Another District Court Dismisses FLSA, ERISA and RICO Claims in Hospital Class Action

GavelIIII.jpgIn welcome news for hospital employers, the U.S. District Court for the Eastern District of Pennsylvania recently dismissed FLSA, ERISA, and RICO claims in six related putative class and collective actions brought against hospital systems and affiliated entities in the Philadelphia area on behalf of a potential class of thousands of employees in dozens of job titles ranging from custodians and clerical employees to nurses, medical assistants, various types of therapists and technicians, and other employees with direct patient care responsibilities. As previously reported on this blog, these cases were among the recent wave of class and collective actions brought against large hospital systems for automatic meal-break deductions, even when plaintiffs worked through lunch, and allegedly off-the-clock work before and after shifts and during training time.

In the lawsuits, the named plaintiffs alleged that these pay practices violated the FLSA. In addition, the plaintiffs also claimed that by failing to record and pay for all time worked the defendants breached their fiduciary duty under ERISA and violated RICO by mailing misleading paychecks to employees in furtherance of a scheme to underpay them.

Each lawsuit was brought by several named plaintiffs against multiple defendants. For example, in Ruff v. Albert Einstein Healthcare Network – the action relied upon by the parties and the court as representative of all of the actions – the named plaintiffs alleged that they were simultaneously the “employees” of 86 entities and two individuals. “Nowhere, however,” noted the court:

"does the Complaint set forth basic information about the named Plaintiffs. Plaintiffs do not allege: to which of these 86 entities they reported each day; from whom they received their paycheck; information about who, specifically, set their rate of pay and other conditions of their employment; or who directly supervised their employment."

Plaintiffs argued that such information was immaterial because all of the defendants were liable under either joint employer or single employer theories of liability. But the court disagreed:

"Although these 86 entities, while separate units, could be acting jointly to control the terms of Plaintiffs' employment, the Court cannot assess whether a joint-employer relationship exists without facts alleging the basic terms of the primary employment-employer relationship. Thus, Plaintiffs have put the cart before the horse: they fill the Amended Complaint with conclusory labels describing the relationships between the Defendants, but never allege for which of the 86 entities they actually worked or the nature of the relationship between those entities. And without facts alleging who exercised primary control over Defendants, the Court cannot embark on a joint-employer analysis."

Finding that the basic prerequisite for any FLSA lawsuit is an employment relationship between the plaintiffs and defendant so that “in a FLSA collective action, every defendant must have been the employer of at least one named plaintiff,” the court accordingly dismissed plaintiffs’ FLSA claims. In reaching its conclusion the court relied on nearly identical cases dismissed by federal district courts in Massachusetts, Cavallaro v. UMass Memorial Health Care, Inc.,1 and the Southern District of New York, Nakahata v. New York Presbyterian Healthcare System, Inc. 

As in Cavallaro v. UMass Memorial Healthcare, the court in Ruff also dismissed the plaintiffs’ ERISA claim as derivative of the FLSA claims: “Because Plaintiffs have failed to allege a FLSA violation, these claims also fail.” The court also relied on another decision in the Cavallaro case to dismiss the RICO claim for failure to adequately allege the required predicate act of fraud.  Plaintiffs assertions that the plaintiffs were mailed paychecks that allegedly omitted time they had worked and thus concealed that they were being underpaid does not properly allege mail fraud, the court concluded.  Quoting Cavallaro, the court pointed out that if the paychecks were as alleged, “they did not further defendants’ fraudulent scheme; to the contrary, they made the scheme’s discovery more likely. . . .”

In contrast to Nakahata and Cavallaro, the dismissal in this case was without prejudice and the plaintiffs will be permitted to amend their pleadings and attempt to provide the court with sufficient information to: (1) determine whether any of the many entities named as defendants could be liable under the FLSA either as primary violators or through a derivative liability theory; and (2) state a claim for violation of ERISA or RICO. Nevertheless, defendants’ victory on this motion seems likely to result in a substantial reduction in the scope of the lawsuits.

For health care systems that may include multiple entities in various and complex relationships, this decision serves as a valuable reminder of the importance in litigation of identifying all of the elements of plaintiffs’ claims and making sure that plaintiffs are able to establish each of those elements. The decision is also a good reminder that carefully defining and maintaining separate relationships between affiliated organizations can reduce the exposure to system wide litigation.

1 Littler represented UMass Memorial Healthcare, Inc.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.