Fewer Wage and Hour Class Actions Filed, But Value of Settlements Spikes

By Robert Teachout, SHRM-SCP February 7, 2017

Although the number of wage and hour class-action lawsuit filings decreased last year, the settlement valuation has more than tripled over the last two years.

An annual report by law firm Seyfarth Shaw that tracks class-action litigation data shows that the trend for wage and hour cases ran counter to other employment law class actions, which decreased in settlement value by nearly 30 percent overall. The report, issued Jan. 11, looked at class-action cases involving wage and hour law, employment discrimination, the Employee Retirement Income Security Act (ERISA), and government enforcement.

Employment class-action lawsuits can cost millions of dollars to defend and adversely impact a company's operations. In some cases they can even jeopardize or end senior management careers.

The report showed that businesses face accelerating and rapidly changing litigation issues. Plaintiffs' class-action attorneys and governmental enforcement litigators are developing new theories to successfully prosecute complex employment litigation, said Gerald Maatman Jr., an attorney in Seyfarth Shaw's Chicago office and author of the report.

Wage and Hour Case Filings Remain Prevalent

In 2016, for the first time in 15 years, the number of wage and hour case filings decreased compared to the previous year. However, Maatman cautioned that this probably was just "an aberration." He noted that although wage and hour case filings decreased last year, 2016 still had the second-highest number of wage and hour cases ever filed.

He expects an increase in wage and hour cases for the trend to return to the norm 2017. "To the extent that government wage and hour law enforcement is ratcheted down, the private plaintiffs' bar likely will 'fill the void' and again increase the number of wage and hour lawsuit filings," Maatman said.

Such cases are particularly well-suited to the plaintiff's bar, he said, given the low investment needed to pass the threshold for class certification—permitting individuals bringing different claims against a company to consolidate their claims. Expert opinion and documentation to bring a class action under other areas of employment law, such as employment discrimination, can cost upwards of $250,000, he said, and the data shows that only about half of the classes in other areas are certified. Wage and hour class cases, on the other hand, can be prepared for only a few thousand dollars and have a 76 percent certification rate. Once certification is granted, an employer is under great pressure to settle.

Recent news reports on the overtime regulations may also spark more filings. "Historically," said Maatman, "when the FLSA [Fair Labor Standards Act] and related wage and hour laws have received active media attention, the number of lawsuits filed under those laws has spiked," even though a court barred the overtime rule from taking effect as scheduled on Dec. 1, 2016.

Regardless, the media attention surrounding the overtime rule makes wage and hour compliance a top priority, according to Maatman: "If [as a business owner] I have $100 to spend on compliance efforts, $95 to $99 would be focused on wage and hour compliance because that is where the most risk is these days."

[SHRM members-only HR Q&A: Wage Deductions: When we hire or fire an exempt worker mid-week, will we violate the salary-basis test under the FLSA if we don't pay the employee for the whole week?]

Value of Wage and Hour Settlements Rose

The monetary value of the top employment-related class-action settlements declined significantly in 2016, Seyfarth Shaw found, after reaching all-time highs in 2014 and 2015. The top 10 settlements in the various employment categories totaled $1.75 billion in 2016, which declined from $2.48 billion in 2015 and $1.87 billion in 2014.

In contrast, the value of wage and hour settlements increased significantly.  The value of the top 10 settlements hit $695.5 million in 2016, a 50 percent increase over 2015's $463.6 million valuation, and more than triple the $215.3 million valuation in 2014.

Decisions certifying wage and hour class-action lawsuits increased 11 percent over the previous year. But at the same time, employers won decertification motions at a slightly higher rate than in 2015. That both rates could increase reflects the 28 percent increase in certification cases overall, from 175 in 2015 to 224 in 2016.

Impact of Supreme Court Rulings

Recent U.S. Supreme Court rulings increasingly have shaped and influenced class-action dynamics, according to Maatman. Cases last year, such as Tyson Foods v. Bouaphakeo, 136 S. Ct. 1036 (2016) and Spokeo v. Robins, 136 S. Ct. 1540 (2016), were more favorable to plaintiffs and made it easier for class actions to advance.

In Tyson, the court ruled that statistical sampling can be used to establish class-action claims in which large numbers of employees each assert small-dollar claims. In Spokeo, the court held that "standing"—the ability to sue because one has a stake in the matter—requires a showing of a "concrete injury" but not necessarily a "tangible injury." As a result, certain intangible harms may be sufficient to satisfy standing requirements.

"The court decided several cases in 2016 that favored workers bringing class actions, which in turn portend significant challenges for employers facing these exposures in 2017," Maatman said. By declining several opportunities to impose more restraints on class actions and often deciding cases on narrow grounds, he said the Supreme Court left many gaps to be filled in by lower federal courts.

Effect of Political Change

The U.S. Department of Labor and the Equal Employment Opportunity Commission continued their aggressive regulatory enforcement litigation programs last year. But Maatman said that their enforcement activities were limited in their effectiveness when measured by lawsuit filings and recoveries compared to previous years. However, he expects the agencies to continue their focus on systemic investigations and collective actions.

Employment law class-action lawsuits are becoming more sophisticated, Maatman said, and will continue to be a source of significant risk for financial exposure to employers well into the future. The one sure bet in 2017, he said, is that "change is inevitable, and corporate America will encounter new litigation challenges."

Employers can expect class-action lawsuits increasingly to combine claims under multiple statutes. "With the changeover from a Democratic White House to a Republican one and the second-most filings of wage and hour litigation [in 2016] over the past decade, 2017 is sure to present twists and turns for employers in dealing with these types of litigation issues," Maatman said.

Robert Teachout, SHRM-SCP, is a writer in Washington, D.C., who covers employment law and HR issues.

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