The last few years have seen an explosion in class-action and collective litigation over workplace issues, a trend that is certain to continue in 2007. The exposures from such mega-cases are keeping corporate counsels, risk managers and senior executives awake at night.

But while reports of multimillion-dollar settlements of class actions are daily news fixtures, the litigation landscape is not entirely dismal for employers. As in real estate, “location, location, location” is all important, and the divergent case law in the federal courts on key class-action issues is beginning to be starkly defined by circuit location.

From a strictly monetary measure, the private plaintiffs' bar secured many substantial settlements in 2006.

In the context of workplace exposures, the top-10 settlements for employment discrimination, wage and hour, and Employee Retirement Income Security Act class actions totaled more than $1 billion.

The three largest settlements serve as case studies in illustrating the key areas where plaintiffs' lawyers focus their efforts.

The collapse of Enron and other major companies in the early part of this decade fueled a significant number of ERISA class actions that reached settlement in 2006.

In many of these situations, separate class actions were brought alleging violations of securities laws as well as ERISA. The three biggest were:

o $173 million–McGuigan, et al. v. City of San Diego, No. GIC-849883 (Cal. Super. Ct. June 8, 2006).

A preliminary settlement related to underfunding of municipal pension plan for city workers.

o $100 million–Re AOL Time Warner ERISA Litigation, Case No. 02-CV-8853 (S.D.N.Y. Sept. 27, 2006).

This was the final approval of a settlement for 65,000 class members in an ERISA class action, alleging breach of fiduciary duties for imprudent investments and failing to disclose material information.

o $47.5 million–Re Sprint Corp. ERISA Litigation, Case No. 03-CV-2202 (D. Kan. Aug. 4, 2006).

This was a class-action settlement for an ERISA breach of fiduciary duties against an employer, board of directors and plan administrators for allowing imprudent investments and failing to disclose material information to participants in the company's retirement plan.

For companies with insurance, ERISA class-action settlements typically involve fiduciary liability policies.

As indicated by these top settlements, the size of such payouts and the fact they often involve all employee participants in employee benefit plans, risk managers and corporate counsel should consider whether their existing retentions and policy limits are calibrated appropriately.

In 2007, plaintiffs' lawyers have continued this trend by filing ERISA class actions related to management fees in 401(k) plans. The class actions have been brought against a who's who list of Fortune 500 companies.

Settlements of employment discrimination class actions involve both monetary payments (to class members, as well as fees and costs to their attorneys), and changes to personnel policies and programs, known as “programmatic relief.”

In 2006, the top settlements reflected the targeting of pay and promotional issues. How a company promotes and pays its work force–and protected category employees–remains the number-one exposure in employment discrimination class actions.

The top three settlements in this area included:

o $15 million–Carlson, et al. v. C. H. Robinson, Case No. 02-CV-3780 (D. Minn. Sept. 18, 2006).

This was the final approval of a consent decree for a class-action settlement involving approximately 2,000 female employees and ex-employees claiming gender discrimination in promotions and compensation.

o $12 million–Garcia, et al. v. University of California, et al., Case No. 03-CV-1404 (D.N.Mex. June 1, 2006).

This was preliminary approval of national-origin discrimination class-action claims by a class of Hispanic employees that worked at the Los Alamos National Laboratory, operated by the University of California, alleging pay and promotional disparities.

o $8.4 million–Cokely, et al. v. N.Y. Convention Center Operating Corp., Case No. 00-CV-4637 (S.D.N.Y. Aug. 22, 2006).

This was the final approval of a consent decree for a class-action settlement of race-discrimination claims of African-American and Hispanic employees in the terms and conditions of employment.

For companies with insurance, employment discrimination class-action settlements implicate employment practices liability policies.

Since defense costs erode the limits in a typical EPLI policy, these top settlements underscore the difficult decisions which risk managers and corporate counsel face in choosing retentions and policy limits.

In 2007, this trend continued as plaintiffs' lawyers announced a blockbuster settlement in Satchell, et al. v. Federal Express, an employment discrimination class action pending in the U.S. District Court for the Northern District of California.

The proposed settlement–to be approved later this year by the court–provides a pay-out of $53.5 million to a class of minority employees challenging pay and promotional practices.

Meanwhile, Fair Labor Standards Act wage and hour settlements in 2006–especially in the financial services industry–outpaced such settlements from past years.

This trend reflects how plaintiffs' lawyers are now focusing on bringing wage and hour claims against companies on a national basis.

The three biggest in 2006 were:

o $98 million–Bahramipour, et al. v. Citigroup Global Markets Inc., f/k/a Salomon Smith Barney, Case No. 04-CV-4440 (N.D. Cal. May 24, 2006).

This was the preliminary settlement in an FLSA and state law wage and hour overtime pay class action involving approximately 20,000 brokers in California, New Jersey and New York.

o $89 million–Bowman, et al. v. UBS Financial Services Inc., Case No. 04-CV-3525 (N.D. Cal. Nov. 17, 2006); Glass, et al. v. UBS Financial Services Inc., Case No. 06-CV-3525 (N.D. Cal. July 28, 2006).

This was the final approval of a settlement in the Bowman class action of FLSA and state law wage and hour overtime pay claims of financial advisors and trainees in California (for $44 million) and preliminary approval of the settlement in the Glass class action by financial advisors and trainees in Connecticut, New Jersey and New York for $45 million.

o $87 million–Cornn, et al. v. United Parcel Services Inc., Case No. 03-CV-2001 (N.D. Cal. Nov. 6, 2006).

This was the preliminary settlement of FLSA and state law wage and hour overtime pay claims of 20,000 drivers. This relates to claims that the company improperly deducted a standard lunch period from drivers' timesheets and failed to provide meal and rest periods.

These settlements included California-based employees or claims. The state continues to serve as a fertile launching pad, which the plaintiffs' bar has used with great success in bringing nationwide FLSA wage and hour collective actions.

Since wage and hour exposures are generally uninsurable, it behooves risk managers and corporate counsel to audit their payroll practices.

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