Demand letters masquerading as class action suits are threatening organizations across the country. You haven’t heard about phantom suits, says attorney James Boudreau, because they don’t get filed. But these insidious attacks are costing employers plenty.
Boudreau’s remarks came at a Littler Mendelson Employer Conference in New York City. Boudreau is a partner in the Philadelphia office of the nationwide law firm.
What Is a Phantom Class Action?
You get a letter from a prominent plaintiffs’ attorney, says Boudreau, one with a solid reputation and a lot of successful litigations. The letter suggests that there’s a class action suit waiting to be filed against your organization. However, they say that they are willing to settle the suit. You’ll have to decide whether to pay them off or try your luck against them in court.
After the Quick Kill
The lawyers who send class action demand letters are after the quick kill, Boudreau says. It’s very lucrative to arrive at a settlement by virtue of threats. Even if the suit is weak, however, the threats are real. The attorneys behind these letters are very capable, so treat these demand letters with respect, he says.
Who Are the Targets?
While any organization could be the target of a demand letter, there are three characteristics that make organizations especially vulnerable:
Large size. A large organization has many employees who could be part of a potential class. Furthermore, a large organization has deep pockets.- Decentralized operations. With a decentralized organization, there are likely to be enough differences in the way things are handled that a good attorney can plead enough to stay in the ball game even if there are not any real merits to the case.
- High profile. High-profile organizations are less likely to want to undergo the waves of bad publicity that a class action suit can generate.
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Why Demand Letters?
Why demand letters instead of a formal complaint? One reason is that demand letters are often treated casually, Boudreau says. Organizations are not prepared for this type of threat. Many companies have protocols for dealing with a formal lawsuit, but most organizations do not have protocols for dealing with a demand letter.
Often the demand letter just sits on the CEO’s desk. "It doesn’t seem to generate much of a response," Boudreau says. "But legally, a demand letter does trigger many of the same obligations as a formal complaint. For example, it triggers preservation of evidence requirements. If you treat the demand letter casually and in the meantime destroy evidence you should have preserved—such as e-mail backups—you’ll have created another avenue for litigation."
How to Respond to a Demand Letter
When you get a demand letter, says Boudreau, take these steps right away:
1. Call your outside counsel. You need legal advice right away, and you want to make as many of your actions as possible privileged.
2. Assemble the senior team. This is a serious attack, and you need to focus top management on it from the beginning.
3. Take necessary action to preserve evidence. For example, if you have a practice of overwriting e-mail backups every 6 months, instruct your IT personnel to stop that process and preserve the e-mail backup media.
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Prepare to Manage PR
Don’t be surprised if the demand letter people hold a press conference in front of your building, says Boudreau. On the other hand, since adverse publicity is one of the threats they hold over your organization, they may delay any sort of public announcement. In any event, you need to get public relations people briefed so that they are ready to handle such situations.
In tomorrow’s Advisor, you’ll find Boudreau’s tips on "Reining in HR," and we’ll look at a unique HR audit system that will help any company discover potential problems before the lawyers or the feds do.
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