Employers at Risk from Higher Number of Class Actions

Employers are facing more lawsuits and federal agency enforcement actions over alleged labor law violations, and responding to them is becoming more expensive than ever, according to new research from law firms Duane Morris and Norton Rose Fulbright.

“More class actions are being filed and are being settled at higher numbers than before,” said Gerald Maatman, an attorney with Duane Morris in Chicago. “Companies are entering a new era of higher risks and higher stakes.”

Employers “are trying to stay in front of [the trend] the best they can and readjust resources when needed in terms of managing that [legal] risk,” said Jamila Mensah, an attorney with Norton Rose Fulbright in Houston.

On average, companies surveyed by Norton Rose Fulbright spent $2.3 million on litigation in 2023, compared with $2 million in 2021.

Courts issued rulings on 451 motions for class certification in 2023, up from 335 in 2022, Duane Morris reported. Plaintiffs succeeded in their requests to get class certification 72 percent of the time in 2023, compared with 74 percent in 2022. The top area for class certifications was alleged violations of the Fair Labor Standards Act (FLSA).

Wage and Hour Claims

Wage and hour violations remain the top employment-related claim, so “there’s a real corporate imperative to get pay policies and practices right,” Maatman said.

The U.S. Department of Labor (DOL) recovered approximately $212.3 million in back wages and concluded 20,215 compliance actions in fiscal 2023, down slightly from $213.2 million in back wages and 20,422 compliance actions in fiscal 2022. The DOL imposed civil money penalties to employers at a 10-year high of $25.8 million for violations of federal labor laws in fiscal 2023, up from $21.6 million in fiscal 2022, Duane Morris reported.

Because of increased attention on pay equity, “a lot of the companies are looking more at regular pay audits, trying to make sure all their ducks are a row in terms of compensation,” so they can prevent lawsuits, Mensah said.

Meanwhile, lawsuits filed under the California Private Attorneys General Act (PAGA) reached an all-time high last year. Those claims skyrocketed from 5,817 in 2022 to 7,780 in 2023, Duane Morris reported. PAGA cases often are wage and hour claims or disputes over worker classification.

In November, California voters will consider a ballot measure to repeal the PAGA and to replace it with a new law called the Fair Pay and Employer Accountability Act.

Discrimination Claims

Another growing trend is stronger agency enforcement of federal anti-discrimination laws. The total number of lawsuits filed by the U.S. Equal Employment Opportunity Commission (EEOC) increased from 97 in 2022 to 144 in 2023, Duane Morris reported. The majority of those lawsuits were under Title VII of the Civil Rights Act of 1964, which prohibits discrimination based on race, color, religion, sex and national origin.

Likewise, the EEOC recovered $513.7 million in monetary damages in all types of cases in fiscal 2022, up from $485 million in fiscal 2021, Duane Morris reported.

Last year, the agency filed 25 systemic discrimination lawsuits, which involve alleged patterns or practices where discrimination has a broad impact on an industry, profession or geographic location. That number is almost double the total from the previous year, Duane Morris reported.

The U.S. Supreme Court’s ruling last year outlawing affirmative action in college admissions could drive a wave of new lawsuits challenging corporate inclusion, equity and diversity (IE&D) programs, according to both law firms.

Employers should review their IE&D policies and practices to ensure they “aren’t susceptible to unnecessary scrutiny,” Mensah said.

Privacy Laws

One of the fastest growing trends is class-action lawsuits over data privacy violations. Several states, including Colorado, Connecticut, Delaware, Florida, Virginia, Tennessee, Utah and Texas, have adopted consumer data privacy laws in recent years. Most of those laws apply only in the consumer context, not the employment context.

Nevertheless, “employers need to have privacy policies [governing] how they collect information, what they do with the information,” Maatman said. “That’s a hot area of a lot of risk that grew exponentially in 2023.”

Forty percent of employers surveyed by Norton Rose Fulbright experienced litigation related to cybersecurity, data protection and data privacy in 2023, up from 33 percent the previous year.

In 2023, the top 10 privacy class-action settlements totaled $1.32 billion, Duane Morris reported.

In Illinois, lawsuits alleging violations of the state’s Biometric Information Privacy Act (BIPA) soared in 2023 after two Illinois Supreme Court decisions expanded the opportunities for plaintiffs to recover damages, Duane Morris reported.

BIPA regulates the use, collection and storage of biometric data, including fingerprints, voiceprints, eye scans and face scans from employees or consumers.

Tips for HR

HR should serve as an early warning mechanism by investigating and remediating workplace problems before they turn into a lawsuit, Maatman said. “I view HR as the first line of defense,” he said, adding that investments in legal compliance and effective training on workplace policies pay big dividends.