E-Alerts

Keeping Score: Wage-And-Hour Class Actions Are Costly For Employers

[November 22, 2013]  The “scorecard” in a recent, relatively small wage-and-hour class-action settlement in Massachusetts offers important insights into such questions as: Why do class actions get litigated – and almost always settled? Who are the real winners and losers?

Background

A federal district court judge in Massachusetts recently approved a $2.2 million settlement of class-action claims against a Massachusetts hospital under the Fair Labor Standards Act (“FLSA”) and the Employee Retirement Income Security Act (“ERISA”). The lawsuit, which was brought on behalf of over 5,000 current and former employees (including health care workers, housekeeping staff, and secretaries), alleged that the class members had not been paid overtime compensation for hours worked in excess of 40 hours in a workweek.

In particular, the lawsuit claimed that the class members had not been paid for (i) work during uncompensated meal breaks, (ii) work before and after their shifts, and (iii) training occurring after regular work hours. In other words, the employees claimed that they had been “working” during these periods, that their overall hours worked exceeded 40 hours per week, and, thus, that they were entitled to overtime pay under the FLSA. The employees further alleged that the hospital had failed to keep accurate records of their hours worked, thereby breaching its fiduciary duties under ERISA.

The parties reached a settlement after extensive mediation. The $2.2 million settlement figure was based on an analysis of payroll data – including the actual work hours and pay rates for each employee, as well as the employees’ statements about their uncompensated hours – and on the plaintiffs’ claim for attorneys’ fees.

The Scorecard  

With all of that background, here is the “scorecard” – the winners and losers in this settlement:

Plaintiffs’ Attorneys:                      + $  733,000
Each Plaintiff (average):               + $         250 (approx.)
Defendant Hospital:                     – $ 2,200,000

In short, the plaintiffs’ attorneys walked away with one-third of the settlement – an enormous payday for them of more than $733,000. By contrast, the settlement provided for some individual class members to receive as little as $25!

Why is the result so lopsided? It comes down to public policy. Wage-and-hour class actions typically arise when many employees have identical claims that would be too small to pursue individually. Class actions give the aggrieved employees a means to recover their lost wages, and encourage employers to remain compliant with the ever-changing wage-and-hour laws.

And large awards of attorneys’ fees incentivize plaintiff-side lawyers, who typically take class-action cases on a contingent-fee basis, to handle claims that otherwise may not be litigated.

Finally, employers often have a strong incentive to settle wage-and-hour class actions. An employer’s legal exposure in such cases can be enormous, particularly where (as in Massachusetts) the law provides for automatic multiple damages and attorneys’ fees. Further, the costs of litigating a wage-and-hour class action are likely to be substantial.

This $2.2 million settlement of claims for unpaid meal breaks and the like, then, serves as a sharp reminder about wage-and-hour class actions: there are huge attorneys’ fees to be had, fees that are grossly disproportionate to the relief obtained, at least when viewed on a per-plaintiff basis.

Recommendations For Employers

There are a number of important steps that we recommend employers take to reduce the chances of ending up on the wrong end of a costly wage-and-hour class action:

• Employers should conduct regular, thorough compliance audits on wage-and-hour and related issues. Plaintiffs’ attorneys often look for problems that may have only a minor financial impact on individual employees but would add up to a huge windfall for the attorneys on a class basis. By helping to identify these problems, compliance audits can minimize the risks of class-action claims.
• An employer should closely involve experienced employment counsel in all stages of a compliance audit, in order to clothe the results of the audit with the attorney-client privilege to the greatest extent possible.
• When an audit identifies compliance issues, those issues should be rectified as quickly as possible – again, with the close involvement of employment counsel.
• Finally, employers should closely monitor current issues and developments relating to wage-and-hour laws.

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Please don’t hesitate to contact us if you have any questions about this recent class-action settlement or any other wage-and-hour issues.  We regularly assist employers with such issues and would be happy to help.