HR Management & Compliance

From the Experts: Defending Wage and Hour Class Actions, Part 1; What Employers Should Know About the Class Action Process

This month’s expert is
Arthur F. Silbergeld, a partner in the Los
office of the law firm Proskauer Rose LLP.


One of the most
devastating legal problems a company can face is a lawsuit for unpaid wages
that’s filed in court as a class action. Even if it turns out the suit has no
merit, disproving it may cost hundreds of thousands of dollars in attorney’s
fees. And if there is merit, damages often run into the millions of dollars,
even if the matter is settled in mediation well before trial.


In the last five years,
hundreds of these complaints have been filed against entities of every size and
in every industry. Employers have paid more than $1 billion in back pay, and
attorneys who represented plaintiffs in these cases have taken home perhaps
one-third of those damages.


The human resources
staff at a company defending a class action can be highly valuable in assisting
the company’s lawyers and in saving significant costs. HR staff can, for
example, obtain documents as well as do preliminary data analyses that
otherwise would be handled by experts at costs that may exceed $100,000. To be
effective, the senior HR manager must understand the nature and evolution of a
class action, which differs markedly from that of the typical single-plaintiff complaint.


Part 1 of
this two-part series on wage and hour class actions will explain the class
action process. The second installment will take a detailed look at what HR
can do to help defend and resolve class actions.


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The Nature of a Class

Wage class actions are
filed in federal district court under Rule 23 of the Federal Rules of Civil Procedure
or in California Superior Court under California Code of Civil Procedure
Section 382. Far fewer complaints seeking a “collective action” are filed in California under the
federal Fair Labor Standards Act (FLSA).


Two common types of wage
class actions have been filed in recent years. The first involves employees who
allege that they were misclassified as exempt and are entitled to back pay for
overtime worked as far back as four years, plus accrued interest and waiting time
penalties equivalent to 30 days’ pay. The second involves employees who assert
that they were not provided meal periods and rest breaks, for which they seek a
penalty equal to one hour of wages for each day a meal period or rest break was
denied. (Note that the California Supreme Court is considering whether employees
can recover the penalty for one year of violations or up to four years). And
many complaints allege both misclassification and meal period/rest break violations.
Other wage class actions have attacked the employer’s calculation of the
“regular” rate of pay; failure to pay for meetings, training, and travel time; working
“off the clock”; and failure to reimburse business expenses.


Procedurally, in these
cases, one or more current or former employees sue not as individuals but as
representatives of a much larger class. Whether filed in federal or state
court, the class action process is generally the same once a suit is filed—this
includes a limited period of time for “class” discovery—information gathering— after
which the employees’ counsel must file a motion for class certification. The
employer may file an opposition to the motion, arguing that a class action is not
appropriate. If the court certifies the class, a notice will be sent to class
members advising them of the complaint and of their right not to participate—to
“opt out”—of the lawsuit.


In a collective action
under the FLSA, individuals who are eligible to participate must “opt in.” If
the class is certified, the outcome of the case will be binding on all individuals
who did not opt out. If the class is not certified, the employees who brought
the lawsuit can continue to pursue their claims in court but only as to their individual
claims and not on behalf of others.


Class Certification

The employees’ motion
for class certification must set forth facts to establish that the proposed
class meets four standards: 1) the class is sufficiently numerous that joining
all of the members in a regular lawsuit is impractical (this is the
“numerosity” requirement, and 40 or more class members usually suffices); 2)
questions of law or fact are common to all class members (“commonality,” such
as that all employees were misclassified as exempt or missed meal periods or
breaks); 3) the claims asserted by the employee-plaintiffs are typical of the
claims of all class members (“typicality”); and 4) the employee-plaintiffs can
fairly and adequately represent the interests of the class (“adequacy”).


The employer’s motion
opposing certification must successfully challenge one or more of these
standards to defeat the class. Thus, defeating the employees’ motion for class
certification can be the most critical point in class action litigation.


Early Resolution

The majority of wage
class actions, however, never reach a hearing on class certification.
Especially when the employer faces a significant liability risk, counsel may
advise trying to resolve the dispute in mediation well before the court decides
the motion for class certification. Settlement in mediation may save the
employer hundreds of thousands—or even millions—of dollars in fees, expenses,
and actual damages when compared to the exposure associated with a jury trial.
However, the court must find that a mediated resolution is fair before
approving it.