Are Employment Class Actions Dead After Walmart & AT&T?

& Other Tales from World of Employment Exposure

RIMS Annual Conference April 15-16, 2012

Today’s Discussion Leaders

• Nicole Franzese/Best Buy

• Laura Maechtlen/Seyfarth Shaw LLP

• Tom Hams/Aon

RIMS - The Brave New World Of Employment Class Actions- View From The Defense

RIMS Annual Conference April 15-16, 2012

Some Key Terms For Today’s Discussion

• Rule 23(a) Requirements

– Numerosity – The individuals who would comprise the class must be so

numerous that joinder of them all to the lawsuit would be impracticable.

– Commonality – There must be questions of law and fact common to the

proposed class.

– Typicality – The claims or defenses of the representative parties must be

typical of the claims and defenses of putative class members.

– Adequacy Of Representation – The representative plaintiffs and their counsel

must be capable of fairly and adequately protecting the interests of the class.

Some Key Terms For Today’s Discussion (Cont’d)

• Rule 23(b) Requirements

– (b)(1) – Decision as to one class member’s claim dispositive of all others

– (b)(2) – Injunctive/equitable relief

– (b)(3) – Money damages

Some Key Terms For Today’s Discussion (Cont’d)

• Rule 23(b)(3) Requirements– A class may be certified under Rule 23(b)(3) if the court finds that

questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

– To qualify for certification under Rule 23(b)(3), a class must meet two additional requirements: [1] common questions must predominate over any questions affecting only individual members; and [2] class resolution must be superior to other available methods for the fair and efficient adjudication of the controversy.

– Rule 23(b)(3) applies to cases where the primary relief sought is money damages. Each class member is entitled as a matter of due process to personal notice and an opportunity to opt-out of the class action.

Introduction

• Overview Of 2011/2012 Developments – A Transformative Year!

• Our Topics Today Relative To Employment Discrimination, Wage & Hour, And Government Enforcement Class Actions

Key Trends In 2011/2012• An increase in wage & hour class actions, especially those

brought under the FLSA. In 2012, will the wave crest?

• ERISA class actions took center stage in 2011; and 2012 is expected to be another key year on the ERISA front.

• Developments in Rule 23 and § 216(b) case law is causing an evolution of new case theories, defense litigation strategies, and class certification approaches.

• Change and flux are the new watch words in the class action world

Headlines Of 2011 Relevant To Employers

• Wal-Mart Stores, Inc. v. Dukes – in a 5-4 opinion, the Supreme Court held that Plaintiffs failed to satisfy the Rule 23(a) commonality requirement.

• AT&T Mobility LLC v. Concepcion, et al. – subordinated state law to the Federal Arbitration Act (FAA) and allows the broad use of arbitration and class action waiver clauses in consumer and employment contracts.

• End-Of-Year Statistics

– (i) Employment discrimination filings increased from 14,559 lawsuits in 2010 to 14,771 lawsuits in 2011

– (ii) More EEOC charges were filed in 2011 than ever before (99,947 charges)

Wal-Mart Stores v. Dukes

• Impact of SCOTUS ruling on “class certification architecture”

• Impact of SCOTUS ruling on damages recovery• Unanswered questions/issues inherent in the

SCOTUS ruling• Anticipated “second generation issues” from

Dukes

AT&T Mobility v. Concepcion

• How SCOTUS ruling impacts class action waivers in the context of workplace arbitration agreements

• Plaintiffs’ strategies to “work around” Concepcion – initial 2011 case law, and predictions for 2012

Pre-emptive Defense Strategies

• The “second bite at the apple” defense tactic based on Dukes

• A shining example - Pilgrim v. Universal Health Care, 660 F.3d 943 (6th Cir. 2011)

• How defense strategies are transforming and the early “returns” from federal courthouses

Toolkit Issues• Are workplace arbitration agreements worth it?• Pros of Arbitration

– Following the AT&T Mobility decision, it is clear (at least for now) that arbitration agreements can include a class and collective action waiver that effectively prevents the filing of such actions either in court or in arbitration.

– With regard to routine litigation matters, arbitration provisions generally result in reduced litigation costs.

– Typically, arbitration results in faster resolution than traditional court litigation.

– Arbitration usually includes limitations on discovery and reduces discovery and related litigation burdens on the company.

Toolkit Issues

• Pros of Arbitration

– Arbitration reduces the likelihood of a “runaway” verdict, and offers less risk of staggering damage awards of the type that might be awarded by a jury.

– Arbitration is more confidential, and proceedings are typically private or at least not as likely to attract publicity.

– Arbitration offers greater finality, given the lack of appeal rights.

Toolkit Issues• Cons of Arbitration

– While the possibility of an effective waiver of class or collective actions is compelling, the AT&T Mobility decision is brand-new, and it remains to be seen whether and how Congress may respond.

– Employees or consumers may file a lawsuit anyway, and enforcing an arbitration agreement in court and compelling a dispute to arbitration can add to overall litigation costs.

– An arbitration policy generally will be ineffective and unenforceable with regard to the filing of administrative charges, and cannot prevent the Department of Labor, the Equal Employment Opportunity Commission, or similar agencies from bringing suit on behalf of employees.

– Arbitrators are paid by the hour or by the day. Arbitration proceedings are far less likely to be decided by a dispositive motion than are court proceedings.

Toolkit Issues• Cons of Arbitration

– Administrative and arbitrator fees – which often are paid by the company – are rising and can be significant for multiple day hearings.

– Plaintiff challenges to the enforceability of an arbitration clause often proceed to the appellate court level, generating significant legal fees prior to reaching the merits of the dispute.

– Arbitrators are less likely to accept procedural defenses and more likely to allow hearsay and irrelevant witnesses.

– Arbitrators typically are more prone to issue poorly reasoned decisions. In addition, some feel pressure to “even the scorecard” to appear more neutral statistically, or are inclined to “split the baby” notwithstanding the law.

– Reviewing courts are extremely reluctant to overturn adverse arbitration decisions or reduce large arbitrator awards under the existing standards of review.

– Consumers or employees may perceive that mandatory arbitration has removed or infringed upon their rights.

Design Considerations• Contents of Agreement

• Not “One Size Fits All”• Choice of FAA or State Arbitration Law• Grievance Procedure• Mediation• Mandatory Carve Outs• Class Action Waiver• NLRA Waiver• Cost of Arbitration, Including Reallocation• Mutuality• Inclusion of Related Entities and Persons

Additional Toolkit Issues• Ensure robust policies to ban discrimination and

encourage internal appeals

• Ensure objective elements in pay-setting and performance evaluations

• Preemptively, in a privileged way, analyze adverse impact

• Recruit diverse candidate pools

• Avoid quotas

RIMS – Impact of the Brave New World from Broker Perspective

RIMS Annual Conference April 15-16, 2012

EPL Legal Trends Update• The Government

– EEOC & OFCCP Continue To Be Aggressive• Reduced backlog of charges by 10% thanks to increased staffing• Increase monetary recoveries to historic levels• Charge filings reach historic high

– Long-term Unemployed as Protected Class?

EPL Legal Trends Update• ADA Claims Continue to Surge

– Disability charges up over 17% in 2010 and up 69% since 2005– John Hendrickson’s Top 5 Lessons From Recent ADA Class

Litigation:• An Inflexible Period of Disability Leave, Even if Substantial, is Not

Sufficient to Satisfy an Employer’s Duty of Reasonable Accommodation

• The Appropriate Lengths of Leave Under the ADA Requires an Individualized Analysis – Even When the Employer has a Generous Leave Policy

• Separating Leave Administration – Like the Administration of Worker’s Compensation Benefits or Disability Benefits – from ADA Administration is Risky for Employers

[“Lessons” - continued]

EPL Legal Trends Update[“Lessons” - continued]

• Clear Lines of Communication Regarding Reasonable Accommodations are Critical Not Only with Employees on Leave but Also with Their Health Care Providers, Supervisors, and Managers

• The EEOC Occupies a Unique Role in Litigating These Cases

In Ms of $

EPLI Large Loss Trends

Mercy GeneralAaron Rents

Wells FargoNovartis

Sanofi-AventisOutback Steakhouse

Republic ServicesKodak

LA Weight LossSmith Barney

KrogerNY City Parks Dept.Morgan Stanley

Sydley AustinWalgreen

SprintProgressive

Morgan StanleyFedEx

Southwest AirlinesVerizon

FedExCH Robinson

PrivateAirCal. Dept. Corrections

UBSSodexho

AbercrombieR.R. Donnelley

Boeing McKesson

Morgan StanleyNYPD

United AirlinesL. Liv. Labs

Abbott LabsRalphs

Rent-A-CenterAmerican Express

Fulton County GAWaddell & Reed Fin

AL Dept of TransNorfolk SouthernOlsten Health Svcs

The Coca-Cola Co.Interstate Bakeries

The Supper ClubAmerica Gen'l Life

Ford Motor CoAmtrak

Daimler-ChryslerWinn-Dixie Stores

Ingles Mkts. IncDetroit Edison

J ohnson & HigginsJ ohnson Controls

Wal-MartSmith Barney

FMCMitsubishi

Liberty NationalCeridan Corp

Texas State CollegePublix

Home DepotFirst Union

TexacoLockheed Martin

0 50 100 150 200 250 300

1994

2012

• Would Novartis Survive Post Wal-Mart?

10

Ye

ar s

pa

n 2

00

0 to

2

01

0

Source: EEOC Charge Data System National Database

EEOC CHARGE STATISTICS 1992 - 2011

EEOC Charge PatternsN

um

ber

of

Ch

arge

s

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Age Disability Equal Pay Act National Origin

Pregnancy Race Religion Retaliation (All Statutes)

Sex Sexual Harassment

Total Charges Hit Historic High: 99,947

EEOC Charge Patterns, cont’d.Severity Trends

Mo n

e ta r

y B

enef

its

$M

M)

EEOC MONETARY BENEFITS 1992 - 2011

0

20

40

60

80

100

120

140

160

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Age Disability Equal Pay Act National Origin Pregnancy

Race Religion Sex Sexual Harassment

Total Recoveries Hit Historic Highs: $364.7M

Total recoveries by the EEOC in 2011 increased massively by $45,300,000! This was over a 14% increase in recovers from 2010 and yet another record high year of recoveries. Increased staffing allowed the EEOC to reduce its backlog of cases by over 10% for the first time in history contributing to the major increase in recoveries.

Workforce Trend IssuesGender Pay Gap

The new census data has bolstered the risk faced by large employers relative to this issue. Combined with the systematic initiative now being employed by the EEOC, most large employers very well may see this issue tested within their organizations. Any unexplained disparity will almost certainly be pursued with class action lawsuits with the support of the EEOC.

Unemployment and Age

The effects of the recent recession have hit older workers harder than ever before. As the unemployment, COBRA and other benefits available to this unemployed populations has been ending, this has been accompanied by charges or lawsuits alleging a disparate impact and may explain in large part the 60% increase in EEOC charges. With large employers having such a diverse population, including older employees, the exposure to this will be realized by many large employers (and in several cases, it already has). This is also impacting employers on claims by applicants that are older. 0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Average Annual Unemployment Rate for Persons Ages 55 and Over

Source: U.S. Department of Labor, Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey.

Market Update – Employment Practices Liability

• Overall capacity remains adequate for most accounts.

• Coverage remains consistent and broad between most primary markets

Capacity

Coverage

Limits

Pricing • Rates hardening is spots and remaining aggressive in others

Retentions • Retentions generally stable but may increase in some pockets

• Aggregation is being monitored by both insurers and insureds

28

EPL Pricing IndexFull – 5.8%2011 .982010 1.04

1.26

1.671.60

1.38

1.50

1.42

1.28

1.17

1.040.98

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Inde

x V

alue

Year-Over-Year ChangeQ1 2002 – Q4 2011 | Base year 2001 = 1.00

EPL Market Pricing Index

29

1.26

1.671.60

1.38

1.501.42

1.28

1.17

1.01

1.28

0.95

0.860.91

1.08

0.890.96

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

2002 2003 2004 2005 2006 2007 2008 2009 Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Ind

ex

Val

ue

First evidence of rising pricing in many years is driven by anomalies and real increases:• Pricing increases are occurring in the smaller employer segment of the market where the increased frequency of claims has significantly

impacted loss ratios because of very low retentions• Anomalies also exist in these numbers driven by some larger employers reducing their limit as a result of the Walmart decision. These clients

often have received premium decreases on the limits they maintain but the overall rate per million of the program has increased due to lower limits purchased, the Index reflects this as an increase

• Most clients are still experiencing flat pricing or small decreases

EPL Pricing IndexQ4 +11.6%Q4 2011 0.96Q4 2010 0.86

Quarterly ChangeQ1 2002 – Q4 2011 | Base year 2001 = 1.00

EPL Market Pricing Index

Distribution of Class Actions (2011)

W&H Class Actions by Sector

W&H Class Actions by Jurisdiction

W&H Class Actions - Nature of Claim

Questions