Do the Math

By Timothy S. Bland and Robert D. Hall Jr. Jun 1, 2001

HR Magazine, June 2001 A few million here, a few million there—it all adds up to a convincing argument to prevent class-action lawsuits.

You've probably read about and remember (who could forget?) some of the multimillion dollar settlements and court awards that have been splayed across the news pages. But in case you like looking at very large numbers, here is a brief recap:

  • In 1998, Mitsubishi Motor Manufacturing of America Inc. settled several sexual harassment claims with the Equal Employment Opportunity Commission (EEOC) and agreed to establish a $34 million fund to pay hundreds of current and former employees who claimed to be victims of sexual harassment.
  • In 1999, Ford Motor Co. agreed to pay $8 million to settle sexual harassment charges brought against the company.
  • In 2000, Coca-Cola agreed to settle a class-action racial discrimination suit for a record-breaking $192.5 million.
  • The list could go on and on. Suffice it to say, beginning in the mid- to late-1990s, employment-related class-action lawsuits jumped to the forefront of an already booming employment litigation scene.

While some people dont like adding numbers this big, no one likes paying them.

As a partner in your companys business operations, one of the most profound impacts you can make is to protect your firm from such oversized payments. Fortunately, you can take strategic, proactive steps today that can help ensure you dont need to pull out your calculator tomorrow. (Unless you want to add up all the money you wont be paying out in class-action awards.)

What Are Class Actions?

Class-action suits allow multiple individuals with similar grounds for complaint to join together and bring their claims in a single lawsuit.

Typically, either a single individual or a small group of individuals will be the primary representatives for the larger class. Unlike most members of the class, these representatives take an active role in the litigation and participate heavily in strategic decisions involving the litigation.

In employment cases, sometimes the EEOC itself files suit against a particular employer on behalf of a group of employees or former employees.

You may think that only large companies are susceptible to class-action suits. But nothing could be further from the truth.

Heres why: The statutes of limitations for employment-related suits make it possible for employees who are discharged years apart to join together to bring a class action.

For example, in most states, under federal employment discrimination laws, employees have up to 300 days after the allegedly discriminatory event to file a charge with the EEOC. Even after a charge has been filed, it sometimes can take a year or more for the EEOC to conclude its investigation and give the charging employee permission to sue his or her employer in federal court.

During this period of one to two years, the employer may continue to experience turnover in its workforce, hiring and discharging employees. Employees discharged during this time period could band together, make similar employment-related claims against the employer and join the original employee in filing a class-action lawsuit.

As a result, large companies that impose sizable layoffs are not the only firms susceptible to class actions. Smaller companies that discharge only a few employees at a time over the course of one or two years also could find themselves facing a class-action suit.

And, it may not be as difficult as you think for these groups of employees to find each other and form a class. Because plaintiffs lawyers can receive millions of dollars from representing a class-action suit, they often are very aggressive about banding groups of employees together for the purpose of bringing class actions.

Furthermore, corporate America is currently going through yet another round of massive layoffs. In other words, this is prime feeding ground for plaintiffs lawyers to put together class-action suits against companies.

Class-Action Costs

Companies named in class-action suits face more than just the potential cost of a multimillion-dollar verdict or settlement. The costs of defending such suits also can be enormous.

Class actions are complicated to defend, and attorneys fees and costs can add up quickly. Furthermore, employers must consider the harm to their reputations that the adverse media attention of a large class-action suit can bring. If the class action is large enough, the company can count on it being trumpeted in the media all across the country.

Just think about how many times, and from how many media outlets, you have heard about the recent Coca-Cola class-action settlement.

What Can HR Do?

Now that you understand the potential dangers, what can you do to reduce the risks that a class action will be filed against your company? Here are several strategies to consider:

Audit policies and practices regularly.A desire to audit employment and payroll policies and practices may not be what initially attracted you to the HR profession. Conducting such audits takes a lot of time and is expensive, especially if an attorney is consulted during the process. And, because of the time and cost involved, upper-level management may not exactly be supportive of the process.

So, you may be able to come up with lots of excuses to put off doing an audit; however, you should look at regular audits in much the same way that you look at changing the oil in your car. You might get away with avoiding this chore for a while. But one day, it is going to catch up with you and you are going to have serious problems. And the repair bill will far exceed the cost you would have sunk on routine maintenance.

The same is true of payroll and employment audits. You may be able to get away without doing them for a time. But, one day you are going to open your office door and find a sheriffs deputy standing on the other side with documentation in his hands announcing a class-action lawsuit.

Some of the things that you need to do during your audit include:

  • Make sure all employment and payroll policies comply with current law. Every year, new cases are decided, new statutes are passed and new regulations are written. You need to make sure your companys policies stay current.
  • Make sure that all employment policies are being followed uniformly and consistently. If an employee can show a jury that a particular employment policy was not followed in his or her case, the jury likely will infer that the employer had some discriminatory purpose for not following the policy. This makes it much more likely that the jury will find in favor of the employee.

    Similarly, when employers apply policies inconsistently, juries almost always will infer that discrimination was the reason for the inconsistencyand they likely will rule in favor of the employee. And if a group of employees can show that an employment policy was not followed with respect to them, or was applied to them inconsistently, they have the basis for a powerful class-action suit.

  • Analyze your workforce and its pay to make sure that there isnt even the appearance of disparate treatment for members of protected groups. In particular, some very large class actions have been based on the fact that women and minorities were not provided equivalent pay and promotional opportunities compared to other employees.

Caution: Before performing a workforce analysis, consult with your companys employment attorney. Why? The results of your analysis could be subject to discovery in an employment lawsuit, which means it could be used against you in court.

Your companys attorney may be able to help you reduce the risk that such an analysis is discoverable. For example, you may want to retain an outside consultant to perform the audit under the attorneys direction. This may help protect the results of the audit from discovery on the grounds that it is the attorneys work product.

Train employees regularly. If you are like most employers, you have new employeesas well as managers and supervisorsflowing in and out of your workforce continuously. If the last time you conducted sexual harassment training was three years ago (when the U.S. Supreme Courts latest series of sexual harassment decisions shocked employers into providing greater training), then you have a whole raft of employees who lack this important training.

To reduce the likelihood that your company will be sued for class-based discrimination, make sure your workforce receives regular training on company enforcement and EEOC and wage-and-hour compliance responsibilities.

Consider an internal oversight committee.As part of large class-action settlements, both Coca-Cola and Texaco agreed to have their employment policies and practices monitored by a committee for a specified period of time. These committees included individuals from inside and outside the organizations.

It may be a good idea to consider voluntarily setting up a modified version of such a committee within your company. Of course, you probably would not want any outsiders on your committee. However, you would want committee members who:

  • Are independent of the companys HR department.
  • Are placed highly enough in management to influence the committee and exercise independent discretion.
  • Have a demonstrated track record of dealing with their subordinates fairly and helping diversify the workforce.

This committee could serve as a final reviewing board for all new or changed employment policies, for significant employment-related events (such as large layoffs) and for ensuring that the company is attracting and maintaining an appropriately diverse workforce.

Establishing and maintaining such a committee may sound like a time-consuming, cumbersome processand it will be. But, if it helps the company avoid even one class-action suit, it will be well worth the time and trouble. Moreover, such a committee may well provide fairly immediate benefits, such as greater diversity and improved employee morale.

Make diversity matter. A complete discussion of all the benefits of a diverse workforce is far beyond the scope of this article. Suffice it to say that a workforce that is truly diversified at all levels greatly reduces the risk of a class-action lawsuit being brought against the company. And, when class-action lawsuits are filed against a diverse company, the companys odds of winning are greatly enhanced.

To give more importance to diversity, make sure that diversity is an understood and accepted management objective and evaluate managers based on their contributions to diversity in the workplace. To further drive the point home to managers, compensation, bonuses or other incentives could be tied in part to the effectiveness they demonstrate in improving diversity.

Implement effective internal complaint procedures. Make sure that your company has a well-publicized, internal complaint procedure so that employment-related complaints can be resolved in-house, before employees resort to a class-action lawsuit.

Keep in mind that the key word here is effective. If employees do not believe the company will treat their complaints seriously, the internal complaint procedure loses its value.

Employers should assume that all complaints have some merit, regardless of their initial impressions. Complaining employees should be provided with a response. At the very least, employees should be told what is being done to resolve the problem, why the company believes it is not necessary to take action or why the company is unable to take action.

In running the complaint system, employers should be vigilant for multiple complaints regarding similar issues. This indicates that a number of employees believe they have a similar problem with the company. If these complaints are not resolved satisfactorily, these same employees may ultimately form the class that later brings a class-action suit.

Timothy S. Bland, SPHR, is an attorney with the Memphis office of Ford & Harrison LLP, a national law firm representing management in labor and employment matters. He is the 2001 vice-chair of SHRMs national Workplace Diversity Committee. Robert D. Hall Jr. is a partner in Ford & Harrisons Tampa office. Both Bland and Hall have represented employers in a number of class-action claims.

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