Editor: Why are wage and hour class actions so prevalent?
Spinola: The FLSA was enacted in 1938, but there wasn’t much litigation until about 15 years ago, after which the number of class action cases just exploded. In fact, 91 percent of today’s labor and employment class action suits are wage and hour related, for a few reasons. The standard for class certification in an FLSA matter is much lower compared to other employment law issues, and the pool of potential class members is significantly larger. In harassment cases, for instance, the class is limited to employees who claim to have been harassed, generally by a particular supervisor. Wage and hour class actions challenge a broad pay practice and can include all employees subject to that practice. Further, legal fees are paid to plaintiffs’ attorneys on a contingency basis based on a percentage of the total settlement, so there is a powerful incentive to bring these cases rather than pursue single-plaintiff cases or small class actions under a different statute.
Editor: Why is healthcare among the most targeted industries for wage and hour actions?
Spinola: The industry employs highly compensated professionals, such as registered nurses who are treated as non-exempt notwithstanding their significant hourly rate. They could be classified as exempt from overtime, but for competitive reasons, hospitals opt not to. This creates additional incentive for plaintiffs’ attorneys because higher pay structures lead to higher damages and, therefore, larger fees.
Another factor is the nature of healthcare work. Because hospital employees are responsible for direct patient care and often unpredictable needs, there is a greater likelihood that meal breaks could be interrupted or work could be performed beyond a scheduled shift. Finally, plaintiff’s attorneys have access to employee contact information for healthcare employees through public registries, so they can easily solicit them to participate in a case.
Editor: Are these issues particular to the healthcare industry?
Spinola: I would say yes. Sometimes a company will re-classify as non-exempt a specific employee position when the exempt status is questionable or subject to potential litigation. Occasionally, an industry will choose to classify employees as non-exempt to take the exemption challenge out of play altogether, but those employers still face challenges to non-exempt pay practices on other grounds. The healthcare industry is unique in that the decision to treat registered nurses as non-exempt is purely a result of the competitive marketplace. Many nurses will not work on salary, and they have options, especially in light of the aging U.S. workforce and population. Baby boomers certainly will need nurses, not just in hospitals but for home healthcare as well.
Editor: Who is bringing these claims, and how do they find their clients?
Spinola: The Department of Labor (DOL) has been extremely active in investigating wage and hour claims in the healthcare industry. The DOL has identified eight or nine industries they believe have a higher-than-average volume of wage and hour violations. Healthcare is so significant that it occupies two of those slots: healthcare and home healthcare. Recent DOL activities include modifying the longstanding “companion exemption,” which applies to domestic service workers. Effective in January 2015, the modification eliminates the companion exemption for all third-party employers.
The biggest risk for employers, however, comes from the plaintiffs’ bar. Gone are the days when an employee reaches out to a lawyer to pursue a wage and hour claim. Sophisticated plaintiffs’ counsel are actively soliciting clients by marketing in newspapers, buying contact information from third-party vendors and sending solicitation letters en masse in order to target companies.
Hospital systems are especially vulnerable to aggressive marketing practices. For example, social media users who identify a healthcare employer on Facebook or LinkedIn may get a pop-up ad asking them to contact a lawyer who is investigating that employer in a wage and hour class action. The attorney’s goal is to gather a critical mass of parties to generate a viable class case.
Editor: What can employers do to preclude such actions?
Spinola: Plaintiffs’ attorneys tend to take a shotgun approach to solicitations, so mistakes are common. They may contact a manager who used to be a non-exempt employee and will alert the company, which should immediately consult its attorney. Sometimes employers invoke the rules of ethics if an advertisement involves claims that are never raised in the subsequent lawsuit, and we’ve seen plaintiffs’ firms dismiss class cases to avoid sanctions when false advertisement becomes an issue. The point is that solicitations are bound to have problems that we will discover, at which point the employer can at minimum contact the soliciting firm, explain the ethical problems, and demand that the solicitations cease.
Because pay practices tend to be the same across an industry, another strategy is to look at whether your competitors are being sued. This is the most powerful predictor that you will be next because plaintiffs’ firms first will latch onto one company and then pursue copycat litigations with all the big industry players. Also, since employees tend to move within their respective industries, we encounter serial plaintiffs who assert the same claims against multiple employers. Companies that understand and watch these developments will be prepared.
Editor: What types of claims are prevalent in healthcare?
Spinola: The most common claims allege that non-exempt employees were not paid all overtime because they worked off the clock. Normally, these claims are tied to a specific pay practice that plaintiffs’ lawyers use to argue that because these employees are similarly situated, their claims can be tried collectively. Good examples are meal cases against healthcare employers using some form of an automatic meal deduction timekeeping system where employees claims to have missed or interrupted breaks due to patient needs, rounding claims pertaining to a company’s timekeeping system, and claims alleging a failure to include certain differentials in the regular rate for calculation of overtime, incorrect payment of travel time, or failure to pay for work done from home.
We are also seeing an unprecedented number of misclassification claims. In healthcare, the professional exemption for nurses is being tested more than ever. This relates either to the compensation element of the exemption or to duties performed. The duties argument is that the nurses perform non-exempt type tasks that do not require her to rely on her professional degree. I expect to see a lot of litigation and DOL investigations over the companionship exemption.
Editor: What are your clients doing to avoid these types of cases?
Spinola: Our clients are proactively eliminating the most commonly targeted pay practices. Measures include paying up to the minute instead of rounding time; eliminating automatic meal deductions; and focusing on compliance programs specifically designed for wage and hour issues. We often see compliance programs that apply to harassment and discrimination claims; however, wage and hour compliance programs are less common. This is hard to understand because the biggest risk to employers are the wage and hour class actions.
Editor: Please discuss effective litigation strategies for wage and hour class actions.
Spinola: Compliance programs set the stage, and well-crafted wage and hour policies play a critical role in making it difficult to meet the FLSA class-certification standard, which requires proof that a uniform policy or practice led to the alleged violation. You still might have to litigate individual complaints, but stakes are substantially reduced. Even without a comprehensive compliance program, companies should consider remedial measures if a class action lawsuit is filed. Once the lawsuit is filed and people start opting in, their claims are tolled, and the statute of limitations may create continuing liability that accrues through the course of the litigation.
The tide is changing with respect to class litigation. Judges are more willing to limit or deny class certification, and we are getting good results for companies that are willing to stick it out and punch back. For example, three large hospital systems in the Northeast were sued simultaneously by the same firm several years ago. Two of the systems hired our firm to defend them, while the other elected to settle quickly. The system that settled paid nearly $9 million. Of the other two, one settled its case for less than one-fifth of the $9 million that the first hospital system paid, after eliminating several claims and favorably resolving some issues through litigation. The other system has not paid a dime because we successfully attacked the complaint as insufficient and had the case dismissed.
Remember, just because an employer is the defendant doesn’t mean it cannot be the aggressor. These high-stakes matters often reach up to the board, so there is normally a great deal of collaboration. A good litigation strategy will allow the company to control the pace and outcome, while developing a compliance strategy that mitigates the likelihood of future litigation. Having a client that trusts what you are telling them and is willing to get into the weeds and see a strategy through to completion is critical, so it’s not surprising that our best successes correlate to our strongest client partnerships.
Editor: Describe the role of e-discovery in class litigations and the importance of partnering with a strong vendor.
Spinola: The role is significant. Class actions involve massive data sets and require a team of professionals: lawyers, economists to provide exposure modeling and data analysis, and a great e-discovery vendor to gather, process and review evidence. Partnering with the right vendor is critical because most sophisticated plaintiffs’ firms use e-discovery costs as a tool to force settlements. A single healthcare employee claim can lead to a class of thousands of plaintiffs, and their attorneys will seek to maximize the amount of electronically stored information (ESI) that must be harvested or preserved. As a result, defendants face onerous collection, preservation and review obligations.
Strong vendor relationships boil down to competency, trust and efficiency. Competency includes the ability to work with legacy systems and offer procedures for successfully harvesting, processing and producing data. Trust is critical because mistakes are expensive, not only as to litigation outcomes but also relating to sanctions. Efficiency speaks for itself about costs and process integrity. Highlighting the trust factor, in a recent wage and hour matter, we inherited a vendor from the client and discovered that it was charging exorbitant rates: more than five times the norm. The client had no idea because it didn’t understand the market or how to vet e-discovery services.
We work with TrustPoint International because we know their model delivers efficient end-to-end service at competitive rates. TrustPoint’s Blackletter Discovery provides the document review piece, including a tool that pinpoints evidence to support your defenses. And I love their unique service of packaging a litigation file before any matter arises. This involves duplicating and collecting data, including a journaling process for email, and it is very cost- and time-efficient versus retrieving information from a catastrophic recovery system. In one case, we tried to collect email from another vendor that does not provide litigation-specific services; we experienced delays that really put us in a bind because a judge had ordered us to produce by a certain date that the vendor could not achieve. TrustPoint’s system activates at the moment a case begins, allowing you to work with a pre-existing database to find relevant information.
Finally, the trust factor also ties in with repeat engagements. Working on multiple matters with TrustPoint has given us confidence about what to expect in terms of innovative and integrated solutions, issue resolution, responsiveness and, above all, great results.
Published October 22, 2014.