The dollar volume of settlements of class-action litigation against U.S. companies over employee-compensation practices soared in 2016 for a second year in a row, and 2017 is likely to bring more of the same, according to national law firm Seyfarth Shaw.
The value of settlements in so-called “wage-and-hour” cases last year was more than three times the 2014 level (see chart at the bottom of this article). By comparison, settlements for the other three major types of workplace lawsuits — employment discrimination, ERISA, and government-enforcement cases — all went down in 2016 after reaching all-time highs in 2014 and 2015.
While last year there were several costly settlements of wage-and-hour suits, which are brought under the Fair Labor Standards Act, the number certified actually ticked down a bit. But overall they’ve been increasing over the past few years, and it’s not hard to see why: they are very likely to be successful. In 2016, 76% of such class actions were granted certification, opening the door to a possible settlement. By comparison, 66% of ERISA cases and 50% of employment-discrimination cases were certified, according to Seyfarth Shaw.
The success rate for wage-and-hour cases has bloomed as more and more lawsuits are being filed in “magnet” jurisdictions where case law favors workers and certification rules are lax. Such jurisdictions include most of the states where most nationwide companies do a majority of their business: California, New York, New Jersey, Pennsylvania, Massachusetts, Florida, Michigan, and Missouri.
“For a plaintiffs’ lawyer viewing litigation as an investment, the highest return is with wage-and-hour cases,” notes Gerald Maatman, co-chair of the law firm’s class-action defense group and editor of its annual Workplace Class Action Litigation Report.
Maatman says that in 37 years of defending class-action cases, he’s never seen the focus on shoring up pay systems, compensation practices, and employee classifications as urgent as it has been in the past couple of years
“There are many things employers are obligated to do in the workplace, but right now the vast majority of the exposure is on the pressure point of compensation,” he adds.
A big problem for companies aiming to protect themselves from such lawsuits is the patchwork quilt of workplace laws at the federal, state, and local levels. These laws often change on annual basis, especially local ones, with individual cities passing minimum-wage laws, special reporting laws, and the like.
“It’s a tough nut to crack for a company that is doing business in many jurisdictions,” Maatman says. “I’m seeing some companies now bring on full-time compliance staff for compensation issues, which used to be unheard-of.”
Despite companies’ efforts to keep from being sued in wage-and-hour cases, Maatman says there are likely to be even more of them in 2017. A big reason for that is the result of a Supreme Court ruling last March.
In the nine-year-old case, employees of Tyson Foods who worked at a meat-packing plant in Iowa sued to be compensated for the time spent “donning and doffing,” or putting on and taking off their required uniforms. The plaintiffs actually won a judgment of $2.9 million back in 2011. A federal district court later doubled the award to $5.8 million to reflect liquidated damages, a ruling that was upheld by a federal appeals court in 2014.
The decision was based on a study by a statistician who conducted hundreds of videotaped observations and concluded that donning and doffing took employees about 18 to 21 minutes per day, depending on what department they worked in.
The key issue that went to the Supreme Court was whether a class action could be certified where liabilities and damages were determined with statistical techniques that presumed all class members were identical to the average observed in a sample. The question, like the need for the statistician’s study, arose because Tyson didn’t keep any records of the time employees actually spent donning and doffing.
Also before the court was the question of whether a class action could be certified when the class contained hundreds of members who were not injured and thus had no legal right to any damages. That question arose because Tyson had paid some workers, but not others, for donning and doffing.
The Supreme Court’s ruling essentially answered “yes” to both questions, at least for certain types of claims, which were victories for workers.
“The Tyson Foods case lowered the bar for [wage-and-hour] cases and made it easier to certify them,” Maatman says. “And you don’t have to have a long trial with a jillion witnesses; you can have one statistician saying here’s my algorithm, here’s my expert report. All of this makes these cases easier to litigate, more acceptable to judges, and more costly for employers to lose.”
There have been plenty of similar “off-the-clock” cases, where, for example, call-center workers have sued to be paid for the time spent booting up and booting off their computers. “That might take only three to five minutes per day, but multiply that for a log of people over a long period of time and those numbers begin to add up,” Maatman notes.
Another common type of wage-and-hour litigation involves alleged misclassification of workers as independent contractors and thus ineligible for overtime pay, when in reality they were treated as employees by such acts as being given titles and paid in the form of salary. In a high-profile 2016 case, Fedex agreed to a $228 million settlement with California-based delivery drivers who claimed their classification as independent contractors was improper.
A further example of a new approach being taken by plaintiffs’ lawyers, Maatman notes, involves the franchisor business model, exploiting a 2015 decision by the National Labor Relations Board that created a “joint employer test.”
The rule said that company A may be so tightly integrated with company B that it is in essence the joint employer of the latter’s workers, and that if company B engages in wage-and-hour violations, company A is liable.
The premise of many recent class-action lawsuits — against McDonald’s, Burger King, Wendy’s, Jimmy John’s, and multiple pizza companies — is that any franchisee is indirectly controlled by the franchisor, which should thus be liable for labor-law violations committed by franchisees.
That’s attractive for plaintiffs and their attorneys because it would likely be difficult to raise a sufficiently large class to sue an individual franchisee.