Defending Wage And Hour Class Actions

Wednesday, November 1, 2006 - 01:00

Editor: Please tell our readers about your background.

Knueve: I went to college and law school at the University of Virginia. I've been practicing in Vorys's labor and employment group for a decade. I am seeing more wage and hour cases now than when I started my practice. The growth for that type of cases has been greater than for any other variety.

Editor: Congratulations on your firm's recent victory in Mitchell v. Abercrombie & Fitch Stores, Inc.

Knueve: Thank you. The case was a putative collective action wage and hour case filed against Abercrombie & Fitch in the Southern District of Ohio. The court held that Abercrombie & Fitch's retail store managers were exempted from the overtime requirements of the Fair Labor Standards Act (FLSA). This was a big win, not only for our client, but also for other employers of retail store managers.

Editor: What trends are you seeing in wage and hour class actions?

Knueve: I read a statistic in 2002 that said that there were more wage and hour cases filed than discrimination suits in that year. When you think about it, that statistic is very startling.

Over the past four to five years, the trend has been that wage and hour claims have been filed as putative class actions or putative collective actions. Class actions vary among jurisdictions because many states have their own statutes. Under the federal FLSA, plaintiffs can seek a collective action, which is different than a class action.

The prototypical class action is known as an opt-out action. That means that once the court decides to certify the class, the class members have to take an affirmative action to opt out of the class. The collective action mechanism under the FLSA is an opt-in action. That means that once the court decides to certify the class, individuals must take affirmative action to opt into the collective action.

Human nature being what it is, in a class action most of the people that are in the class stay in because they are not going to take any action. On the other hand, in a collective action most people typically stay out because they do not want to take any action.

Another significant difference is that usually in a collective action more individual class members are deposed because the smaller class size makes it easier for defense counsel to seek out class members.

There is a two-step process for the collective action under federal law. The court will conditionally certify the class and send out notice to the class members. The class members can elect to opt-in or not. Then the employer has a second bite at the apple to try to decertify the class. There is a huge incentive for the employer to depose class members who opt-in to a federal collective action.

For all of these reasons, plaintiffs' lawyers try to bring wage and hour cases under a state law equivalent to the FLSA because the state law has an opt-out structure.

Editor: What factors influence the dollar amount of a wage and hour class action settlement?

Knueve: The first factor is the size of the class. An interrelated factor is the time period at issue. If claims cover a five-year period, the class will be bigger than for claims covering a two-year period.

The next factor relates to the type of wage and hour claim at issue. Misclassification claims are usually bigger than missed-break or off-the-clock claims. In the misclassification cases, employees allege that they should have been classified as non-exempt and should have been paid overtime. Because the employees were not paid overtime for years, the potential liability is pretty large - usually a multiplier of thousands of dollars for each employee. If the class has several thousand individuals, you can see fairly quickly how the exposure can grow.

Typically, wage and hour class action judgments and settlements reported in the media range in the seven figures or even in the eight figures. For example, the media recently reported on a jury verdict of $172 million in California against a large retailer based on claims that employees allegedly were denied lunch breaks. Last month, the media reported on a $62-million jury verdict against a large retailer for allegedly denying workers breaks and not paying for overtime for work beyond their shifts. So, you can see how these add up. Literally, about every other week there is a report of another multimillion- dollar settlement.

Editor: Why are we seeing a spike in wage-and-hour class actions?

Knueve: Three factors contribute to the spike. First, federal law makes it fairly easy to get conditional certification of a collective action. Many plaintiffs' lawyers feel that if they can get a class certified, the employer will probably settle because the risks are too huge. Even under state law, which has a higher threshold to get a class certified than federal law, it's not that hard to get a class certified because employers typically pay all of the employees or a particular category of employees the same way.

Second, the wage and hour laws are so technical that I believe that the plaintiffs' lawyers feel that they can show a violation more times than not because some employers have difficulty understanding, much less complying with, so many technical aspects.

Third, plaintiffs' attorneys have a chance to be awarded huge attorneys fees. They can ask for their hourly rate times the number of hours that they spent on the case times a multiplier. Or, they can ask for a percentage of the award that is given to the class. Either way, the amount claimed can be huge.

Editor: Have you observed a pattern in wage and hour class actions from industry to industry?

Knueve: Ianticipate the volume of wage and hour class actions to continue to grow.

Over the years, we've seen wage and hour class actions move from industry to industry. The retail industry periodically confronts cycles during which the volume of wage and hour class actions ebbs and flows. For a while, the restaurant industry was being barraged by wage and hour class actions. Today, many wage and hour class actions are being filed against employers in the financial services industry. My prediction is that other industries can expect to be targeted, too.

Editor: What patterns have you observed with respect to the technical aspects of wage and hour laws?

Knueve: In addition to the pattern of cases moving from industry to industry, we've seen trends based on the technical aspect of the wage and hour laws. For a period of time, a deluge of cases claimed overtime or other back wages based on alleged misclassification as exempt employees. Then, many cases were based on the employers' alleged failure to pay for work off the clock. Today, we are seeing more claims based on employers' alleged denial of meal breaks. I anticipate that we will continue to see shifting patterns in the types of wage and hours class actions being filed.

Editor: How can an employer reduce the likelihood of being confronted with a spate of wage and hour class actions?

Knueve: Unfortunately, the reality is that in today's world, employers of any significance can expect to be targeted for any of these cases. That is just how prevalent they have become, particularly in certain areas of the country.

The most dangerous of these cases are the misclassification cases, because the liability in these cases can add up so quickly. In light of the risk, every employer should review the classifications of its employees to determine whether they are properly classified as exempt or non-exempt under the FLSA and most state laws.

Many employers mistakenly think that if an employee is paid a salary, then that is enough to classify the employee as exempt. In fact, the first of a three-prong test looks at the duties being performed by the employee. The second looks at whether the employee is being paid by salary. Third, the salary has to be higher than $455 per week.

Brushing up on the technicalities of the wage and hour laws - both at the state and federal level - is the best thing employers can do to help limit their exposure.

Editor: How can a litigator with the depth and breadth of your experience help a company address wage and hour class actions?

Knueve: A law firm with expertise in wage and hour laws can help the company conduct a general review of its classification of employees and payroll practices to ensure compliance with federal and state law. We at Vorys have that capacity, and we have provided that review for a number of our clients in a variety of industries.

When confronted with a wage and hour class action, engaging a firm with our expertise is also critical, but the application of our expertise is a little bit different. The company needs a litigator, like those in our firm, who has litigated these cases before and has experience with the particular procedural aspects of managing a case. In addition, the firm and attorneys must also have a thorough knowledge of all the technical requirements of the class and collective action frameworks.

As you can probably determine based on the conversation that we had earlier about the nuances of opt-in versus opt-out requirements, wage and hour law is fairly confusing and obscure. Hiring a lawyer who has experience and knows those areas is hugely beneficial in both preventing a class from being certified, as well as in minimizing the size of the class that is certified. Vorys has that experience all over the country.

Please email the interviewee at maknueve@vssp.com with questions about this interview.