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Countering the Class Action Epidemic

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Countering the Class Action Epidemic Strategic Initiatives for Countering the Class Action Epidemic 2006 - 2007 Class Action Waivers in Arbitration Agreements What Employers Can Do to Maximize Enforcement of Arbitration Agreements and Prevent Class Actions Adopting Employment Law Compliance Metrics Integrating Employment Law Issues, Including Mandatory Training, into General Corporate Compliance Initiatives 450 Attorneys + 33 National Offices = One Integrated Solution Garry G. Mathiason, Esq. www.littler.com David Goldman, Esq. Tamara Freeze, Esq. Employment and Class Action Litigation | Unfair Competition and Trade Secrets | Employee Benefits | Labor Management Relations Janelle Milodragovich, Esq. HR Risk Management and Corporate Compliance | Workplace Safety | Global Migration IMPORTANT NOTICE This publication is not a do-it-yourself guide to resolving employment disputes or handling employment litigation. Nonetheless, employers involved in ongoing disputes and litigation will find the information extremely useful in understanding the issues raised and their legal context. This white paper is not a substitute for experienced legal counsel and does not provide legal advice or attempt to address the numerous factual issues which inevitably arise in any employment-related dispute. Copyright © 2006 Littler Mendelson, P.C. All material contained within this publication is protected by copyright law and may not be reproduced without the express written consent of Littler Mendelson. Strategic Initiatives for Countering the Class Action Epidemic Class Action Waivers in Arbitration Agreements: What Employers Can Do to Maximize Enforcement of Arbitration Agreements and Prevent Class Actions Employment Law Compliance Metrics: Integrating Employment Law Issues, Including Mandatory Training, into General Corporate Compliance Initiatives On July 14, 2005, Bernard Ebbers, WorldCom's former nance statutes and regulations. While many other weapons and CEO, was sentenced to 25 years in prison for his role in defensive shields exist in battling the class action wars of 2006 WorldCom's demise. Similar stories dominate the headlines and and beyond, attention is drawn to these two initiatives as they on any given day the Internet is alive with details from ongoing have for the first time gained sufficient momentum that their criminal and civil trials of former executives. Even Board of consideration is no longer optional. Directors’ members are being called upon to contribute person- I. The Massive Epidemic of Employment Law Class al funds to compensate for alleged fiduciary failures, such as the Actions $36 million settlement paid by WorldCom's directors. A well known executive being taken away in handcuffs is the public Without any close contenders, employment and labor law image of the challenge facing organizations seeking to build eth- issues are the workplace's most common legal compliance chal- ically and legally compliant organizations. Clearly, the need to lenges. A recent Open Compliance and Ethics Group (OCEG) have transparency in corporate governance and reliable financial survey of hotline providers revealed that 60% to 80% of all com- disclosures is critical. But this is far from disclosing the full plaints received focused on Human Resource (HR) issues. This story. The media coverage masks a larger struggle taking place should not be a surprise. Hiring, background checks, perform- in the workplace involving billions of dollars and millions of ance management, benefits, confidential personnel information, people. The daily challenge is to provide employees an ethical downsizing, terminations, and defining the boundaries of workplace grounded on compliance with a tapestry of employ- acceptable workplace behavior all fall within the scope of HR. ment and labor laws. While many of these concerns usually relate to individual situa- A focus of this Report is the rising epidemic of employment tions, a substantial number involve issues common to many law class actions and the challenge they reflect and create for the employees. Ten years ago when the General Counsel received a employer community. In responding to these claims both a pro- complaint of alleged sexual harassment or discrimination, it was cedural and a substantive solution is outlined in the form of two typically a single plaintiff claim. While the matter was of urgent 2006 initiatives reflecting very different and challenging per- concern and threatened the organization's reputation, the direct spectives. First this report explore the growing case law support dollar value of the case rarely threatened the continuation of the for properly written arbitration agreements to exclude class entity. Today multi-million dollar class action claims and settle- claims. Second, is an overview of how to establish a system of ments have become common place, adding them to the exclu- compliance metrics designed to stem the rising tide of employ- sive list of “bet your company” litigation categories. For exam- ment law class actions illustrated through mandatory training ple, our law firm (Littler Mendelson) has doubled the number requirements both under employment and corporate gover- of class actions it is defending in just the last twelve months. COPYRIGHT ©2006 LITTLER MENDELSON, P.C. 1 Strategic Initiatives for Countering the Class Action Epidemic A. Every Week Another Eight-Figure Award or Settlement of employer, it is clear that outside intervention had a far heavier an Employment Law Class Action is Announced influence than merely the payment of $40 million dollars plus In March 2006, Morgan Stanley agreed to pay $42.5 million an additional $10 million in attorneys' fees and costs. to settle claims for failure to pay overtime and other expenses to The impact of this new wave of class action litigation and approximately 5,000 financial advisors in California. This set- failed compliance is illustrated by another settlement of a class tlement resolved only one of four overtime lawsuits pending action lawsuit brought against Home Depot. While no admis- against Morgan Stanley relating to compensation of its financial sion of wrongdoing occurred, payment was made for $87.5 mil- advisors. On February 8, 2006, Swiss financial services giant lion plus a seven year plan of mandated improvements. The UBS reached an agreement to settle class action suits brought in plaintiffs' counsel estimates that the noneconomic relief could several federal courts by current and former employees who cost the employer well in excess of an additional $100 million charged that the bank underpaid them for overtime work. The including the value of hiring tens of thousands of employees. company said it will pay as much as $89 million to resolve the The lawsuit had alleged gender discrimination and sought to suits at the federal and state level. The action involved claims increase women in sales and management positions. that financial advisers and trainees were improperly classified as One need not look far to find instances where a company's exempt under the wage and hour laws. The company explained failure to maintain an effective harassment policy has resulted in that settlement avoided the lost time and risk associated with lit- substantial costs. In EEOC v. Consolidated Freightways Corp., the igation throughout the nation. Approximately 25% of the funds Equal Employment Opportunity Commission (EEOC) filed a will go for plaintiffs' attorneys' fees and administrative fees. Title VII lawsuit alleging Consolidated Freightways, formerly At the end of 2005, a jury in Northern California awarded one of the largest freight carriers in North America, subjected $172 million for alleged meal, break and rest period violations African American employees at its Kansas City, Missouri facility under California law. In another well-publicized case, over to a racially hostile work environment. The harassment includ- 10,000 class members received checks in actual payments, total- ed the presence of nooses and racist graffiti in the workplace, ing more than $40 million in Gonzalez v. Abercrombie & Fitch. physical assaults of African American workers by Caucasian The class in Gonzalez alleged discrimination against Latino, coworkers, threats of violence and vandalism toward African African American, Asian American and female applicants. In American workers, and disparate discipline of African American addition to cash payments, the settlement included the institu- employees. According to the EEOC, the company conducted no tion of a range of policies and programs to promote diversity investigation into the matter even though it was aware of the among the company's workforce and to prevent future discrim- allegations. The parties settled the case in January 2005 for a ination based on race or gender. The company was required as total of $2.75 million. part of the settlement to establish a new Office and Vice In July 2004, the Boeing Company agreed to pay $72.5 mil- President of Diversity who reports directly to the CEO. Twenty- lion to settle a class action lawsuit in which approximately five recruiters were also required to be retained to seek women 29,000 female employees claimed they suffered discrimination and minority candidates for employment. Equal employment in pay, promotions, overtime, assignments, bonuses and other opportunity and diversity training was mandated. Performance conditions of employment. In addition to the large monetary evaluations for managers were changed, and a new internal amount, Boeing agreed to undergo an extensive review of
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