Risk Management

Tech Companies Hit Hard by Labor Suits

Federal and state laws, plus a shrinking job market, are driving tech workers to sue employers for overtime pay.
Marie LeoneFebruary 25, 2005

Over the past 18 months, small and large companies in Silicon Valley have been hit by an increasing number labor lawsuits in which employees are demanding overtime pay, the Wall Street Journalreports.

Those suits, say experts interviewed for the article, suggest that the high-tech job market is maturing, and the entrepreneurial spirit of working long hours for the promise of million-dollar stock option gains is all but dead.

”Wage-and-hour class-action lawsuits have now invaded high-tech in the Valley,” defense attorney Lynne Hermle told the paper. Previously, the suits were mostly filed against companies in old-economy industries such as retailing and hotels, the paper points out.

In other words, noted labor attorney Harvey Sohnen, “reality has set in” in tech workplaces, according to the report. Sohnen argues that tech workers have become “net slaves” working “unconscionable hours and getting nothing . . . when their options became worthless.”

Indeed, anecdotal evidence supports the notion that labor lawsuits in the tech sector are on the rise, charging companies with denying overtime pay, substituting stock options of little value for cash bonuses, and not paying promised salaries, the Journal reported.

Many of the suits stem from changes in federal labor statues and new California laws that encourage labor litigation, according to the newspaper. For example, in 2004, the U.S. Labor Department added certain white-collar groups to the list of workers eligible for overtime. In addition, California’s 2004 Private Attorneys General Act gave employees the right to sue their companies to enforce the state’s labor code. Such pro-worker statues, increased the opportunity to sue and the potential award payout.

Another catalyst for the lawsuit rise, according to the Journal is the slowdown in tech spending by corporations, causing them to focus on cost-cutting, rather than expansion. That focus, and the attendant drop in tech company growth rates — from the high teens in the late 1990s to 12 percent right now — has shrunk the job market for technology workers. According to Economy.com, 900,000 U.S. technology jobs been lost over the last four years, with 40 percent of that total attributed to outsourcing.

Such a job-market squeeze pushes unemployed workers to sue for retroactive overtime, experts say. It also drives current employees, who are clocking extra hours to pick-up the slack of a dwindling workforce, to sue for overtime pay that employers claim they are not entitled to receive.

Start-up companies as well as established ones are feeling the lawsuit surge. Some are considering internal changes to quell the litigious atmosphere. For example, officials from video game maker Electronics Arts Inc. (EA), which was named in a recent suit by an employee demanding overtime pay, told the Journal that the company is thinking about reclassifying some jobs to make them eligible for overtime pay. But the company may drop stock-option grants for those jobs.

Other companies defending against overtime suits include Oracle Corp., IBM, and Pacific Software, as well as a tiny start-up called Unplugged Inc.