light bulb.bmpBy Tracy Billows, Jonathan C. Grey, and David Kadue

As we have noted in previous blog postings (read here and here) the plaintiffs’ class action bar continues to look for ways to work around the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). A prime example of these tactics is McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482 (7th Cir. 2012), which we analyzed in several earlier posts. While we continue to monitor this trend and assess the best defense strategies for combating plaintiffs’ “new re-booting theories,” we suggest employers consider a “new tool” themselves  – enhancing workplace and HR policies based on the lessons learned from Wal-Mart and McReynolds – to maximize their defense prospects and make class certification more difficult for plaintiffs. 

Brief Recap Of Dukes And McReynolds

Previously, we wrote extensively about the broad implications of Wal-Mart and McReynolds on workplace class actions. To briefly recap, in Wal-Mart, where the only “company-wide” policies forbade discrimination and delegated employment decisions to local managers, the Supreme Court found that the plaintiffs lacked any ability to establish commonality and noted that a class action would be unmanageable given the lack of a uniform policy with a discriminatory impact. Conversely, in McReynolds, where company policies permitted brokers to work in “teams” and suggested success-based criteria for distributing departing brokers’ accounts, the Seventh Circuit found a class action could be manageable. The Seventh Circuit in McReynolds distinguished the lack of a “company-wide” policy in Wal-Mart by finding that Merrill Lynch had instituted “company-wide” policies that allegedly created an adverse impact. The Seventh Circuit reasoned that Merrill Lynch’s policies could cause racial discrimination, might not be justified by business necessity, and accordingly, determined class certification was warranted.

Employing Proactive Strategies

Rather than waiting to attempt to defeat a class action by analogizing it to Wal-Mart or distinguishing it from McReynolds, employers can take proactive steps to thwart a potential class action. Employers should audit workplace policies and develop practices with the lessons of Wal-Mart and McReynolds in mind. This process entails the review of generally applicable workplace policies, analyzing the potential for an adverse impact on protected classes, determining whether there exists a business necessity for each policy, and modifying policies as appropriate. Employers also should ensure they have effective corporate equal employment opportunity policies, which include consequences for managers’ failure to adhere to them. This may also help preclude a finding of a common policy of discrimination. 

Employers also should look beyond the usual suspects – hiring, pay, and promotion practices — and examine  practices regarding the use of teams to staff projects and work, mentoring or coaching programs,  management or executive training programs, and other practices that may affect an employee’s advancement opportunities. These kinds of practices are likely to be challenged by plaintiffs going forward because they often can be identified as allegedly affecting protected groups. Moreover, they tend to influence pay and promotions decisions. Other hot button policies include those that are too complex or costly for managers to follow, policies and practices that adversely affect employee morale, and those that are not uniformly enforced. Modifying these policies can help employers better address these hot button issues before they turn into the next class action lawsuit.      

Action Steps For Employers

Given the likelihood of the continued emphasis of the plaintiffs’ class action bar on finding approaches to litigating employment class actions, here is a short checklist of specific action items for employers to take related to the policies and practices that will likely form the basis of any such lawsuit: 

  • Review each Human Resources policy and practice to determine whether they have an adverse impact on any protected group.
  • Review and audit other corporate policies that affect employee work opportunities, pay, and advancement opportunities.
  • Ensure implementation and enforcement of the company’s EEO policy from top down.
  • Provide regular training and communication regarding policies, including those regarding equal employment opportunities, non-discrimination, anti-harassment, and career opportunities.
  • Ensure effective complaint and “open door” policies and procedures are in place.

Proactively taking these steps not only will bolster legal compliance, but also give employers a significant edge in fending off the next class action.

Co-authored by Lynn Kappelman and Michael Fleischer

This question – what constitutes an effective Rule 68 offer of judgment to block or exit litigation – is all important to employers in all types of class actions and collective actions.

The Fourth Circuit recently issued a decision clarifying the magic terms that need to be in a settlement offer in order for it to qualify as a Rule 68 offer of judgment. Rule 68 is an especially effective tool for employers because it can be used to cut off a plaintiff’s entitlement to attorneys’ fees and costs; typically, the result is to shift the litigation dynamics and gain settlement leverage. Pursuant to Rule 68, plaintiffs who reject a pre-trial offer of judgment and end up recovering less than the offer at trial must pay the defendant’s attorney’s fees and costs of litigation incurred after the rejection of the offer of judgment. 

In Simmons et al v. United Mortgage and Loan Investment, et al., No. 09-2047 (4th Cir. Jan. 24, 2011) [link to ruling], Plaintiffs, a group of nine Junior Asset Managers at United Mortgage, brought a collective action against United Mortgage, pursuant to 29 U.S.C. § 216(b), alleging that they had been misclassified as exempt employees and were entitled to overtime wages for all hours worked over forty per week. Defense counsel tried to eliminate the case through a series of settlement offers and motions based on the principles underlying Rule 68. On appeal, the Fourth Circuit considered whether the district court erred in holding that the contents of Defendant’s settlement letter to Plaintiffs dated May 16, 2008, and clarified in another letter thirteen days later, constituted a Rule 68 offer of judgment. The Fourth Circuit also considered whether the two settlement letters rendered Plaintiffs’ claims moot since they offered the named Plaintiffs full recovery and, as a result, there was no longer a live case or controversy. 

The Fourth Circuit found that neither Defendants’ May 16th letter nor their follow-up clarification letter constituted a Rule 68 offer of judgment. First, the Defendants’ letters provided for only a five day window to accept the Defendants’ offer, rather than the 14 day window as provided by Rule 68. Second, the Defendants’ offer did not make an unconditional offer of judgment on specified terms as required by Rule 68, and instead conditioned the offer upon the Plaintiffs’ submission of additional affidavits. Third, the Defendants’ offer stated that the Defendants would enter into a settlement agreement rather than an offer to have judgment entered against them.  Fourth, in contrast to the public nature of an unsealed judgment entered pursuant to Rule 68, the Defendants offer required the Plaintiffs to keep the fact of the settlement and the terms of settlement confidential.

The Fourth Circuit also considered whether Plaintiffs’ claims were still moot because “the doctrine of mootness is constitutional in nature, and therefore, not constrained by the formalities of Rule 68.” The Fourth Circuit concluded that Plaintiffs’ claims were not moot. Defendants’ offer for a settlement agreement failed to provide Plaintiffs “full relief in this case” because district courts do not have the same enforcement power with settlement agreements as they do with judgments. Further, the claims were not moot because Defendants failed to make an unconditional offer of judgment on specified terms and instead conditioned the offer upon Plaintiffs’ submission of affidavits. Finally, Defendants’ requirement of confidentially prevented Plaintiffs from obtaining an unsealed judgment in their favor. In sum, the Fourth Circuit concluded that Defendants’ flawed offer of judgment did not render Plaintiffs’ claims moot and it remanded the case back to the district court for reconsideration.

In those jurisdictions where federal courts allow Rule 68 offers of judgment to be used in class actions, they can be an effective strategy for driving a wedge between plaintiffs and their counsel because once they decline the Rule 68 offer, they risk incurring responsibility for both attorneys’ fees and costs if the ultimate trial verdict is less than the offer of judgment. The United Mortgage case makes clear, however, that in order to make an effective Rule 68 offer of judgment, there are certain magic terms which Defendants must include in the offer.

WCA2011.jpgThe year just ended was a seismic one for employment-related class action litigation, paving the way for more far-reaching judgments, court rulings, and changes to class action law in 2011. Furthermore, in 2010, the value of major employment discrimination class action settlements increased four-fold over the prior year and the top ten settlements of wage & hour, ERISA, and governmental enforcement class actions increased to $1.16 billion, the highest amount ever.

The “tipping point” aspect of these changes is featured in the 2011 edition of Seyfarth Shaw’s Workplace Class Action Litigation Report. The 664-page Report, our Seventh Annual Edition, examines 849 decisions rendered in 2010 against employers in state and federal courts, including private plaintiff and government enforcement actions. The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become to “go to” research and resource guide for businesses and their corporate counsel facing complex litigation.

A preview copy is available here, and can be ordered here.

While shareholder and securities class action filings experienced only a slight uptick in 2010, employment-related class action filings increased dramatically.  Anecdotally, surveys of corporate counsel confirm that workplace litigation – and especially class actions, multi-plaintiff lawsuits, and government enforcement litigation – continues to drive corporate legal budget expenditures, as well as the type of legal dispute that causes the most concern for their companies.

In terms of key decisions, there was no class action ruling in 2010 quite like Dukes, et al. v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010), a Title VII gender discrimination case challenging pay and promotions involving 1.5 million class members.  On April 26, 2010, an en banc panel of the Ninth Circuit affirmed the certification order in Dukes by a 6 to 5 vote.  A detailed analysis of the Ninth Circuit ruling in Dukes is contained in Appendix I at page 617 of the Report.  Wal-Mart subsequently filed a petition for certiorari with the U.S. Supreme Court, which was granted on December 6, 2010.  A future ruling by the Supreme Court in Dukes is likely to be one of the top class action developments in 2011 and beyond.

Employment discrimination, ERISA, and FLSA litigation filings increased over the past year.  FLSA and employment discrimination cases spiked sharply, and outpaced ERISA filings.  Based on statistics from PACER filings with the Administrative Office of the U.S. Courts, employment discrimination lawsuits increased to 14,559 in 2010 from 13,720 in 2009; ERISA lawsuits increased to 9,038 in 2010 from 8,944 in 2009; and FLSA lawsuits increased to 6,761 in 2010 from 6,120 in 2009.  Since the majority of FLSA filings were on behalf of groups of employees, wage & hour class actions and collective actions out-paced filings of class actions for employment discrimination and ERISA violations.  In turn, while plaintiffs continued to achieve initial certification of wage & hour collective actions, employers also secured several significant victories in defeating conditional certification motions and obtaining decertification of § 216(b) collective actions.  Given the trickle-down phenomenon of class action settlements (and the increased awareness of wage & hour issues by workers), it is expected that the pursuit of nationwide FLSA collective actions by the plaintiffs’ bar will continue in 2011.

A new case law trend in 2010 focused on workplace arbitration agreements and their enforceability and impact in the class action context. While no one suggests that the sun is setting on workplace class actions, the Supreme Court’s ruling in Stolt-Nielsen S.A., et al. v. Animalfeeds International Corp., 130 S. Ct. 1758 (2010), arms employers with additional ammunition to confront class action litigation through drafting of comprehensive workplace arbitration programs. Stolt-Nielsen quickly spawned several rulings in employment discrimination and wage & hour class actions, thereby demonstrating the importance of this development for employers utilizing arbitration agreements.  This development is likely to accelerate, as the Supreme Court considers state law limits on class action waivers in Concepcion, et al. v. AT&T Mobility, a case scheduled for decision in the Spring of 2011.

On the wage & hour front, a confluence of factors contributed to an ever-increasing number of claims. In one respect, 2010 might be termed the “Year of the Misclassified Worker” class action lawsuit based on end-of-the-year figures that show a sharp increase in crackdowns this year by state and federal authorities, and filings by class action lawyers in pursuing private lawsuits against companies that allegedly misclassify employees.  Employers utilizing independent contractors were the focus of intense litigation scrutiny on these fronts. Approximately 20 states and scores of municipalities passed laws in the past two years that make it easier to force employers to reclassify independent contractors as employees and seek unpaid taxes, or authorizing claims for “wage theft.”  Likewise, the DOL’s enforcement litigation resulted in employers paying $6.5 million in back wages to 5,261 employees in fiscal 2010, up sharply from $2.6 million obtained for 2,190 employees in 2009.  The DOL and Internal Revenue Service (“IRS”) also increased their budgets and staffs to identify and audit employers and their classifications of workers, as well as implementing its new “Plan/Prevent/Protect” enforcement strategy.

Due to the enormous financial stakes, trials of class actions continue to be rare, and verdicts in these trials rarer still.  However, 2010 witnessed the largest employment discrimination class action trial verdict ever – the $250 million verdict in Velez, et al. v. Novartis Pharmaceuticals Corp., Case No. 04-CV-9194 (S.D.N.Y.) following a seven-week trial in the Spring of 2010.  After the verdict, the parties promptly settled the class action for $175 million on July 14, 2010.  The settlement is one of the largest employment discrimination class action settlements ever.

If trials of class actions were rare, settlements of class actions in 2010 reflected a continuing trend from past years, in which significant monetary payments were made in mega-class actions with nationwide classes.  Settlements in FLSA collective actions and ERISA class actions once again outpaced employment discrimination class action settlements in terms of overall settlement values.  In turn, settlement amounts in wage & hour class actions and government enforcement lawsuits experienced significant increases over 2009 figures.  In closing the year, plaintiffs secured a $57 million verdict in a wage & hour class action in Rekhter, et al. v. Washington Department of Social And Health Services, Case No. 07-895-5 (Thuston County, WA), on December 20, 2010.

Finally, case law developments under the CAFA accelerated in 2010.  The statute has had profound effects on litigation strategy and the structuring of underlying class actions.  In this context, the CAFA’s impact on workplace class actions is both varied and evolving.  Class actions and collective actions under Title VII, the ADEA, the FLSA, and ERISA typically are brought in federal court.  The CAFA may have limited impact on strategic decisions in those cases relative to choice of venue in a federal court or state court.  Class actions in state law-based wage & hour litigation are another matter.  The plaintiffs’ bar and defense bar alike continue to confront novel CAFA issues in wage & hour cases, as the fight over venue is often a key driver of exposure and risk.  On the one hand, employers sued in state law wage & hour class actions are increasingly confronted by plaintiffs’ lawyers seeking to avoid removal to federal court by various stratagems, including prayers for relief of less than $5 million, the filing of multiple “baby” class action claims on behalf of fewer than 100 plaintiffs, and limiting the scope of the class to residents of one state.  On the other hand, defense counsel seeking (often successfully) to dismiss state law claims pursued by plaintiffs with FLSA claims in “hybrid” wage & hour class actions in federal court argue that judges should not exercise supplemental jurisdiction over the state law claims.  Federal courts, in turn, are increasingly confronted with questions of whether original jurisdiction exists under the CAFA over such hybrid state law claims, and employers also may face a two front litigation war – one in federal court and the other in state court – depending on resolution of those CAFA issues.  These litigation issues continue to shape class action practice and defense strategy, and are likely to do so for the foreseeable future.


WCA2011.jpgSeyfarth Shaw’s 2011 Workplace Class Action Report is coming soon! The report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation. Our loyal readers can expect to receive their copy in several weeks, with rulings and case law developments reviewed and analyzed through December 31, 2010.

To say the least, 2010 was a significant year for workplace class action litigation. We will address these developments in detail in the upcoming Report, and this post provides a preview.


Key developments over the past year manifest multiple trends that impact employers.

First, 2010 was the year of big headlines in employment discrimination class actions.  Those headlines involved the biggest class action trial verdict ever – the $250 million verdict in Velez, et al. v. Novartis in May of 2010 – and its subsequent settlement two months later for $175 million.  As success by the plaintiffs’ bar often prompts copy-cat litigation filings, these headlines are likely to encourage more class actions in the future, as well as enhanced settlement demands by the plaintiffs’ bar to resolve their cases.

SupremeCourt.jpgSecond, 2010 also spawned landmark Rule 23 decisions; none was more momentous than the ruling by the Ninth Circuit in Dukes, et al. v. Wal-Mart Stores, Inc. on April 26, 2010, and the subsequent grant of certiorari in the case by the U.S. Supreme Court on December 6, 2010.  In a 6 to 5 en banc opinion, the Ninth Circuit upheld, in part, certification of the largest employment discrimination class action ever – a pay and promotions class of approximately 1.5 million female workers.  The Supreme Court’s grant of certiorari put the Ninth Circuit’s decision in flux and other decisions on hold, while the class action bar awaits the next chapter in the litigation.  The Supreme Court’s expected ruling in Dukes in 2011 is apt to be a bellwether decision in areas that the Supreme Court has left mostly to federal circuit courts of appeals in recent years. 

Third, the continued economic challenges and low hiring rates during 2010 fueled more class action and collective action litigation.  Most significantly, the plaintiffs’ bar increased the pace of FLSA collective action filings seeking recovery for unpaid overtime wages.   These conditions spawned more employment-related case filings, both by laid-off workers and government enforcement attorneys.  In turn, this resulted in higher settlement numbers (especially in government-initiated lawsuits and wage & hour litigation).  Even more class action litigation is expected in 2011, as businesses continue to re-tool their operations.

Map.jpgFourth, by sheer numbers, wage & hour litigation continued to far out-pace all other types of workplace class actions.  This trend was also manifest in more wage & hour class action and collective action decisions by federal and state court judges than any other area of workplace litigation.  It also reflected the fact that in terms of case filings, collective actions pursued in federal court under the Fair Labor Standards Act (“FLSA”) outnumbered all other types of private class actions in employment-related cases.  As a result, FLSA collective actions produced more rulings in 2010 than class actions for employment discrimination or under ERISA.  Significant growth in wage & hour litigation also was centered at the state court level, and especially in California, Florida, Illinois, New Jersey, New York, Massachusetts, Minnesota, Pennsylvania, and Washington. This trend is likely to continue in 2011.

Fifth, as Democratic legislative initiatives for labor and employment reform stalled, in the wake of Republican Congressional gains, the Obama Administration continued to ramp up its enforcement efforts through the U.S. Equal Employment Opportunity Commission (“EEOC”) and the U.S. Department of Labor (“DOL”).  The Obama Administration’s emphasis on administrative regulation and enforcement lead to more government-initiated litigation over workplace issues.  Those efforts are expected to intensify as the Administration’s policy goals, which may be thwarted in the Congress, are advanced through agency regulation and government enforcement litigation.  Many state labor departments are following this lead. Increased funding for the DOL and the EEOC also resulted in the recruitment and training of more DOL and EEOC attorneys and investigators.  It is expected that employers will encounter more investigations – and more governmental enforcement lawsuits – in 2011 as the augmented staffs of the DOL and EEOC carry out their law enforcement functions.  Likewise, when measured by monetary recoveries, government enforcement litigation resulted in higher settlement amounts for workplace litigation than past years.  Even more aggressive government enforcement litigation is likely in the coming year.

scalesofjustice.jpgSixth, the Class Action Fairness Act of 2005 (“CAFA”) continued to have significant effects on workplace litigation, and most significantly on wage & hour class actions filed in state court.  The past twelve months saw evolving case law developments on jurisdictional issues under the CAFA.  As the plaintiffs’ bar continues to devise techniques to adapt to the CAFA, rulings on the scope, meaning, and application of this law, of relatively recent vintage, have occurred at a surprising rate.  In this respect, the development of CAFA-related law continued to mature quickly in the Ninth Circuit, as the high volume of California-based wage & hour class action filings resulted in a deluge of CAFA removals in California federal courts in 2010.

Seventh, and finally, the financial stakes in workplace class action litigation increased in 2010.  Plaintiffs’ lawyers have continued to push the envelope in crafting damages theories to expand the size of classes and the scope of recoveries.  These strategies resulted in a series of massive settlements in nationwide class actions, particularly in the context of wage & hour litigation.  This trend is also unlikely to abate in 2011. 

Co-authored by Camille Olson and Gerald L. Maatman, Jr.

Paycheck Fairness Act did not survive a Senate vote today. Senate Republicans filibustered the bill and Democrats fell two votes short of the 60 needed to put it to an up-or-down vote.

As reported in our blog in a previous post, the plaintiffs’ class action bar is focusing on creation of new theories to attack pay and promotion decision-making by employers, and one key area of focus was the proposal on the Paycheck Fairness Act. The proposed legislation was designed to transform class action remedies in this context. The Paycheck Fairness Act had reintroduced in the Senate on September 14, 2010 and re-designated as S. 3772, formerly S. 182, 11th Cong. (2010).

Critics of the Paycheck Fairness Act, like Senator Susan Collins (R-Maine), had predicted that it would lead to excessive litigation against the business community, thus endangering job creation and economic recovery. Others said that the fact that the bill would have limited employers’ basis for paying different wages was problematic.

We predict the efforts behind the proposal will not die a final death, and that future legislative efforts will be renewed on this front.

In the latest installment of a long running saga involving the stainless steel drums in Sears Kenmore clothes dryers,  the U.S. Court of Appeals for the Seventh Circuit utilized the All Writs Act, 28 U.S.C. 1651(a) (link) to halt class action litigation pending in the U.S. District Court for the North District of California, as well as future class actions involving the same parties, attorneys, and subject matter. The lucid 29-page opinion by Judge Posner – in Thorogood v. Sears, Roebuck & Co., Case No. 10-2407, 2010 U.S. App. Lexis 22807, __ F.3d__(7th Cir. Nov. 2, 2010).  “Thorogood III” – highlights how class counsel’s use of far-reaching, burdensome discovery for settlement leverage justifies enjoining a second attempted class action. 

The latest decision was the third appeal to the Seventh Circuit. It contains important lessons for employment class actions, especially in the wage & hour context where plaintiffs’ counsel often file multiple class actions in different venues.

Continue Reading Seventh Circuit Enjoins Copycat Class Action

In what is perhaps the closely watch cert petition in the employment law context in years, counsel for plaintiffs have filed their opposition to the petition for certiorari in Dukes, et al. v. Wal-Mart, an en banc ruling of the Ninth Circuit upholding certification of a class of more than a million current and former female workers who allege they were discriminated against.  Plaintiffs obviously argue that the Supreme Court should not accept the petition and that the Ninth Circuit’s class certification order should be upheld. Plaintiff assert that the writ should be denied because the decision is interlocutory and fundamental questions remain unresolved pending a trial. By last count, there are now 10 amicus briefs filed with the Supreme Court too.

The petition is now ripe for review by the Supreme Court, and most expect action either way on the petition by November or December. Stay tuned.