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Exposure to exponential liability under workplace class actions truly keeps executives awake at night, according to Stephen Poor, a managing partner of national employment law firm Seyfarth Shaw LLP. “The stakes in such litigation can be extremely significant, as the financial and operational impact of such cases is enormous.”
According to the Seyfarth Shaw Class Action Report—2006 Edition, released Feb. 13, the top 10 settlements of class actions brought by private plaintiffs totaled $1.06 billion last year. These included five actions involving Employee Retirement Income Security Act (ERISA) claims and four wage and hour collective actions.
The top 10 government litigation settlements also took a sizeable chunk out of corporate revenue, though substantially less at $396.15 million—with the largest class-action settlement of the year, brought by the Labor Department against Enron Corp., accounting for $356 million of that amount.
Costly retirement of ERISA claims
The Enron settlement, reached Sept. 12, 2005, to the tune of $356.25 million, was one of the most publicized class-action settlements of the year, resolving alleged breaches of fiduciary duties under ERISA in connection with the company’s 401(k) retirement plan. The settlement is an unsecured claim in Enron’s bankruptcy and the amount paid will depend on available assets, the report notes.
Several other ERISA settlements also cost tens of millions of dollars, including a $314 million settlement reached by IBM to resolve allegations that it violated ERISA’s prohibition on age discrimination by instituting a cash balance pension formula that allegedly reduced benefits available to older workers. The settlement calls for payment of an additional $1.4 billion if the class prevails on two outstanding issues, according to the report.
Microsoft agreed to pay $97 million in one class action filed by temporary workers over payroll and benefits practices under ERISA. And Royal Dutch/Shell agreed to a $90 million settlement of class actions filed by plan participants alleging breaches of fiduciary duties under ERISA in connection with the company’s various retirement plans.
In other litigation, WorldCom reached a $79.9 million settlement of class-action federal and state fraud claims filed by five New York City pension funds that opted out of the WorldCom class-action settlement to pursue their own case.
Pricey wage and hour settlements
While the ERISA settlements were large, the report gave particular emphasis to several huge wage and hour settlements, cautioning that the volume of wage and hour litigation is growing rapidly.
State Farm Mutual Automobile Insurance Co. agreed last year to pay $135 million to settle claims that adjusters were never paid overtime because they were treated as exempt, the report noted. And Allstate Insurance paid $120 million to resolve a class action that its adjusters were misclassified as exempt employees in violation of state wage and hour laws.
Merrill Lynch agreed to a $37 million settlement of a class action alleging violations of wage and hour laws in treating inside sales representatives as exempt from overtime requirements. Countrywide Home Loans resolved a claim that it had misclassified account executives as exempt in a $30 million settlement.
“Given the enormous financial stakes, trials of class actions are rare,” the report noted. But in one trial, a jury in Alameda County, Calif., found Wal-Mart liable for violating the California Labor Code requirement that employers give 30-minute, unpaid lunch breaks to employees who work at least six hours. On Dec. 22, 2005, the jury found for the plaintiffs and awarded $57 million in general damages and $115 million in punitive damages to a class of 115,919 current and former California-based employees. The report noted that Wal-Mart is expected to appeal.
At least one landmark class-action ruling last year had nothing to do with ERISA or wage and hour laws, but did involve Wal-Mart. The 9th Circuit certified 1.5 million class members in a Title VII gender discrimination claim against the world’s largest employer, challenging pay and promotions. The ruling and subsequent proceedings in the case “likely will be one of the top class-action developments in 2006 and beyond,” the report stated.
Class Action Fairness Act’s limited impact
It also predicted that the growth of wage and hour class actions will continue in 2006, particularly at the state court level and in California. Although the enactment of the Class Action Fairness Act last year was intended to limit the impact of strategic decisions made to the choice of a federal or state court venue, the law has had “little to no effect on the pace and volume of overall workplace class-action filings in 2005,” the report stated.
In wage and hour cases, the impact of the law on workplace class actions is “varied and evolving.” Employers in state law wage and hour class actions increasingly are facing attempts by plaintiffs’ attorneys to avoid removal to federal court by a variety of new stratagems such as:
• Requests for relief of less than $5 million.
• The filing of multiple class claims for fewer than 100 plaintiffs.
• Limits on the scope of the class to residents of one state.
The Class Action Fairness Act lets defendants remove class actions to federal court if one member of the class and one defendant are citizens of different states, the class involves more than 100 people and the aggregate amount in controversy exceeds $5 million. The law was intended to address the abuses of state court judges certifying class-action lawsuits involving plaintiffs from numerous states in areas with a reputation for not being fair to out-of-state defendants, according to the report.
“The lesson to be drawn from 2005 is that the private plaintiffs’ bar and government enforcement attorneys are apt to be equally if not more aggressive in 2006 in their pursuit of class-action and collective-action litigation against employers,” the report said. The lesson is worth taking to heart, as “more often than not, class actions adversely affect the market share of a major corporation and prejudice its reputation in the marketplace,” Poor remarked.
For information on how to obtain a copy of the report click here.
Allen Smith, J.D., is senior legal editor for HR News.
Bill to revamp class-action suits becomes law, HR News, Feb. 11, 2005.
Overtime Exemptions for White-Collar Employees: New Regulations Clarify Status, Legal Report, May/June 2004.
Fiduciary liability on minds of pension conference attendees, HR News, Oct. 29, 2003.
For the latest HR-related business and government news, go daily to www.shrm.org/hrnews
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