On September 26, 2011, the US Court of Appeals for the Second Circuit issued an opinion in Shahriar v. Smith & Wollensky Restaurant Group, Inc., holding a district court hearing a federal claim under the Fair Labor Standards Act (FLSA) may exercise supplemental jurisdiction over related state law claims. A key issue in the case was whether the district court properly exercised supplemental jurisdiction over state law wage and hour claims when it granted the plaintiffs' motion for class certification.

The three plaintiffs worked as waiters at the Park Avenue Restaurant in New York City. On January 4, 2008, they filed a complaint in the US District Court for the Southern District of New York on behalf of themselves and all others similarly situated, claiming that Park Avenue had violated:

The plaintiffs brought their federal claims as a collective action under FLSA and their state law claims as a putative class action, later moving for class certification of the state claims under Federal Rule of Civil Procedure 23 (FRCP 23). The district court exercised supplemental jurisdiction over the state law claims and granted the plaintiffs' motion. Park Avenue appealed the interlocutory order granting class certification, claiming that the district court:

The Second Circuit upheld the district court's order granting class certification, finding its exercise of supplemental jurisdiction was appropriate since:

Park Avenue claimed there was an inherent conflict between collective actions under the FLSA and class actions under the NYLL because potential plaintiffs must affirmatively opt-in to FLSA collective actions, while FRCP 23 requires plaintiffs to opt-out of class actions.

The Second Circuit disagreed, explicitly adopting the US Court of Appeals for the Seventh Circuit's prior holding that the conflict between the opt-in procedure under the FLSA and the opt-out procedure under FRCP 23 was not a sufficient reason for a district court to decline to exercise supplemental jurisdiction. The Second Circuit distinguished the US Court of Appeals for the Third Circuit's holding that it was inappropriate to exercise supplemental jurisdiction over state labor law claims in De Asencio v. Tyson Foods, Inc., 342 F.3d 301 (3d Cir. 2003), finding that the case involved complex questions of state law, which substantially predominated over the federal claim.

The Second Circuit also held that while a district court must ensure each requirement for class certification under FRCP 23 is met, it does not have to make express findings on each class certification requirement.

This decision establishes that the Second Circuit will permit collective and class action lawsuits under the FLSA and state wage and hour laws to proceed in the same lawsuit in a district court, joining the Seventh, Ninth and D.C. Circuits and distinguishing itself from the Third Circuit. Defendants in the Second Circuit will find it harder to separate federal and state wage and hour claims going forward, as employers facing these suits must show a compelling reason for a district court not to exercise jurisdiction over both state and federal claims.

For more information on defending collective actions under the FLSA and state law class actions, see Practice Note, Defending Wage and Hour Collective Actions.