Authored by Kevin Young

This year’s “Trends in Wage and Hour Settlements” report, by the National Economic Research Associates, has identified 467 million reasons—75 million more than in 2011—for employers to continue to take proactive measures to avoid litigation under state and federal wage-hour laws.  The report quantifies what most of our readers already know:  wage and hour cases continue to be a source of potential liability for employers.

The study, which draws in part upon data from our firm’s annual class action report (which you can freely access by registering here), analyzed 446 settlements in wage and hour cases since 2007, including 102 from last year.  According to the study, employers spent over $467 million to settle such lawsuits in 2012.  The average settlement was $4.8 million, up from $4.6 million in 2011.  Also on the rise is average settlement value per plaintiff, which increased from $5,163 to $6,373. 

The study also sheds light on qualitative trends.  Most settling employers hailed from the financial services/insurance industry or the retail industry, which have been routine targets of allegations involving overtime, off-the-clock work, meal and rest breaks, and misclassification.  Also, in a continued trend, the vast majority of settlement dollars were paid for cases arising in California or New York, the former of which has a set of employment laws so unique that our firm dedicates a separate blog to that topic alone, www.calpeculiarities.com.

The news is not all bad.  While the average settlement, $4.8 million, represents an increase from 2011, it remains only a fraction of what it was in 2009 ($8.9 million) and a fraction of a fraction of what it was in 2007 and 2008 ($21.1 and $16.7 million, respectively).  Additionally, the proportion of mega-class settlements—a non-technical term we’ll use to refer to a settlement involving at least 10,000 plaintiffs—has continued its steady, six-year decrease.  That trend is one we hope and expect will continue, due in part to the effect of Wal-Mart Stores, Inc. v. Dukes on class certification standards.

A number of factors affect settlement amounts, the study shows, some more obvious than others.  The number of class members and the duration of the class period are critical drivers—the more plaintiffs and workdays in the class period, the higher the alleged damages.  More interestingly, perhaps, is the indication that cases with more plaintiffs have lower settlement values per individual.  This finding might support the notion that, in certain cases, it is most cost-effective to resolve as many claims as possible in a single settlement. 

A final aspect of this year’s study worth noting is its comparison of settled lawsuits with concluded actions by the DOL’s Wage and Hour Division from 2007 through 2012.  While the data is somewhat limited for purposes of drawing practical insights, it does show that over half of the employers with a settlement in the study’s six-year sample were also investigated by WHD during the same time. 

The purpose of this post is surely not to startle employers operating in the financial services/insurance or retail industries, employing individuals in California or New York, or having experienced a WHD investigation into opening the pocketbooks or running for the hills.  Instead, the point is that wage-hour litigation remains a source of exposure for many employers that should be addressed proactively. 

A copy of NERA’s full report can be found here.