News: Frank Saibert quoted in Chicago Lawyer

By Sherry Karabin

While the economy has slowed some practice areas at law firms, employment attorneys on both sides of the bar have seen an increase in the number of lawsuits, especially class and collective actions, filed against employers.

One of the biggest reasons is due to the number of cases filed by plaintiff lawyers under the Fair Labor Standards Act (FLSA) to recover unpaid wages and other benefits. In other cases, changes in the law and stepped-up enforcement actions by the U.S. Equal Employment Opportunity Commission create new challenges for employers.

The numbers

According to data collected from PACER's Case Locator service operated by the Administrative Office of U.S. Courts, the number of FLSA-related cases filed in federal courts around the country rose from 5,210 in 2008 to 6,118 in 2009. Between Jan. 1 and Sept. 30, the number was already at 5,304, representing a more than 13 percent rise compared to the same period in 2009.

On Nov. 15, the EEOC released its 2010 statistics for the fiscal year that ended Sept. 30, showing that it received 99,922 charges, the highest number in its 45-year history. Overall, the agency secured more than $319.3 million in monetary benefits, an increase of $25.2 million over the previous year.

In addition, field legal units filed 250 merit lawsuits in federal courts and 21 subpoena enforcement and other actions. Of the new merit filings, 159 were individual suits, 92 involved multiple victims and 20 were systemic cases expected to directly affect large numbers of people.

EEOC regional attorney John Hendrickson said the overall number of charges (administrative complaints) filed in his region, which includes Chicago, is also up in the most recent government fiscal year.

"Some of these charges will result in litigation, but not for two or three years. I think a lot of it is due to the economy," Hendrickson said.

"Although the overall number of suits filed was flat, the number of class or systemic actions is up from 2009. Systemic cases are the kind that impact either an industry or employer and affect a larger number of employees. For the period ending on Sept. 30, 12 of the 25 filed were class or systemic cases."

Hendrickson said he also noted an increase in Americans with Disabilities Act and workers' compensation-related claims in the Chicago area.

"In this economy," he said, "employers are looking to cuts costs, and one way some may look to do it is by getting rid of older, disabled or injured workers that they may believe are causing insurance rates to rise, whether that's true or not. Many employers grossly overestimate the cost of accommodations for disabled workers. Most of the changes needed are low-cost and require minor changes."

What's driving the numbers

Enacted in 1938, the FLSA sets standards for minimum wage and overtime pay, including specific rules for exempt and nonexempt employees. In addition, it allows employees to recover unpaid minimum and overtime wages against private and public employers, requiring attorney fees to be paid by the defendant should the court rule in the plaintiff's favor. Prevailing employees are frequently entitled to liquidated damages equal to the amount of unpaid minimum or overtime pay as a punishment to employers who violate the FLSA.

Gerald L. Maatman, co-chairman of the class-action defense group at Seyfarth Shaw, said he attributed several driving forces to the uptick in FLSA class actions, including the amount of media attention given to "blockbuster" settlements that he said prompt copycat suits by the plaintiff bar.

"Over the last few years, it has become more expensive for the plaintiffs' bar to certify employment discrimination class actions, with statisticians and labor economists charging up to $250,000 for their expert studies to support a motion for class certification with expert studies," Maatman said.

"In contrast, it costs relatively little to certify a wage-and-hour class action or collective action. It can be done on the pleadings and without any upfront investment in experts. As a result, more plaintiffs' attorneys are rushing into this space since the potential monetary recoveries are substantial."

Maatman said the 2004 overhaul in wage-and-hour regulations by the U.S. Department of Labor also contributes to the increase in filings, as the rules have become more complex, leaving more room for employer payroll errors.

"Despite the ever-increasing number of wage-and-hour class actions, in some respects, 2010 was the year of employment discrimination class actions," Maatman said.

Although the number of employment discrimination filings remain flat, the class-action bar kept its eyes closely fixed on two precedent-setting developments this past year, including the 9th U.S. Circuit Court of Appeal's affirmance of the class certification order in the Dukes v. Wal-Mart gender discrimination class action, which is the largest employment discrimination class action ever certified in the history of American law.

The sex discrimination lawsuit charges Wal-Mart with discriminating against women in promotions, pay and job assignments in violation of the Civil Rights Act of 1964.

"In April 2010, the 9th Circuit affirmed the certification order in an en banc 6 to 5 ruling. Wal-Mart subsequently sought Supreme Court review of the certification order," Maatman said.

The Supreme Court is expected to decide whether or not to accept the case for review in early December.

Maatman said, "2010 also marked the largest Title VII class-action settlement when the Velez v. Novartis gender discrimination case settled in November 2010 for $175 million after the plaintiffs' verdict."

According to Maatman, the rise in claims has added up to a 20 percent increase in the workload for employment lawyers at his firm, with his class-action defense group hiring about 10 new attorneys in 2010.

Not only are attorneys busy defending claims, Maatman said they are also working closely with clients to institute preventive measures so they "don't end up on the front page of the newspaper based on class-action allegations of mistreatment of workers."

Keith C. Hult, co-chairman of Littler Mendelson's class-action group, said he too sees a rise in the number of wage-and-hour lawsuits being filed, along with some growth in gender discrimination suits, which he attributes partially to the Lilly Ledbetter Fair Pay Act of 2009. The act states that the statute of limitations for filing a lawsuit under Title VII, alleging pay discrimination, resets with each discriminatory paycheck.

"Age cases began at the early part of my career," Hult said. "In the early '80s, when the economy went in the tank, we saw a rise, but now we are seeing a brand new wave."

Hult said he spends a lot of his time working with his clients to help them better understand laws governing pay practices and related issues, and documenting the facts surrounding pay raises, promotions and other related topics.

"Some companies don't keep detailed descriptions of employee performance reviews," Hult said. "When a plaintiff's lawyer sues a company, the court looks for deviations from industry norms or practices. For example, if an employee is given a higher starting salary or is promoted instead of another, the employer may not have documented prior experience. Many times it is not a matter of discrimination, merely lack of documentation.

"Employers also have to become more sensitive to the audience that may make up a potential jury, since the downturn has increased the chance that some of the people on the jury may have had negative employment decisions impact their lives, and thus might be more sensitive to a plaintiff.

"Juries expect accuracy and want everything to be explained," Hult said. "The lack of documentation and a more sympathetic jury may impact the decision to settle."

Ogletree, Deakins, Nash, Smoak & Stewart shareholders Michael H. Cramer and Tobias E. Schlueter said they also spend more time with clients helping them understand the rules governing wages and instituting proactive policies.

"I think there are fewer discrimination claims stemming from termination since employers have gotten a handle on those laws," said Cramer, whose firm exclusively represents management. "However, plaintiffs' lawyers have gotten more sophisticated in understanding wage-and-hour laws, and they realize that even if they recover a small amount of money for their client, the company still has to pay attorney fees.

"Unlike discrimination, where intent must be proven, with wage-and-hour suits it does not matter whether an employer intended to violate the law, he or she is still liable," Cramer said.

Cramer said there are multiple ways an employer can run afoul of the complex law.

"A company might misclassify someone as an independent contractor, for example, when the law says they must be treated like an employee, or classify someone as a salaried exempt employee when really the law says that person should be treated as nonexempt and therefore is entitled to overtime pay," he said.

"There are a number of different rules under federal and state law that go into classifying an employee. Once it is proven that an employee has been misclassified, it is simply a question of determining how many extra hours the person worked, and 'doing the math,' as one plaintiff's attorney said."

Off-the-clock pay issues can also trip up an employer.

"If you have someone who is nonexempt and is entitled to overtime and that person does not take lunch or shows up to perform work early and does not punch in, and the company knows about it and lets it go on, that can spell trouble.

"The age of smartphones and laptop computers is also creating off-the-clock work questions for employers," Cramer said.

"In the past employers were more reactive, now they are becoming more proactive," Schlueter said. "As a result, a larger part of my time is being spent on the front end in deterrence and avoidance. Employers with operations in multiple states have to be especially careful since they may face differing, and sometimes inconsistent, state wage-and-hour laws."

Schlueter said the EEOC appears to have a renewed purpose under the Obama administration.

"This is evidenced by the expanded type and frequency of the EEOC's filings in the past year," he said, "including not just systemic actions in the form of collective and class actions but also claims on behalf of single employees. Previously, filings on behalf of single employees were relatively infrequent. We are seeing those numbers increase.

"While the Lilly Ledbetter Act has not materially impacted my clients yet, it has the potential to be very damaging since each individual paycheck can be its own act of alleged discrimination, extending the potential period of liability much further," Schlueter said.

Frank J. Saibert, chairman of the labor and employment law practice at Ungaretti & Harris, said over the past two years he has witnessed a virtual explosion in wage-and-hour class actions filed under the FLSA and state laws.

"A cottage industry has grown up around these suits here in Chicago," Saibert said. "We have plaintiffs' lawyers who do almost nothing but file these suits.

"They are attractive because of the attorney fees and the fact that the law is so complicated and antiquated that many employers, intentionally or not, end up violating these laws because of some technicality."

Saibert said he does not believe the economic downturn has played any role in the increase.

"I think the employee bar just saw this as a way to generate new revenue, and since the suits are well-publicized, more attorneys see them and continue to capitalize."

Ungaretti & Harris often holds seminars for its clients to help them comply with the FLSA.

"As the baby boomers continue to age, I think we'll see an uptick in age discrimination lawsuits," Saibert said. "Discrimination cases are hard to prove, and as long as the employers have a good system in place and a well-trained human resources department, they should be able to stay out of trouble."

Saibert said the recent amendments to the ADA, which expanded the definition of a disability, are the main reasons these types of suits are rising.

Mayer Brown employment and benefits practice partner Marcia E. Goodman said she too is busier. In addition to wage-and-hour suits, she said she sees an increase in different types of retaliation and whistleblower cases, which she attributes partially to the recent Dodd-Frank Wall Street Reform and Consumer Protection Act.

"The law gives a new right of action and new remedies to employees who expose financial irregularities at their companies to the attention of the federal government," Goodman said. "Employees can receive double back pay if they are fired and, if the SEC collects a fine of more than $1 million, the employee can receive a 10 [percent] to 30 percent bounty from the SEC."

Goodman also sees more claims related to "family responsibility discrimination."

"While there is no statute that deals directly with family responsibility discrimination, the EEOC and many academics and plaintiffs' attorneys have been advancing the idea that employees have a right to take time to care for their families, and that if this is construed to interfere with the job, existing discrimination laws can be used as a basis for claims against employers," Goodman said.

The view from the plaintiff bar

Douglas M. Werman, who has represented plaintiffs in wage-and-hour disputes for more than 10 years, said he has seen more attorneys making the switch to this practice area.

"Many class-action firms whose practices had been limited to antitrust and securities claims are now looking for growth areas, in light of the current economic environment, and have begun to aggressively look for and file wage-and-hour cases," Werman said.

"We are seeing and filing more cases involving the misclassification of employees as independent contractors. These cases involve employers taking short cuts as they try to emerge and re-position themselves from the recession by finding less expensive ways to add to their labor force," he said. "We have about a dozen independent contractor class actions in which the at-issue workers are fully employed by the employer, the employer controls all aspects of their work, but the workers are not being paid overtime or other required compensation or benefits.

"In the Chicago area, the most common claim we see is still the most simple: the failure to pay overtime," Werman said. "This can arise from many different scenarios, such as the failure to pay for all overtime worked, misclassifying employees as exempt from overtime pay or paying employees at the wrong regular rate of pay.

"Although certain parts of the FLSA are technically complicated, whether an employer is in compliance tends to be black or white. Either an employer is violating the FLSA or is not. And when an employer is not in compliance, the employee is entitled to every penny they earned."

In addition, Werman said he has also seen a larger number of cases being filed under the Worker Adjustment and Retraining Notification Act (WARN), as more companies lay off large numbers of employees and fail to give them the required notice.

Caffarelli & Siegel partner Marc J. Siegel said he too represents more plaintiffs in wage-and-hour lawsuits, especially those having to do with employee misclassification and the failure to pay workers overtime.

"Employers often think that if they are paying someone a salary they don't have to pay overtime, but that is only true for those employees who fall within a narrow range of exemptions," Siegel said.

"While discrimination cases are more complex than wage cases, wage issues are more black and white. Performance issues that are key in discrimination cases generally are irrelevant in wage cases. Wage-and-hour rules also apply to all sectors of the population," he said.

"For example, the U.S. Supreme Court has ruled that undocumented workers cannot be reinstated or receive back pay because of unlawful discrimination. However, this ruling does not apply to wage-and-hour laws for the time that they actually have worked. Many undocumented workers are not paid properly under the law."

Siegel said he also expects to see more ADA litigation now that the act has been amended.

"In the past, the litigation focused on whether someone actually had a disability or was a qualified individual with a disability. The courts gutted out the claims on that basis, and as a result, many employment lawyers had stopped taking cases because they could not even make it to first base.

"The amendments restored the original purpose of the ADA, making it easier to establish a disability, and put the focus on whether a reasonable accommodation was made and the reason for the termination."

While Siegel said retaliation cases have increased, he said age-discrimination lawsuits have become more difficult to prove as a result of the Supreme Court's ruling in Gross v. FBL Financial Services, which stated that a "mixed-motive" instruction cannot be given to a jury in such a case.

"If you are trying an age-discrimination case, and there is any other factor present than age in the termination decision or other adverse decision, you will never prevail," Siegel said.

An employer's perspective

Lisa Fain, senior counsel at Oakbrook Terrace-based Redbox Automated Retail, said the recent wave of litigation in the marketplace, along with the rapid growth of her company, has resulted in the company examining more closely its own practices "to prevent liability and make sure that the company continues to do right by its employees."

"We are looking at existing policies and procedures and working with outside counsel to make sure that we are not only compliant, but ahead of the curve," Fain said.

"We are looking at all aspects of state and federal laws, and examining the entire working day."

Unlike some companies that institute reductions in force, Redbox has actually hired about 800 employees since the beginning of 2010.

"About 700 of them are field-based workers, as is about two-thirds of the workforce," Fain said.

"With the rise in wage-and-hour suits, we are stepping up our scrutiny of these issues, particularly since so many of our employees are not based in our corporate office."

The future

Mayer Brown's Goodman said social networking, employee privacy and genetic discrimination issues could become a source of claims against employers in the future, and she is working to raise awareness among her clients now.

"For example, the Genetic Information Nondiscrimination Act of 2008 prohibits employers from taking into account genetics when determining employment and benefits.

"The EEOC just issued its final regulations this month," she said. "Since there is often a fine line between medical information and genetic information, employers will have to make sure their actions do not run afoul of these new rules."

Schlueter, of Ogletree, Deakins, said, "The current trend of filings, combined with a newly purposed EEOC and Department of Labor has created the perfect storm for employment litigation, and I do not think we will see any relief for some time, certainly not in the near future."

Reprinted with permission from Chicago Daily Law Bulletin.