Democrat Gains, Investment Losses Likely To Boost 2009 Workplace Class Actions

Meanwhile, as layoffs increased at a precipitous rate, displaced workers filed more age discrimination and Worker Adjustment and Retraining Notification lawsuits. More litigation is expected as additional workers lose their jobs and the prospects for other employment grow dimmer.

o The change in enforcement philosophy with the incoming Obama administration, as well as job displacements caused by the troubled economy, creates a perfect storm of workplace litigation exposures for employers.

The Obama White House is expected to be more protective of workers' rights than the Bush administration has been over the last eight years. Coupled with recent U.S. Supreme Court rulings favoring workers, more government enforcement litigation is likely in the coming year.

o The volume of wage and hour litigation continues to increase exponentially. Collective actions pursued in federal court under the Fair Labor Standards Act outnumbered all other types of private class actions in employment-related cases.

As a result, FLSA collective actions produced more rulings in 2008 than did class actions for employment discrimination or under ERISA.

The most significant growth in wage and hour litigation, however, was at the state court level–especially in California, Florida, Illinois, New Jersey, New York, Massachusetts, Pennsylvania and Texas. This trend is likely to continue.

o The Class Action Fairness Act of 2005 continued to have significant effects on workplace litigation–primarily wage and hour class actions filed in state court. The past 12 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 the law are already numerous for a statute of such recent vintage.

o The financial stakes in workplace class-action litigation increased yet again in 2008. 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–also likely to continue in 2009.

While shareholder and securities class-action filings experienced an up-tick in 2008, employment-related class-action filings increased significantly.

Anecdotally, surveys of corporate counsel confirmed that workplace litigation–especially class-action and multiplaintiff lawsuits–continues as the chief exposure driving corporate legal budget expenditures.

In terms of key decisions, there was no class-action ruling in 2008 quite like Dukes, et al. v. Wal-Mart Stores Inc., a Title VII gender discrimination case challenging pay and promotions involving 1.5 million class members.

In February 2007, a three-judge panel affirmed the certification order in Dukes by a two-to-one vote. Wal-Mart subsequently filed a petition for rehearing en banc by the entire 9th Circuit. In December 2007, the panel mooted that petition by vacating its earlier ruling and issuing a new ruling that refined its Rule 23 analysis, while reaching the same result.

Both plaintiffs and Wal-Mart filed new petitions for rehearing en banc in January of 2008, but the 9th Circuit failed to pass on the petitions in 2008. A future ruling by the 9th Circuit in Dukes on a subsequent rehearing en banc–and further appellate proceedings thereafter, including a possible decision by the U.S. Supreme Court–likely will be one of the top class-action developments in 2009 and beyond.

The certification order in Dukes, et al. v. Wal-Mart Stores Inc. influenced many class-action developments in 2008. The plaintiffs' bar increasingly used the theories endorsed in Dukes to seek certification of "punitive damages" only classes under Rule 23(b)(2), as well as pressing for certification of mega-classes involving pay and promotion claims of employees in multiple company facilities on a nationwide basis.

Outside of the 9th Circuit, employers fought these theories with good success, as 2008 witnessed many pro-employer victories in class certification battles.

FLSA collective action litigation increased again in 2008 and far outpaced employment discrimination class-action filings. The increase in filings suggests that workers and their attorneys are bypassing the violations-reporting system at the U.S. Department of Labor and bringing private lawsuits in the pursuit of more lucrative resolutions.

While plaintiffs continued to achieve initial certification of wage and hour collective actions, employers also secured several significant victories in defeating conditional certification motions and obtaining decertification of ? 216 (b) collective actions.

Of particular significance was Wal-Mart's announcement in December 2008 that it reached agreements in principle with plaintiffs' lawyers to settle 63 wage and hour class actions throughout the United States. These involved FLSA and state law claims for off-the-clock work, failure to provide meal and rest breaks, and failure to pay overtime.

Each of the 63 settlements will be subject to approval in the coming months by the particular courts in which the class actions are pending. Wal-Mart and plaintiffs' lawyers estimated that the total pay-out over 2009 could reach anywhere from $350 million to $640 million.

Given the trickle-down phenomenon of class-action settlements (and the increased awareness of wage and hour issues by workers), it is expected that the pursuit of nationwide FLSA collective actions by the plaintiffs' bar will continue in 2009.

If trials of class actions were rare, settlements of class actions in 2008 reflected a continuing trend from past years, in which significant monetary payments were made in mega-class actions. Settlements in FLSA collective actions and ERISA class actions once again outpaced employment discrimination class-action settlements in terms of overall settlement values.

The Class Action Fairness Act of 2005 continues to play a large role in many class actions filed against employers. The CAFA responded to the abuses of state court judges in certifying class-action lawsuits involving plaintiffs who filed their claims in states with a reputed lack of fairness toward out-of-state defendants.

The CAFA modified the rules for federal court jurisdiction over class actions based on the diversity of the citizenship test. Before the CAFA, all named plaintiffs in a class action had to be citizens of states differing from those of all defendants–a situation that typically would not be met in class actions seeking nationwide classes.

In addition, there was a minimum monetary threshold of $75,000 to be met by every plaintiff in the case.

With the CAFA, the rules for diversity jurisdiction have eased–though for class actions only–so that diversity of the parties can be achieved if any class member is a citizen of a different state from any defendant, and if the aggregated, not individual, amount in controversy for all class members is at least $5 million, and the class involves more than 100 people.

As a result, the CAFA relaxed the historic strict standard for diversity jurisdiction to allow defendants to remove what were formerly "non-diverse" state law-based class actions.

The CAFA's impact over the past year has been significant. More class actions are being filed in federal courts, and more intrastate class actions are being heard in federal courts through the removal mechanisms under the CAFA.

Because the law's provisions are designed to prevent plaintiffs' counsel from keeping class actions in state court that are more appropriately litigated in federal court, the CAFA foreclosed the pleading tactic of requesting damages of less than $75,000 per class member (the jurisdictional limit for a federal court to hear a claim involving plaintiffs and defendants of different states) to stymie a defendant from removing the lawsuit to federal court.

Over the last year, employers repeatedly invoked the statute to remove class actions filed in state court to federal court. In turn, federal courts addressed several novel issues arising under the CAFA.

The statute has had profound effects on considerations underlying case strategy and the structuring of 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 and hour litigation are another matter. The plaintiffs' bar and defense bar alike continue to confront novel CAFA issues in these types of cases, for the fight over venue is often a key driver of exposure and risk.

On the one hand, employers sued in state law wage and hour class actions are increasingly confronted by plaintiffs' lawyers seeking to avoid removal to federal court by various stratagems. These include prayers for relief of less than $5 million, the filing of multiple "baby" class claims on behalf of less 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 and hour class actions in federal court also 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.

A certainty of the modern American workplace is that class-action and collective action litigation has become very attractive to the plaintiffs' bar.

Passage of the CAFA had little effect on the pace and volume of overall workplace class-action filings in 2008. Instead, the impact of the CAFA has been limited primarily to determine the proper venue, which often has a dramatic impact on the outcome of workplace class actions.

Meanwhile, on the governmental enforcement front, the U.S. Equal Employment Opportunity Commission intensified its litigation filings in 2008. The EEOC has followed through on the strategic enforcement and litigation plan it announced in April of 2006–a plan centering on the government bringing more systemic discrimination cases affecting large numbers of workers.

The EEOC's prosecution of pattern or practice lawsuits is now an agencywide priority. As a result, the EEOC is focusing its investigations and resources on systemic discrimination issues.

Many of the high-level investigations started in 2006 mushroomed into the institution of EEOC pattern or practice lawsuits in 2008. The commission's 2008 Annual Report announced it expects a shift in the composition of its litigation docket from small individual cases to pattern or practice lawsuits on behalf of larger groups of workers. Thus, employers are likely to face even more such claims in 2009.

ERISA class-action litigation is also expected to accelerate in 2009.

A dramatic increase in class actions brought against 401(k) plan sponsors for breach of fiduciary duties occurred in 2008. Plaintiffs targeted Fortune 500 companies and their 401(k) sponsor committees as defendants. These class actions will likely expand in 2009 to include investment management companies and fund managers.

The subprime mortgage meltdown also will affect the course of ERISA class-action litigation in 2009, as attorneys for retirement plan participants are likely to sue over whether plan fiduciaries made prudent investments in light of the subprime mortgage crisis.

The lesson to draw from 2008 is that the private plaintiffs' bar and government enforcement attorneys are apt to be equally, if not even more aggressive in 2009 in bringing class-action and collective action litigation against employers.

In other words, identifying, addressing and remediating class-action vulnerabilities deserve to be placed at the top of corporate counsels' and risk managers' priorities lists for 2009.