This Year In Review focuses on national employment litigation and policy trends that raise major challenges for America's corporate employers. An understanding of these national trends will enable corporate counsel to address these developments in an effective manner.
CLASS ACTIONS
High stakes class action litigation increasingly asserts a powerful force in corporate America. In 2002, over 2,900 class actions were filed in federal courts. Employment litigation has been a primary vehicle for the exponential increase in these claims. Virtually every potentially actionable discrimination claim has been asserted at one time or another as a class action. Prominent class actions include gender, race and age discrimination cases. This increasing prevalence of multiple plaintiff employment litigation has forced corporate employers to be ever focused on effective employment policies. Likewise, the attendant media attention accompanying this high stakes litigation has encouraged corporate employers to be ever sensitive to public relations strategies, both within the company and externally.
Prominent Class Actions: Expanding Numbers of Plaintiffs
As class actions increasingly are pursued, the number of potential plaintiff class members is expanding as well, increasing the employer's potential exposure. In Dukes v. Wal-Mart Store, Inc, No. C-01-2252-HJJ (N.D. Cal. 2003), plaintiffs are seeking certification of the largest ever class of plaintiff employees, over one million women who assert gender discrimination claims. The Wal-Mart claims focus largely on promotional opportunities, which are increasingly the focus of class claims brought by members of various protected groups.
At the time of this writing, this class action question is still pending decision in the Northern District of California. It would be astonishing, however, if this class, as currently described, would be certified by the Court. Nonetheless, the very fact that such an extraordinarily large class has been asserted is indicative of the trend for plaintiffs' lawyers to ever expand the scope of collective actions.
Race discrimination class actions continue to be an area of focus as well. This fall, in Sodexho Marriot Services, Inc. v. McReynolds, 2003 WL 21276099, 71 USLW 3759 (October 6, 2003), the Supreme Court refused to preclude about 2,600 African-American managers from pursuing class race discrimination claims. Wage and hour claims also continue to proliferate as class actions. Plaintiffs' counsel are developing creative claims strategies as well, such as the hybrid cash balance class action cases which are a blend of age and ERISA. See e.g., Cooper v. IBM Personal Pension Plan, No. 99-829-GPM (S.D. Ill. Aug. 1, 2003).
Avoiding Class Action Litigation: Effective Policies and Consistent Implementation
The increasing prominence of high stakes employment litigation has resulted in a refined focus on human resource policies and effective, consistent policy implementation as a means of avoiding this potentially destructive litigation. Employers have become ever more focused on scheduled maintenance and review of policies to ensure that human resource policies are evolving with changes in the business culture. This includes not only equal employment opportunity statements, but all policies implemented and effectuated by human resources. Of particular focus are policies explaining the compensation system, hiring and promotion policies, counseling and discipline policies and harassment reporting procedures. Likewise, management training on human resource policies has become ever more focused to ensure effective implementation.
Effectively, Affirmatively Handling Publicity
Corporations faced with class action employment litigation simultaneously must proactively manage the attendant negative media attention. Effective plaintiffs' counsel frequently will initiate a media blitz to leverage the litigation in an effort to force an early multi-million dollar settlement. Thus, a public relations strategy must be developed early and revisited often. An effective strategy must address multiple levels of communication: for example, communications to the workforce, to corporate leaders and to the public. The approach will vary depending on the goals of the corporation, but it must be well developed with careful forethought and focus.
The Class Action Process: Upcoming Changes
Both the Judicial Conference and Congress have attempted to address the rapid increase in class action litigation. The Judicial Conference enacted amendments to Rule 23 that are designed to assist the courts and parties with managing these actions. The amendments will be effective December 1, 2003. The amendments primarily address: certification, class notice, review of settlements and voluntary dismissals, appointment of counsel, and attorneys fees. Congress introduced the Class Action Fairness Act of 2003, but in October 2003, the United States Senate failed to overcome a filibuster. Political forecasters expect that due to a close vote, the Bill may again be brought up for consideration. If enacted, the Bill is expected to increase the number of class actions filed in federal court due to changes in the diversity jurisdiction requirements for class actions.
PUNITIVE DAMAGES
If class action litigation raises major challenges for corporate employers, certainly punitive damage allegations raise major challenges, as well. There is, however, very good news for corporate employers in this arena. The United States Supreme Court took additional steps last term to limit the risk of runaway juries bankrupting companies with excessive punitive damages awards.
In State Farm Mutual Auto. Insur. Co. v. Campbell, 123 S. Ct. 1513 (April 7, 2003), the Court reaffirmed the restraints that the Constitution's Due Process Clause places on "damages" awarded by way of punishment in civil litigation. Citing its own prior decisions in Gore and Cooper Industries, the Court provided lower federal courts, as well as state courts, with guidelines to be followed in reviewing punitive awards for constitutional fitness. Such awards can be neither excessive nor arbitrary.
The following is a brief summary of the guidance offered by the Supreme Court in State Farm:
- Courts reviewing punitive damage awards should consider (i) the degree of reprehensibility of the defendant's misconduct; (ii) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damage award; and (iii) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.
- A state does not have a legitimate interest in punishing a defendant for activities conducted outside of its jurisdiction.
- Courts should not use punitive damages to punish a defendant for conduct unrelated to the harm alleged by the plaintiff, as this raises the possibility of duplicative punitive damage awards.
- Few awards exceeding a single-digit multiple of actual or potential harm will withstand constitutional scrutiny.
State Farm in the Context of Class Action Litigation
In addition to the direct impact State Farm will have on punitive damage awards in single-plaintiff cases, the case is expected to play some (as yet undefined) role in the effort to stem the current tide of multi-plaintiff and representative litigation. Given the Court's requirement that punitive damages be tied to the harm actually suffered by an individual plaintiff, it may prove difficult to manage these Due Process concerns in larger cases, adding yet another, significant piece to the manageability puzzle. In fact, this point was relied upon heavily by Wal-Mart in the context of its September 24, 2003 arguments opposing class certification in the Dukes lawsuit.
DIVERSITY INITIATIVES AND THE UNIVERSITY OF MICHIGAN CASES: IMPLICATIONS FOR CORPORATE AMERICA
In 1978, the United States Supreme Court's Justice Powell declared in Regents of the Univ. of Calif. v. Bakke that universities have a substantial interest in diversifying their student bodies, because such diversity augments the learning process in critical ways:
"The nation's future depends upon leaders trained through wide exposure to the ideas and mores of students as diverse as this Nation of many peoples."
— Justice Powell, Regents of the Univ. of Calif. v. Bakke, 1978
Twenty-five years later, this same principle took center stage again in Gratz v. Bollinger and Grutter v. Bollinger, two companion lawsuits challenging admissions policies at the University of Michigan's undergraduate school and law school.
The decisions in Gratz and Grutter are huge, even when confined to the issue of governmental interests in the university admissions process. The Court confirmed Justice Powell's view that student body diversity is indeed a legitimate state interest. Narrowly-tailored programs, such as those that treat race or other factors as a "plus" for an applicant, will generally pass scrutiny. On the other hand, quota-based systems or admissions plans that effectively give race nearly-determinative weight will not withstand judicial review under the Court's recent decisions.
Corporate America and the Business Interest in Diversity
These lawsuits have touched corporate America closely, as well. Scores of multi-national corporate employers joined the University of Michigan through the filing of amicus briefs. Primarily, the employers took issue with the lower court's ruling, in Grutter, that the desire for student body diversity was not a compelling government interest. To the contrary, some of the most respected corporations in the world argued that, in today's marketplace, a diverse learning environment not only stimulates student thought, but is the foundation for the ability of American corporations to compete in the global marketplace. The Court, in Grutter, embraced this position, recognizing that workplace diversity and "cross-cultural competence" are of tantamount importance to corporate America.
Gratz and Grutter may well signal the Supreme Court's recognition of employee diversity as a crucial need of modern corporations – underlying a strong wave of corporate diversity initiatives. We continue to educate ourselves and each other in our professional lives, after formal schooling. Thus, the same arguments that justify a diverse student body in a public university may well justify a corporation's interest in maintaining a diverse workforce as a legitimate business need. This is an area where creative development of the business case may serve as the predicate for new law embracing carefully tailored, inclusive corporate diversity initiatives.
ARBITRATION
Employment arbitration agreements increasingly are being enforced by the courts. Employment arbitration issues continue to be before the Supreme Court and the Circuit Courts, and recent decisions demonstrate not only the court's willingness to enforce the agreements, but employers' increasing sophistication in drafting enforceable agreements.
All Circuits Now Agree That Title VII Does Not Bar Arbitration
The trend toward interpreting the scope of arbitral authority broadly is evinced in recent decisions from various circuit courts. Notably, the Ninth Circuit is no longer the lone circuit that bars compulsory arbitration of Title VII claims. In EEOC v. Luce, Forward, Hamilton & Scripps, No. 00-57222 (9th Cir. Sept. 30, 2003) (en banc), it joined the other circuits in holding that Title VII does not bar compulsory arbitration of claims. This reversal is significant given the Circuit's relationship to California and California Supreme Court's influential guidance on procedural requirements for enforceability in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000), which continues to be clarified by the Ninth Circuit and considered throughout federal and state courts.
Courts Are Enforcing Broad Arbitral Authority
The trend among the circuits is to broadly enforce arbitration awards as long as the award is supported by the terms of the parties' agreement. Although this may sound routine, the result is not.
In Butler Mfg. Co. v. Steelworkers, Local 2629, Case No. 02-1952 (7th Cir. July 17, 2003), the Seventh Circuit reversed a vacated arbitral award where the arbitrator had applied the Family and Medical Leave Act to help resolve the dispute. The Seventh Circuit cited the arbitration language that committed the parties to arbitrate any "differences as to the meaning and application of [the CBA], other than with respect to the right of the Company to contract or subcontract work" and the provision stating, "Butler Manufacturing offers equal opportunity for employment, advancement in employment, and continuation of employment to all qualified individuals in accordance with the provisions of law and in accordance with the provisions of this Agreement . . ." (emphasis added). The Seventh Circuit found that, given this language, by arguing that that documentation showed the grievant's absence was not FMLA qualifying, the parties committed the FMLA issue to the arbitral process.
The Eighth Circuit, likewise, in Bailey v. Ameriquest Mortgage Co., No. 02-1444 (8th Cir. Oct. 14, 2003), overruled a district court decision striking down an arbitration agreement. The district court had held that certain terms of the arbitration agreement were inconsistent with the employees' procedural rights under the FLSA. The Eighth Circuit, however, found that the district court had failed properly to consider a provision in the agreement giving an arbitrator authority to resolve disputes over the validity of any part of the agreement. The Eighth Circuit held,
When an agreement to arbitrate encompasses statutory claims, the arbitrator has the authority to enforce substantive statutory rights, even if those rights are in conflict with the contractual limitations in the agreement that would otherwise apply.
These circuit court decisions show a judicial willingness to enforce arbitration agreements that do not necessarily comply with the procedural safeguards often considered necessary for an effective agreement where the judicial interpretation expands the scope of arbitration rather than restricting it.
Broad Arbitration Language May Reach Class Action Claims
In Green Tree Financial Corp. v. Bazzle, 123 S. Ct. 2402 (2003), the Supreme Court addressed whether broad arbitration language potentially can reach class claims. Given the increasing number of class actions in the employment arena, the decision has implications that reach the corporate employer. In Green Tree, a broad arbitration clause was included in a commercial lending contract entered with individual consumers. The issue was whether, through execution of the contract, the commercial lender and the individual consumers had agreed to resolve class action claims through an arbitration proceeding. The Court held that the Federal Arbitration Act did not foreclose class arbitration and the issue was one of state law contract interpretation.
As a result of this decision, employers seeking to draft enforceable arbitration agreements may seek to ensure that the language is broad enough to reach possible class action claims. The language that the Court found did not clearly preclude class arbitration stated,
. . . The parties agree and understand that the arbitrator shall have all powers provided by the law and the contract. The powers shall include all legal and equitable remedies, including, but not limited to, money damages, declaratory relief and injunctive relief.
WAGE & HOUR DEVELOPMENTS
Wage and hour developments continue to raise major concerns for corporate employers throughout the country, both at the federal level under the Fair Labor Standards Act of 1938, and at the state level, where in certain states (e.g., California) the protections far exceed the long-established federal model. In addition to compliance with regulatory concerns under various wage and hour requirements, the number of wage and hour collective actions filed in courts throughout the country actually exceeded the number of employment discrimination actions brought in the last calendar year. This remarkable reality in the litigation context highlights the ever-increasing and challenging aspects of wage and hour compliance. This may well represent the largest single area of misunderstanding and confusion that currently confronts corporate America.
DOL Efforts to Update White-Collar Exemptions
In the spring of 2003, the Department of Labor published a comprehensive set of proposed changes to its regulations, with the goal of clarifying various overtime and minimum wage exemptions set forth in Part 541, Title 29 of the Code of Federal Regulations. This was not the first time the Department of Labor had proposed regulatory measures to clarify which employees are and which employees are not exempt from the provisions of the Fair Labor Standards Act. Nonetheless, the DOL's attempts to streamline the outdated and uncertain "white collar" exemptions seemed to have a good chance of becoming law – at least, that is, until recently.
In October 2003, Congress stepped in to halt the DOL's efforts, at least to the extent the agency would change individuals from non-exempt status to exempt. The significance of the motion recently approved by the House of Representatives will not be fully known for some time. Meanwhile, DOL continues to review public comments on its already-published proposed regulations. This hotly contested legislation would impact the exemption status of hundreds of thousands, if not millions, of employees nation-wide.
State Wage and Hour Laws: A Trap for the Wary
Even if the DOL succeeds in simplifying the federal wage and hour exemption analysis, employers (especially those in multiple states) must be constantly aware of the possibility that state laws provide even greater protection to employees than the FLSA. Many states have enacted laws regulating work hours (in some states even on a daily basis), minimum wages, lunch period, non-lunch breaks, and many other wage and hour issues. From the most thorough, such as California, to the more hands-off, each state's laws must be considered, because the courts have consistently held that state law is not preempted by the FLSA. Exemption from the FLSA does not equate to exemption from all state wage and hour laws.
CONCLUSION
The national employment litigation and policy arena continues to challenge corporate counselors on many fronts. Effective national employer policy and practices necessitate an understanding of national trends and responsive action. An understanding of the challenges provides effective strategies and solutions.