court, the parties argued about the appropriate standard to be applied when a plaintiff seeks court authorization to send such notices. The plaintiff urged the court to follow the Lusardi approach, while the defendant employer asked the court to adopt a standard more in line with the “heightened” approaches outlined by the Fifth Circuit in Swales v. KLLM Transp. Servs., LLC, 985 F.3d 430, 434 (5th Cir. 2021) (notice may issue only if plaintiffs demonstrate by a preponderance of the evidence that those who receive notice are “actually similar to the named plaintiffs”) and the Sixth Circuit in Clark v. A&L Homecare & Training Ctr., LLC, 68 F.4th 1003, 1011 (6th Circ. 2023) (notice may issue only where the named plaintiffs show there is a “strong likelihood” putative collective members are similarly situated). 

The district court applied the Lusardi standard, which requires only a “modest factual showing” of similarity at the initial stage, deferring more rigorous analysis of the “similarly situated” issue until after discovery. The defendant challenged this approach, and the Seventh Circuit agreed to address the appropriate standard for issuing notice immediately, noting there was a need to provide clear guidance to the lower courts.

The Seventh Circuit’s New Standard

Rejecting Lusardi’s “lenient notice standard,” the Seventh Circuit emphasized three guiding principles drawn from Supreme Court precedent: timely and accurate notice, judicial neutrality, and prevention of procedural abuse. The court found that the Lusardi framework undermined these principles by effectively endorsing plaintiffs’ claims through early notice and delaying meaningful scrutiny of collective similarity until late in the litigation. This resulted in substantial pressure on defendants to enter early settlements to avoid costly discovery and certification battles. The court observed that “lenient and virtually unrebuttable notice showing threatens judicial neutrality because ‘[s]ending notice to plaintiffs who are ineligible to join the collective action can generate significant discovery costs, incentivizing defendants to settle early’” and “[s]uch notice may also be seen as ‘solicitation of those employees to bring suits of their own’ . . . transforming what should be a neutral case management tool into a vehicle for strongarming settlements and soliciting claims.” (citing Clark and Swales).

Nonetheless, the Seventh Circuit declined to adopt the precise heightened standards set forth by the Fifth and Sixth Circuits in Swales and Clark. Instead, it crafted a middle-ground approach, requiring plaintiffs to “make a threshold showing that there is a material factual dispute as to whether the proposed collective is similarly situated.” The court explained that this threshold showing must include “some evidence” from the plaintiff(s) “that they and the members of the proposed collective are victims of a common unlawful employment practice or policy.”

Critically, the court held that defendants must be allowed to submit rebuttal evidence, and that district courts must evaluate the defendant’s evidence and the extent to which plaintiffs engage with that evidence. The court emphasized that even where a material factual dispute exists, “the plaintiff is not automatically entitled to notice.” District courts exercising discretion to determine whether notice is appropriate can potentially authorize limited pre-notice discovery or defer resolution of the notice issue pending further factual development. The court cautioned that pre-notice discovery should remain narrowly focused on the similarly situated inquiry and whether common issues of law or fact make it more efficient to resolve plaintiff’s claims together. In other words, pre-notice discovery should not generally concern the merits of the claim itself.  The court noted explicitly, however, that “[s]ome factual disputes about similarity inevitably overlap with merits issues,” and, as a result, “a district court need not ignore evidence of dissimilarity at the pre-notice stage simply because it touches on a merits issue.”

The court also discussed equitable tolling, a doctrine that allows courts to pause the statute of limitations. The plaintiff in Richards requested equitable tolling for potential opt-in plaintiffs, arguing that delays in the issuance of notice could prejudice their ability to join the action. Such requests are routinely included by plaintiffs in their briefing to the court. The Seventh Circuit granted plaintiff’s request in Richards based on the facts of the case.

Implications for Employers 

The Richards decision marks a departure from the lenient, permissive notice standard that has dominated collective action litigation in the Seventh Circuit for decades. Employers that face collective action litigation in the Seventh Circuit—which covers Illinois, Indiana, and Wisconsin—now have a meaningful opportunity to present affirmative evidence to oppose a motion seeking notice and to challenge the similarity of proposed collective members directly before notice is issued. This new burden-shifting approach requiring plaintiffs to establish the existence of a “material factual dispute” should allow employers to present competing evidence in the form of affidavits, counter-affidavits, data analysis, and more, which the court must consider and weigh against plaintiff’s proffered evidence. 

As a practical matter, the opportunity to present opposing evidence makes an employer’s initial factual investigation critical, since the evidence presented in rebuttal to a plaintiff’s evidence can potentially trump notice altogether, or greatly limit its scope. 

At the same time, the court’s emphasis on “flexibility” in evaluating a plaintiff’s request to send notice introduces new uncertainties for district courts to address as they exercise discretion to resolve evidentiary disputes, determine the scope of any notices, and determine whether limited discovery is warranted. The Richards decision also leaves open questions about the burden plaintiffs must meet to overcome rebuttal evidence and the procedural contours of the new standard.