How Your Company Can Defend Against Class-Action Lawsuits
An annual employment class-action lawsuit analysis found some surprising trends. In 2020, plaintiffs’ lawyers secured class certification in 84% of wage and hour lawsuits.
This is the highest certification rate of any litigation area, and the highest certification rate for wage and hour lawsuits in the past decade.
What factors led to such a high class certification rate?
What can HR do to protect their employer from costly class-action litigation?
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Why do class-action lawsuits matter?
Class-action lawsuits are a lot different than individual lawsuits, and because of this, they’re handled differently in court. Imagine 100 employees, each with similar legal complaints. It would be incredibly difficult for a court system to handle each claim separately, so these complaints are often bundled together into a collective action suit.
The cost of defending a class-action lawsuit is extensive and comes with the risk of being found liable for the plaintiff's legal costs to file the suit, past wages due, penalties, and punitive damages. The threat of class-action litigation is regularly used to pressure employers into settlements that never go to trial.
What is class certification?
For plaintiffs, it’s not as simple as filing a class-action complaint and heading straight to a trial. The court wants to make sure that the individual members included in the class action are actually represented by the lawsuit—if not, the lawsuit will not get certified or move forward.
The law sets forth clear certification standards under Federal Rule 23. Plaintiffs must plead and prove (1) the class is so numerous that joinder of all members—bringing them all together in a courtroom—is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.
So, why does class certification matter? A high class certification rate—like the 84% wage and hour certification rate in 2020—signals two things. One, that class actions are more representative of their individual members than in years prior. Two, that courts are more likely to certify class actions when presented with one. Even though the legal bar to get certification is high, plaintiffs are winning left and right.
In short: it’s easier to get class certification now than ever before (at least in the wage and hour space). This means more lawsuits will pop up. It’s a risky, costly cycle for businesses that have legal exposures. If your company does get sued, chances are you will be fighting it for years on end.
In 2020, a total of 257 class certifications were granted for cases involving wage and hour, employment disrimination, and retirement, with 90% being wage and hour disputes.
Three factors have led to a rise in cases filed and certifications granted in the wage and hour space:
- The “barrier of entry” is low relative to other litigation areas. Employment discrimination and ERISA complaints require a larger investment of time and money. Wage and hour lawsuits don’t even necessitate an expert on the plaintiffs’ counsel.
- Opportunistic employment lawyers encouraged by the class certification success rate.
- Securing certification can be done immediately, unlike other lawsuits-types that take longer to litigate.
The trend over the past five years in the wage and hour space reflects a steady success rate that ranged from a low of 73% in 2016 to new high of 84% in 2020. Overall, more wage and hour cases have been filed in the past decade than during any decade prior. Though certified, many of these cases have not yet gone to trial. Courts face a heavy caseload in the near future. If the trend holds, about 8 of every 10 cases will get certified, leaving many employers stuck with costly litigation.
Despite the pandemic’s impact on operations and procedures, courts ruled on more wage and hour class action certifications in 2020 than any year prior. The Second, Fifth, Sixth, and Ninth Circuit courts accounted for 126 rulings, the most of any group of courts. And that’s not an arbitrary grouping, either. These courts represent every corner of America: the Second is in New York, the Ninth in San Francisco, the Fifth in New Orleans, the Sixth in Cincinnati. The Second and Ninth Circuit are notoriously “plaintiff friendly,” but even the two districts located in the Midwest and South were more favorable to plaintiffs than employers in 2020.
Employers face similar legal challenges across the country, not only in terms of the number of complaints filed against them, but also increasing class certification rates.
What can HR do to minimize class-action risks?
It is recommended that HR develop processes that generate a historical record of compliance. This document trail helps to reduce the likelihood of being sued and can be used to shutdown or minimize litigation exposure. While litigation risks can come from many sources, what follows are tips HR can use to mitigate wage and hour class-action risk.
- Have a professional audit done on wage and hour compliance. The employer will learn where they are strong and weak. Never assume HR understands laws written by congress and the meaning of court decisions. The root of many wage and hour claims is built on misinformation.
- Have HR compare timekeeping records to legal requirements and explain to the CEO why they are compliant. If they can’t explain the requirements or why the employer is compliant, get assistance. If time worked isn’t tracked correctly, then wages paid will be incorrect for all impacted employees, each pay period, going back 3-4 years.
- Compare 2810.5 wage notice requirements and wage statement requirements to employee records. Ensure that each requirement is clearly being met. If one is wrong, they can impact each paycheck amassing stunning levels of liability.
- Implement arbitration agreements that preclude the use of class-action litigation as a means of settling employment disputes. This won’t remove wage and hour liability, but can be used to force each employee to settle claims individually.
Mandatory arbitration forces employees to settle disputes individually, not through class-action lawsuits.
Employment litigation represents a costly challenge for companies around the U.S. Although case law precedents and defense approaches evolve, generating good outcomes for some employers, courts continue to grant conditional certification motions at high rates.
How do employers defend against class-action lawsuits? Mandatory arbitration.
Epic Systems Corp. v. Lewis, a 2020 Supreme Court Case, reaffirmed the Federal Arbitration Act (FAA), which allows employers to set their own terms when it comes to employment disputes. Specifically, the court ruled that the FAA allows employers to compel employees to sign arbitration agreements. By signing, employees agree to resolve any employment-based disputes through individual arbitration, waiving their right to participate in or receive benefit from any class, collective, or representative lawsuit.
A class-action waiver in an arbitration agreement was and is an effective defense against class lawsuits. In 2020, many employers used arbitration defenses to break up class actions and convert them into individual, non-court proceedings.
This defense should spread—active HR managers and company legal staff must work to adopt mandatory arbitration programs. As more companies adopt mandatory arbitration, the number of employment lawsuits will likely dwindle even if the certification rate stays high.
Experts caution that the Biden administration may work to overturn the Epic System’s ruling and update existing workplace arbitration laws to favor employees. For now, employers can and should implement mandatory arbitration programs, but we’ll be sure to keep an eye on the Biden administration’s plans.
Employment litigation is a complex, costly issue. Class action certification rates set a new high in 2020. 84% of class actions were granted certification. Going forward, this trend is likely to hold, owing largely to opportunistic employment lawyers encouraged by the success of others. While these lawsuits are sure to keep coming, implementing a mandatory arbitration program is one of the most effective ways a business can protect itself against litigation.
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