New England Biz Law Update
A nationwide surge in wage-and-hour lawsuits has been particularly pronounced in Massachusetts, where 2008 changes to the state’s Wage Act made the award of treble damages mandatory in all wage claim cases.
According to statistics compiled by the international employment law firm Seyfarth Shaw, Fair Labor Standards Act cases in federal court have increased for the fifth straight year. Between April 1, 2012, and March 31, 2013, 7,764 such lawsuits were brought by plaintiffs, representing a 9.9 percent jump from the year prior.
If even that sizable jump sounds too small to local practitioners, it isn’t just their imagination. Over the same time period in the District of Massachusetts, the number of federal cases filed where the “nature of suit” was designated “labor: fair standards,” increased a whopping 68.8 percent, according to a Lawyers Weekly analysis of electronic court records.
“It’s phenomenal growth,” said Richard L. Alfred of Boston, chairman of Seyfarth Shaw’s national wage-and-hour practice. “They are increasing, especially in Massachusetts.”
Data collected by another global employment firm, Littler Mendelson, show that wage-and-hour class-action lawsuits specifically are on the rise as well. Across the country, there were 4,204 such cases in state and federal courts combined in 2012, up 11 percent from 2010, according to the firm.
The trend shows no sign of abating locally or nationwide, lawyers say.
“I don’t think we’re at the peak,” said Michael Mankes, managing shareholder of Littler’s Boston office. “This will continue to increase.”
National influences
There are a number of contributing factors for the uptick, including increased funding for federal agencies that can bring wage-and-hour and discrimination lawsuits.
“Under the Obama administration, the agencies, whether it’s the Department of Labor or the Equal Employment Opportunity Commission, have been given more money and are coming harder and faster,” Mankes said.
That priority has been mirrored at the state level in Massachusetts. Each year since she took office in 2007, Attorney General Martha Coakley has collected an average of $5.9 million in restitution, penalties and fees for fair labor violations, up from $3.9 million in 2006, the year before she took office.
“We are committed to ensuring that all businesses follow state laws to protect the rights of our workers and to maintain a level playing field for all businesses that play by the rules,” Coakley said.
Defense lawyers like Alfred and Mankes, however, say the trend is a disturbing one for businesses in a shaky economy and that Massachusetts employers in particular face overly burdensome penalties for mistakes that may not even have been intentional. Plaintiffs’ attorneys counter that workers, not their employers, are the backbone of the economy and that moves to stringently enforce their rights constitute a rising tide that lifts all boats.
Several attorneys also said the Internet and social media have contributed to the increase in wage-and-hour lawsuits nationally, both by publicizing cases and planting the seed in other employees’ minds, and also by providing employees the resources to investigate themselves whether they might have a claim.
Similar to when patients walk into a doctor’s office having already self-diagnosed themselves by researching WebMD, Boston attorney Philip J. Gordon said he gets hundreds of inquiries every week from potential clients who already have done a lot of homework.
“Employees are becoming more familiar with their rights,” said Gordon, who specializes in bringing class-action lawsuits on behalf of workers. “When people are terminated from their jobs, they hop online and start researching their employment and termination. Most employees are terrified of suing their employer or former employer, but as they sit out there weeks, months and years without a job, their inhibition about bringing a lawsuit goes down.”
Alfred said opportunities to sue also are increasing because the Fair Labor Standards Act was written in the 1930s and has not seen a substantial rewrite since the 1940s. As the modern workplace grows ever more out of step with the whistle-to-whistle culture of that era, ambiguity around the law’s definitions and application have presented issues that can be raised in court.
The trend also is fueling itself, as “jackpot” settlements and verdicts are publicized, drawing more lawyers who are becoming increasingly adept at handling class-action lawsuits.
“They get highly publicized when you have these big multi-million-dollar settlements,” Mankes said. “I think more and more plaintiffs’ attorneys are looking at this as low-hanging fruit. It doesn’t take that much to prove a wage-and-hour suit — not like discrimination. You can prove one issue and win a case on behalf of thousands of employees.”
Damages debate simmers
Boston’s Shannon Liss-Riordan first ventured into employment law almost by accident, when she received a telephone call from restaurant servers complaining that they were being forced to share their tips with managers.
“I started doing these tips cases back in 2001, and one case led to another, and before I knew it I realized there was an entire industry flouting the law in Massachusetts,” said Liss-Riordan, referring to the Massachusetts wage law that says wait staff get to control the tips they receive. “I believe we’ve helped clean that up.”
It wasn’t long before Liss-Riordan was focusing on employment suits exclusively, and ultimately she and partner Harold L. Lichten spun off to found a new firm specializing in labor and employment class actions with enough work to keep eight attorneys busy full time.
Other attorneys have followed her lead into the practice area in Massachusetts, particularly since the 2008 amendments to the state’s Wage Act that made treble damages automatic and mandatory.
For example, Alabama-based firm Whatley, Drake & Kallas brought its first Massachusetts class action case against Peter Pan Bus Lines in 2009, and a number of other Massachusetts firms and lawyers dipped their toes into wage-and-hour class actions for the first time.
“Everyone seems to be doing this,” Liss-Riordan said. “I think we’re seeing similar things happening in other areas where a lawyer picks up on a violation of a certain sort and goes after it industry-wide.”
While Liss-Riordan praised Massachusetts lawmakers for protecting workers rights, defense lawyers say the treble damages provision goes too far. Mankes said the commonwealth shouldn’t be proud to be a haven for such suits.
“Massachusetts has become one of the more active states because the same claim in Massachusetts gives rise to potentially much more in damages than the same claim somewhere else,” Mankes said.
Liss-Riordan countered that, as of 2008, Maine, Idaho, Ohio and Arizona also have had mandatory triple damages in their wage protection statutes and that West Virginia allows for quadruple damages. She also noted that the statute of limitations for many employment claims is much shorter in Massachusetts than other states, as little as two years in minimum-wage and overtime cases.
Gordon said the increase in wage-and-hour cases reveals simply that “abuse is up” and that the trend should be used to argue for the further strengthening, not weakening, of laws.
But Alfred insists that Massachusetts’ treble damages provision is the most inflexible in the nation, and that it is an impediment to economic growth.
“We are the only state in the country that has mandatory triple damages awarded for wage-and-hour violations, automatically, with no defense,” he said. “Other states that have this, it’s not automatic for all violations, but only for certain or intentional ones. That is an enormous incentive to employees, but even more to plaintiffs’ lawyers, to bring these claims. No one is going to be enthusiastic about coming into a state where that is a substantial risk.”
Advice for employers
While the issue of treble damages receives the most attention, Massachusetts also has some of the least employer-friendly laws in the country when it comes to tips and independent contractor classification, areas that have been the source of much of the increase in wage-and-hour litigation, according to Andrew P. Botti, director of the litigation department at McLane, Graf, Raulerson & Middleton in Woburn, Mass.
“Don’t mess around with it,” Botti advised employers deciding whether they can classify an employee as an independent contractor. “If there’s any doubt at all, bite the bullet and make them a W-2 employee.”
Similarly, since small wage claims can mushroom quickly in Massachusetts, Botti said employers should try to resolve claims before they get to court.
Gordon noted that, since wage-and-hour cases must first be filed with government agencies before employees can pursue a private right to sue, there is a buffer period in place during which claims can be resolved before treble damages come into play.
Recent caselaw has mostly favored employees.
Two recent decisions from the U.S. District Court and the Supreme Judicial Court interpreted the Massachusetts Wage Act strictly, finding that both sales commissions and vacation time, respectively, are considered “wages” under the law.
In June, the Appeals Court permitted a plaintiff who lives and works in Florida to sue a Massachusetts defendant under the commonwealth’s Wage Act given the parties’ “significant relationship” with Massachusetts.
In one victory for employers, the SJC recently ruled that employers are allowed to obtain an employee’s release of Massachusetts wage-and-hour claims as part of a severance agreement.
Mankes said it would be penny-wise but pound-foolish for employers to assume they’re doing everything right, and that they should stay ahead of any potential claims by hiring a competent employment lawyer to review their policies and practices.
“I think most employers who haven’t looked at their policies and procedures are probably doing at least one thing that’s wrong, and they don’t realize it,” he said. “You just need one employee to bring a class action.”
Alfred said that advice is especially sage in a state like Massachusetts, “where the consequences can be so severe.”
“These laws are very technical. They are difficult to understand and apply,” he said. “And there are lots of court and agency decisions that determine how they are applied. I see cases on a regular basis that could have been avoided with just a few hours of work by an attorney.”
