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Employers To Face More Litigation In 2015 As Plaintiff Lawyers Swoop In

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The good news for companies that issue stock -- dramatically fewer securities lawsuits in 2014 -- is breeding bad news for employers as underemployed class-action lawyers flock to labor law as a new source of profits in 2015.

An aggressively pr0-labor Obama administration and 1930s-era laws that haven't been adapted to the reality of a mobile, telecommuting work force make for rich targets as private lawyers press wage-and-hour suits that require relatively little up-front preparation and can generate multimillion-dollar settlements. Lawyers seeking back pay for a few hours or even minutes per week, per employee, can make a plausible case for tens of million of dollars in damages with far less of the expert testimony and economic analysis of a more complicated discrimination case.

"If you're an employer in 2015 and you want to comply with the law and manage litigation risks, you must focus on payroll and wage-and-hour issues," said Gerald Maatman, a partner in the Chicago office of Seyfarth Shaw, which focuses on representing employers. "You have a migration of plaintiff lawyers into that area, I think, because of low barriers to entry."

Other trends Maatman and his colleagues at Seyfarth Shaw predict for 2015 in a report released today include:

  • More lawsuits over misclassification of employees, as private lawyers follow behind the Obama administration's attempts to pull millions of employees into the orbit of labor laws requiring overtime pay.
  • More lawsuits in state courts, as attorneys try to attack large employers in friendlier venues using state labor laws, which often make it easier to form class actions.
  • Court battles over the status of telecommuters -- does answering a company e-mail at 10 p.m. trigger the overtime clock?
  • More suits over independent contractors, and whether they are de facto employees entitled to overtime and benefits.
  • More lawsuits over pension plans, after the U.S. Supreme Court eliminated protections against suits against defined-contribution plan fiduciaries for including company stock among investment choices.
  • More suits by the Equal Employment Opportunity Commission as the Obama administration, undeterred by court losses and even sanctions, presses large-scale discrimination cases.
  • Lots of creative lawyering as plaintiff attorneys develop new tactics to get around Supreme Court rulings upholding the legality of contracts requiring individual arbitration and making it harder to form large classes of workers with often differing claims.

Pro-labor forces lost a big one in December when the Supreme Court rejected a lawsuit on behalf of workers at an Amazon.com warehouse who sought back pay for the time they spent waiting in line to be checked for stolen goods after a shift. The decision in Integrity Staffing Solutions vs. Busk upheld the Labor Dept.'s position on this particular issue, which is that wages are only due for "principle activities" of a job. But this decision hardly eliminates the fog of uncertainty surrounding labor laws that were written largely to reduce industrial violence in the 1930s and are poorly adapted to the modern digital work force.

There are no firm guidelines on whether an employee is a manager exempt from federal wage laws or a worker entitled to overtime, for example. Many retailers employ "assistant managers" who oversee workers as well as waiting on customers themselves.

"The line between exempt and non-exempt is not always clear and so a lot of employers are being sued on these misclassification theories," Maatman said.

Lawyers are also suing over independent contractors under the theory they are paid wages and directed on what to do, just like rank-and-file employees. "You may label me as an IC but labels don't matter," is the argument, Maatman said.

Telecommuting and electronic communications are opening up another rich territory for suits, he said. The EEOC won before the Sixth Circuit last year in a case accusing Ford Motor Co. of violating the Americans With Disabilities Act by failing to accommodate an employee by allowing her to telecommute four days a week. "The 'workplace' is anywhere that an employee can perform her job duties," the court said.

But lawyers may use the same reasoning to attack employers for allowing non-exempt workers to use company e-mail or portable electronic devices in off hours.

"You and I check our e-mail at 10 p.m. as the work day goes on around the clock," he said. That's opening up a "compliance Rubik's Cube," he said, as "a lot of well-intentioned employers are getting sued because they haven’t buttoned up their compliance strategies."

Lawsuits under the Fair Labor Standards Act are often easier to bring than discrimination cases, he added, because they only require a simple statement of the claims without a lot of front-end work by expensive statisticians and labor economists.

"If you view class actions like investments in the stock market, it’s a lower investment, and a lower-risk investment of time and effort by plaintiff lawyers," he said.

Lawyers do have to get employees to opt-in -- a major reform Congress added to labor law in the 1950s, which should be applied to all class actions -- but Maatman said they generally get 25-40% of employees to sign up for lawsuits, creating a potent enough threat if a judge will certify the class. (Lawyers had much higher levels of cooperation when they sued on behalf of federal employees seeking back pay for working during the 2013 shutdown, naturally.) And last year they won class certification 72% of the time, according to Seyfarth's analysis, increasing the odds of a profitable settlement.

Employers have a few more weapons at their disposal, thanks to a trio of Supreme Court rulings in recent years making it harder to assemble large groups of employees into a single class action (Wal-Mart vs. Dukes), and enforce contracts requiring individual arbitration (AT&T vs. Concepcion), and American Express vs. Italian Colors).  They also won a quiet victory in December with Dart Cherokee Basin Operating Co., LLC v. Owens, making it easier to remove cases to federal court.

By the end of the year Concepcion and Amex had been sited in more than 300 rulings on labor law. But the NLRB refuses to accept the trend, challenging class waivers even after losing on that issue before the Fifth Circuit in a 2013 decision, D.R. Horton vs. NLRB. And plaintiff lawyers have turned the strategy against employers by admitting defeat when they lose on class certification and filing hundreds of individual claims in arbitration. As Seyfarth lawyers say in their report:

The plaintiffs’ lawyers’ mantra seems to have been that they will give employers the arbitrations and decertification they desire, followed by the scourge of numerous individual actions (and the concomitant pressure to settle due to the cost of defense).

Employers also can expect to face more ERISA lawsuits, which Seyfarth estimates generated $1.3 billion in settlements last year. ERISA suits got a boost last June when the Supreme Court in Fifth Third vs. Dudenhoeffer eliminated any presumption in favor of protecting fiduciaries who allow company stock as a choice in defined-contribution plans. While SCOTUS offered some comforting language including reassurance that company officials can’t be forced to disclose insider information to ERISA investors, the general effect will be to increase lawsuits over retirement plans, Maatman said.

The Supreme Court also appears poised to eliminate a judge-made presumption that union-negotiated pension benefits are vested for life. In M&G Polymers USA, LLC v. Tackett, argued in November, the court is likely to return to ordinary contract law understanding of this issue, meaning employers will have an easier time winning benefits disputes, but opening them to more litigation over collective bargaining agreements.

The EEOC also is expected to continue focusing on large-scale systemic discrimination cases instead of individual cases. The agency won $294 million in recoveries last year, although it settled only 136 lawsuits for $22.5 million in 2014, down from 209 cases and $39 million in 2013 and the lowest amount in 17 years.

The EEOC filed 133 lawsuits last year, up from 131 in 2013, but it also suffered an unprecedented level of criticism over its enforcement of anti-discrimination laws, including the Fourth Circuit’s upholding of $200,000 in sanctions for taking too long to prosecute a case alleging anti-Hispanic discrimination.

Undeterred, the Obama administration is doubling down on aggressive enforcement of its labor agenda. The National Labor Relations Board is pursuing union representation for college athletes, collective bargaining rights for even small subgroups of large employers, and in a move that could upend decades of settled franchise law, it wants to declare franchisors like McDonald’s “joint employers” liable for labor-law violations by independently owned franchise stores. Combined with a pair of rulings granting union organizers access to company e-mail systems and allowing hurry-up elections that one lawyer described as a “Christmas gift” to organized labor, employers will be spending a lot more this year on efforts to keep their workplaces union-free.