My Business Was Just Sued by Employees — What Is an FLSA Collective Action or Class Action, and What Do I Do?
If your business has been served with a lawsuit brought by one or more employees claiming unpaid wages on behalf of themselves and other workers, you are facing either an FLSA collective action, a state law class action, or both — and the response deadline is already running. These cases are serious, they move quickly in the early stages, and the potential exposure is larger than the named plaintiff's individual claim suggests. The first thing to understand is what these lawsuits are. The second is what you need to do immediately.
What Is an FLSA Collective Action?
The Fair Labor Standards Act, 29 U.S.C. § 201 et seq., is the federal law that establishes minimum wage, overtime pay, and related requirements for most private sector employers. Under the FLSA, a single employee can file a lawsuit not just for their own unpaid wages, but on behalf of all other employees who are "similarly situated" — meaning other workers who were subject to the same pay practices. This is called a collective action.
FLSA collective actions differ from class actions in one important procedural respect: other employees must affirmatively opt in to join the lawsuit. The plaintiff's attorney typically moves the court early in the case for permission to send notice to all potentially affected employees, inviting them to join. If the court grants that motion — which it often does at the initial stage under a lenient standard — the pool of plaintiffs can grow significantly, and so can the exposure.
The most common FLSA claims against small businesses involve failure to pay overtime at one and a half times the regular rate for hours worked over 40 in a workweek, minimum wage violations, improper tip pooling arrangements, off-the-clock work that was not compensated, and misclassification of employees as independent contractors or as exempt from overtime requirements. Under the FLSA, a prevailing employee is entitled to the unpaid wages, an equal amount in liquidated damages — effectively doubling the recovery — and attorney's fees paid by the employer. The damages accrue going back two years, or three years if the violation was willful.
What Is a State Law Class Action?
Many employee wage and hour lawsuits are brought not only under the FLSA but also — or alternatively — under New York or New Jersey state law. New York's Labor Law Article 19, which includes the Minimum Wage Act and the Wage Theft Prevention Act, and the New Jersey Wage and Hour Law, N.J.S.A. 34:11-56a et seq., impose requirements that are often more stringent than the FLSA and provide remedies that go beyond what federal law offers.
State law claims can be brought as class actions under Rule 23 of the Federal Rules of Civil Procedure or under state court equivalents. Unlike the FLSA opt-in structure, state law class actions typically use an opt-out structure: all similarly situated employees are automatically included in the class unless they take affirmative steps to exclude themselves. This means the class can be very large without any employee having to do anything to join.
New York's Labor Law provides for damages including unpaid wages, liquidated damages of up to 100% of the unpaid wages, civil penalties, and attorney's fees. The New Jersey Wage and Hour Law provides similar remedies, and New Jersey's Wage Theft Act, enacted in 2019, added enhanced penalties for retaliation and created a presumption of retaliation in certain circumstances. The lookback period for state law claims in New York is six years — three years longer than the standard federal FLSA period — which substantially increases the potential damages exposure for employers who have been sued under both federal and state law simultaneously.
Why Small Businesses Are Particularly Vulnerable
Small businesses — particularly those in restaurants, retail, personal services, construction, and cleaning — are disproportionately targeted in wage and hour litigation for several reasons that have nothing to do with bad intent.
Payroll practices in small businesses are frequently informal. Hours may be tracked on paper, in a notebook, or not at all. Pay may be calculated in ways that felt straightforward at the time but do not comply with FLSA or state law requirements — for example, paying a flat daily rate without accounting for overtime, or paying a fixed weekly salary to a non-exempt employee without overtime for hours over 40. Tip pooling arrangements that include non-tipped employees are a recurring source of liability. So is the practice of paying employees in cash without maintaining the records the law requires.
The plaintiff's bar has become sophisticated at identifying small businesses with these practices and filing collective and class actions against them. A single complaint filed by one current or former employee can rapidly expand to include dozens or hundreds of co-workers, multiplying the employer's exposure many times over. The attorney's fees provision means that plaintiff's counsel has strong financial incentive to litigate these cases aggressively, and that the employer's exposure is not limited to the wages claimed.
Korean-owned businesses in New York and New Jersey face an additional consideration: many of their employees speak Korean as a primary language, and communications about pay practices — including any agreements about compensation, any deductions, or any arrangements that deviate from standard pay structures — were often made informally and verbally. When those arrangements are later disputed in litigation, the absence of documentation is almost always disadvantageous to the employer.
What Defenses Are Available to Employers?
Being sued under the FLSA or state wage and hour law does not mean the employer will lose. There are meaningful defenses available, and a well-managed defense can significantly reduce exposure or defeat the claims entirely.
The employees are not similarly situated. Collective and class certification requires that the employees bringing the claim share common pay practices and common legal questions. If the plaintiff's attorney is trying to lump together employees in different roles, different locations, different pay structures, or different time periods, the employer can oppose certification on the ground that the proposed class or collective is too varied to be managed as a single case. Defeating or limiting certification is often the single most important outcome in the defense of these cases, because it directly limits the pool of plaintiffs and the damages exposure.
The employees were properly classified and properly paid. Not every unconventional pay arrangement is unlawful. Some employees are genuinely exempt from FLSA overtime requirements — executive, administrative, and professional employees who meet specific salary and duties tests may qualify for exemption. Independent contractors are not covered by the FLSA, though the classification must be based on the actual economic relationship, not simply on the label in a contract. If the employer's pay practices were lawful, the defense is on the merits.
The good faith defense. Under 29 U.S.C. § 260, an employer who proves it acted in good faith and had reasonable grounds to believe its pay practices complied with the FLSA may avoid liquidated damages — the automatic doubling of the unpaid wages that would otherwise apply. This defense requires showing affirmative steps the employer took to understand and comply with the law, and it is not available to employers who simply never thought about it.
Statute of limitations. The FLSA's standard lookback period is two years; three years for willful violations. State law claims in New York go back six years. If some or all of the claimed period falls outside the applicable limitations period, those claims are time-barred. The limitations analysis must be done precisely because different plaintiffs may have different hire and termination dates, and the period that is actionable varies by individual.
Decertification. Even after a collective or class is certified, the employer can move to decertify it as the case develops and the differences among the plaintiffs' circumstances become clearer through discovery. Decertification is harder to obtain than opposing initial certification, but it remains a tool available to employers whose cases reveal significant variation among the class members.
The Economics of Defense and Settlement
Wage and hour class and collective actions settle far more often than they go to trial. The economics on both sides push toward resolution: the employer faces compounding damages and attorney's fees exposure that grows with every month of litigation, and plaintiff's counsel works on contingency and has a strong incentive to convert the case into a payment rather than a verdict.
That said, early settlement is not always the right answer. A case that settles immediately — before the employer's defenses have been developed and presented — typically settles at a higher amount than one where defense counsel has had the opportunity to challenge certification, identify weaknesses in the plaintiff's damages calculations, and demonstrate that the employer's exposure is more limited than the complaint suggests. The strongest settlements are almost always the product of active, informed defense — not capitulation at the outset.
Any settlement of an FLSA collective action must be approved by the court or the Department of Labor. Courts scrutinize the fairness of FLSA settlements, including the reasonableness of attorney's fees and whether the settlement adequately compensates the plaintiffs for their actual claims. This approval requirement gives employers some protection against pressure to settle on unreasonable terms — but it also means the settlement process is more formal and time-consuming than an ordinary commercial resolution.
What to Do Immediately After Being Served
The window between service and the response deadline is short. In federal court, the standard period is 21 days. In New York state court, 20 to 30 days depending on the method of service. In New Jersey Superior Court, 35 days. Do not wait.
Retain counsel immediately. FLSA and wage and hour class actions are procedurally complex and move quickly in the early stages — particularly around the certification motion, which plaintiff's counsel will often file within the first few months. An employer who does not have experienced defense counsel in place from the beginning will be at a serious disadvantage at the most consequential early stage of the case.
Preserve all records. Do not delete, discard, or alter any payroll records, time records, employee files, scheduling records, or communications about pay practices. Issue a litigation hold immediately covering all potentially relevant documents. Destruction of records after a lawsuit has been filed — or after it was reasonably anticipated — can result in severe sanctions and adverse inferences at trial.
Do not contact the plaintiffs or their attorneys directly. Once a lawsuit has been filed, all communication with the opposing party must go through counsel. Direct contact with the named plaintiff or other employees who may be part of the class can create additional legal problems and should be avoided entirely.
Do not retaliate. The FLSA and state law both prohibit retaliation against employees who bring wage and hour claims. Firing, demoting, reducing hours, or taking any adverse action against the named plaintiff or any employee who participates in the lawsuit is itself a separate legal violation — one that significantly increases the employer's exposure and complicates the defense.
Frequently Asked Questions
How far back can employees claim unpaid wages under the FLSA?
Two years for non-willful violations, three years for willful violations under 29 U.S.C. § 255. New York state law claims go back six years under New York Labor Law § 198. New Jersey state law claims go back two years under N.J.S.A. 34:11-56a25, though this is frequently litigated. When federal and state claims are combined, the longer state lookback period typically controls the damages calculation.
What is liquidated damages under the FLSA, and can it be avoided?
Liquidated damages under 29 U.S.C. § 216(b) automatically double the amount of unpaid wages owed. An employer can avoid liquidated damages only by proving under 29 U.S.C. § 260 that it acted in good faith and had reasonable grounds to believe its pay practices complied with the law — a demanding standard that requires showing affirmative compliance efforts.
Can an employer be personally liable — not just the business?
Yes. The FLSA defines "employer" broadly to include any person who acts in the employer's interest, which courts have interpreted to include owners, officers, and managers who exercise control over the terms and conditions of employment. Individual liability is a real risk for small business owners, and it is a reason the defense must be taken seriously from the outset.
What if I paid employees in cash — does that affect the case?
Cash payment itself is not unlawful, but it creates serious evidentiary problems. The FLSA requires employers to maintain accurate records of hours worked and wages paid. If the employer's records are incomplete or nonexistent, courts apply a burden-shifting rule: the employee's estimate of hours and wages becomes presumptively correct, and the employer bears the burden of disproving it. Cash payment without records almost always disadvantages the employer in litigation.
Can the employer settle individually with employees to limit the scope of the case?
This is one of the most important strategic questions in FLSA defense, and the answer depends on timing. Once an employee has opted into a certified collective, settling their individual claim requires court approval to fully resolve it. But a different dynamic applies to employees who have not yet opted in — or to the named plaintiff before the collective is certified. An employer can make individual settlement offers to potential opt-in plaintiffs before they join the case, and individual settlements with non-party employees do not require court approval. Experienced defense counsel sometimes use early, targeted individual settlements strategically to limit the size of the collective before the opt-in notice goes out. This approach requires careful handling — including ensuring that individual releases are properly drafted — but it is a legitimate and sometimes highly effective defense tool that is not available to employers who wait too long to engage counsel.
An FLSA collective action or wage and hour class action is not a routine business dispute. The exposure is real, the timeline is compressed, and the decisions made in the first weeks of the case shape everything that follows. Good Pine P.C. defends small and mid-size businesses — including Korean-owned businesses throughout New York and New Jersey — in FLSA collective actions and state law wage and hour class actions. We provide representation in both English and Korean and understand the specific challenges these cases present for businesses in our community.
This article is provided by Good Pine P.C. for general informational purposes only and does not constitute legal advice. Reading this article does not create an attorney–client relationship with Good Pine P.C. Laws and legal standards vary based on specific facts and circumstances. For legal guidance tailored to your situation, please contact Good Pine P.C. directly.
