by William C. Martucci,¹ Eric Smith² and Karen K. Cain³

I. Introduction

The receipt of a complaint asserting class claims will raise concerns for the corporate employer. Yet, potential exposure has come to include the real threat of complex employment litigation. Even the most sophisticated employers have been subjected to its effect, and an employee who feels wronged can become empowered by its potential. That employee has the capacity—if asserting claims that are typical to those of other employees—to become a representative with respect to other employees who are "similarly situated."

This overview focuses on the basic foundation for class action employment litigation. First, it discusses the impact of class action litigation over the last decade, touching on the effect of the 1991 amendments to the Civil Rights Act. Then, it provides an overview of Federal Rule of Civil Procedure 23 and § 16(b) of the Fair Labor Standards Act (FLSA), which govern class actions in the employment arena, along with an overview of federal civil rights statutes and other statutes under which class action employment claims typically have been brought. Lastly, it provides 10 practical tips for the employer to utilize upon receipt of a complaint asserting class allegations. In addition, the appendix provides a sampling of large class action settlements from 1992 through 2001.

II. The Impact of Class Action Litigation

Over the last decade, litigation in the employment arena has taken on a new look and sophistication: class actions, collective actions and multi-million dollar settlements. Employers now constantly are reminded through the media of the dangers of high profile employment litigation. Microsoft, Mitsubishi, Coca-Cola and Boeing all have been affected by this new breed of employment litigation. And the media has found high impact employment litigation to be a great source for stories. The stakes are high, the expense is great, and the interruption to business is guaranteed.

Every employer is a potential target. And many employers are compelled to settle these imposing actions due to the inevitable impact on their businesses and the necessity of constantly moving forward to remain competitive in today's marketplace. In 1999, Pacific Telesis Group was defending a pregnancy discrimination class action involving more than 10,000 current and former employees.⁴ The case was settled for $25 million. John Britton, a company spokesman, said:

Pacific Bell believes that our actions all along have been appropriate. But we have agreed to this settlement and having done so we think it's best at this time to resolve it and move forward.

Likewise, in 1999, Boeing was faced with class actions in which 15,000 employees alleged race discrimination in promotions, training, transfers, discharge and other conditions of employment. Its chairman and chief executive officer said that the court's approval of a settlement of $4.2 million "allows Boeing to continue its movement forward. . . ."⁵

Notably, at least a couple of employers have faced back-to-back class actions involving different bases of alleged violations of federal law. In 1993, Shoney's settled a class action in which 20,000 African-American employees alleged race discrimination.⁶ Shoney's settled that case for $132 million. Then, in 1999, Shoney's settled a second class action for $18 million.⁷ This second suit was for violations of the Fair Labor Standards Act. Similarly, in 1997, Publix Super Markets settled a class action in which 150,000 women claimed sex discrimination.⁸ The approved settlement was for $81.5 million. Just this year, Publix Super Markets settled for $10.5 million a class suit involving allegations of race discrimination.⁹ Thus, it is clear that no employer, not even one previously hit with a significant class action suit, is invulnerable to this new breed of litigation – class action employment litigation.

This new breed of high stakes employment litigation has gained prevalence due largely to the 1991 Civil Rights Act amendments. The 1991 amendments made two fundamental changes to employment litigation in the civil rights arena: First, the amendments made available to plaintiffs in employment cases two significant sources of monetary damages – compensation for emotional distress and for punitive damages. Second, the amendments for the first time permitted employment plaintiffs to opt for a jury trial, which is considered to provide a more sympathetic finder of fact than a judge, to whom these claims formerly were heard. Thus, since 1991, federal courts have seen an upsurge in employment litigation generally and have witnessed for the first time a steady flow of significant class and collective employment actions across the nation.¹⁰

III. Class Actions: Rule 23, Flsa Section 16(B) And Federal Civil Rights And Employment Statutes

These recent employment class actions have arisen seeking relief through several statutes specifically speaking to civil rights and to the employment relationship. Federal Rule of Civil Procedure 23 governs the class certification aspect of many of these cases.¹¹ Some actions, however, may be brought independent of conformance to Rule 23, but rather through the opt-in process set forth in the Fair Labor Standards Act, And the Equal Employment Opportunity Commission has authority to bring a class action without satisfying the requirements of Rule 23 and without complying with the FLSA opt-in procedure.¹³

A. Federal Rule of Civil Procedure 23

Rule 23 specifically addresses class actions.¹⁴ Subsection (a) sets forth the following prerequisites that must be satisfied for the district court to certify a case as a class action:

(1) Numerosity: "[T]he class is so numerous that joinder of all members is impracticable,"

(2) Commonality: "[T]here are questions of law or fact common to the class,"

(3) Typicality: "[T]he claims or defenses of the representative parties are typical of the claims or defenses of the class, and"

(4) Representativeness: "[T]he representative parties will fairly and adequately protect the interests of the class."

These four factors are the subject of extensive analysis and argument in any given case. The leading Supreme Court cases on the substantive requirements for satisfying these factors are Amchem Prods., Inc. v. Windsor¹⁵ and General Telephone Co. of Southwest v. Falcon.¹⁶ These four factors are required for class certification, but alone are insufficient.

Even if those four factors are satisfied, a class action may only be maintained upon satisfaction of Rule 23(b)(1), (b)(2) or (b)(3) of the Federal Rules of Civil Procedure.

Rule 23(b)(1) addresses situations in which adjudication by individual plaintiffs would create a risk of inconsistent judgments or may impede or impair the ability of other class members to protect their interests. This rule has not been used frequently in employment class actions.

Rule 23(b)(2) frequently has been used in employment discrimination class actions where class members seek injunctive relief. This subsection requires that the employer "has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole." Injunctive relief must predominate over other relief being sought, such as compensatory damages.

Despite the courts' generally broad application of this subsection in employment litigation, in Allison v. Citgo Petroleum Corp. the Fifth Circuit has directly rejected its applicability to class action litigation when the equitable remedies requested do not predominate over the monetary damages sought.¹⁷ Under Allison, claims for compensatory and punitive damages must be incidental to the "injunctive and declaratory relief" sought to permit a (b)(2) class certification. As defined by the court, incidental damages are damages that spring from the equitable remedies sought and are not the type of damages subjectively calculated based on an individual showing of harm. This definition makes class (b)(2) certification virtually impossible when a party seeks compensatory or punitive damages, because these damages require individuals to demonstrate harm and they use subjective calculations.

The Allison decision has not been widely accepted. Courts exploring this issue have not adopted Allison's bright-line rule precluding all forms of (b)(2) certification in claims seeking both equitable relief and monetary damages.¹⁸ While some courts have agreed with Allison that Rule 23(b)(2) certification is only appropriate when monetary relief is incidental to the equitable remedies sought, they have still allowed class action certification under (b)(2) or under a hybrid combination of (b)(2)/(b)(3) certification.¹⁹ Courts in the Fifth Circuit may even be willing to reject Allison's bright-line rule in favor of a hybrid form of 23(b)(2) certification.²⁰ Two common forms of hybrid certification have developed under such circumstances. The first hybrid form allows certification under Rule 23(b)(2) but also provides class members with notice and the ability to opt-out.²¹ The second hybrid form bifurcates the proceedings and certifies a Rule 23(b)(2) class for the equitable relief sought and a Rule 23(b)(3) class for the monetary damages sought.²²

Rule 23(b)(3) permits class actions where class "treatment is not as clearly called for . . ., but it may nevertheless be convenient and desirable."²³ It is satisfied where "the court finds that the 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."²⁴ Because class treatment is not as clearly called for under this subsection, members of the class may exclude themselves from (or opt-out of) a Rule 23(b)(3) suit in order to pursue individual litigation. This subsection was not utilized in employment class litigation until the 1991 amendment, when relief in employment discrimination cases was expanded beyond equitable relief to include compensatory and punitive damages.

So, the plaintiff class must establish not only the four prerequisites of numerosity, commonality, typicality and representa-tiveness, but also a subsection of Rule 23(b). Once they have established both, they may be certified as a class. Rule 23(f) provides for interlocutory appeal of the court's certification decision.²⁵ The importance of this provision cannot be understated due to the dispositive effect a certification provision has on an employer. Once a class is certified, the stakes are magnified exponentially. The defendant employer frequently is left feeling it has little choice but to settle the case.

B. Federal Statutes Utilizing Rule 23 For Class Litigation

Rule 23 is the mechanism for establishing a class where the basis of the suit is one or more of the following statutes:

Section 1981 of 42 U.S.C. as amended 1991. Section 1981 prohibits race and national origin discrimination in the making and enforcing of contracts. At-will employees generally are protected by this statute, regardless of the absence of a written employment contract. Compen-satory and punitive damages are unlimited under § 1981, which makes it a preferred vehicle for class members where race discrimination is alleged.

Title VII, 42 U.S.C. §§ 2000e, et seq. Title VII perhaps is most widely known for protecting employees from discrimination on the basis of sex due to the 1998 Supreme Court decisions on sexual harassment.²⁶ Title VII's protections, however, far exceed gender and include discrimination in employment based on race, national origin, color, religion, pregnancy and reverse discrimination, retaliation, and harassment on any of these protected bases as well. Title VII caps compensatory and punitive damages based upon the size of the employer. Damages for employers with more than 500 employees are capped at $300,000.

Section 1983 of 42 U.S.C. Section 1983 protects state employees from race or sex discrimination and can be used independently or in conjunction with Title VII.

Americans With Disabilities Act, 42 U.S.C. §§ 12101-13. The ADA prohibits discrimination on the basis of disability.

C. Section 16(B) of the Fair Labor Standards Act

Unlike the "opt-out" procedure set forth in Rule 23(b)(3), there is an "opt-in" procedure set forth under Section 16(b) of the Fair Labor Standards Act of 1938, 29 U.S.C. §§ 201, et seq., that is applicable to actions brought under the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. §§ 621 et seq., and actions brought under the Equal Pay Act ("EPA"), 29 U.S.C. §§ 206, et seq.

Equal Pay Act of 1963 ("EPA"), 29 U.S.C. § 206(d). The EPA was enacted to eliminate wage discrimination based on gender. Relief available under the EPA is limited to discrimination in compensation. Neither compensatory damages, punitive damages nor injunctive relief is available under the EPA.

Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq. The ADEA prohibits employment discrimination based on age for those 40 and over.²⁷

Section 16(b) of the FLSA uses the term "similarly situated" as the standard to proceed with a collective action under the ADEA and the EPA:

An action to recover the liability . . . may be maintained against any employer . . . in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated. No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.

Basically, a person must take an affirmative step in writing to "opt-in" to the action – as opposed to the Rule 23(b)(3) ability to take an affirmative step to "opt-out" of the action.

The importance of the distinction between FLSA class actions and Rule 23 class actions is that a putative class under § 16(b) of the FLSA need not be formally certified and has less stringent requirements than a similar class action brought under Rule 23 because § 16(b) class members have flexibility to "opt-in." Thus, plaintiff class members have a higher burden under § 16(b) than under Rule 23, because the § 16(b) class members must affirmatively "opt-in" to join the class, rather than Rule 23 class members who automatically are part of the putative class.

IV. Competing Goals of The Plaintiff Class and the Defendant Employer

The plaintiffs' goal remains constant regardless of whether the action is brought under Rule 23 or § 16(b) – to gain settlement leverage by creating litigation that is unmanageable. This leverage significantly increases where plaintiffs attract the attention of the press and where the class members remain employed by the defendant employer. Basically, by bringing together plaintiffs who have weak claims (or perhaps no viable clams) with plaintiffs whose claims are strong (and likely would survive summary judgment), the plaintiffs collectively have more bargaining power to demand a large global settlement.²⁸

The employer's goal also remains constant – to successfully defeat certification or joinder or the "similarly situated" finding, to minimize the disruption to its business and to minimize potential damages.²⁹ The difficulty to the employer, however, is greatly increased when or if the class is certified. The threat to the financial security of the employer also is increasingly significant. The employer may have to invest in developing a strong statistical defense to the class claims. The extraordinarily broad discovery in the precertification proceedings likely will continue on the merits, and the employer will be required to continue to assemble any relevant voluminous data not yet produced. And there will be ongoing challenges to the continued operation of the business – especially if any class members are current employees as well.

V. Ten Practical Tips For Employers Upon Commencement of Class Action Litigation

1. Develop a core "litigation team" from the start, including several associates and at least one legal assistant and one file clerk — to be led by trial counsel experienced in complex employment litigation.

2. Immediately contact people in human resources and information systems to brainstorm and identify documents relevant to the litigation, construing "relevant" broadly — as the plaintiff class and the court likely will.

3. Identify the employer's leadership team that is placed at issue in the action and start developing relationships with and among those leaders. Use group meetings to develop and maintain cohesion among these individuals, who may become critical witnesses as the case develops.

4. Determine what third party services you will rely upon, including a superb court reporter, videographer and copy service.

5. Develop a commitment to owning the case: know your data, your documents, your organization and your witnesses.

6. Develop a public relations strategy both for internal statements and for any media attention; draft statements to be immediately available when needed.

7. Develop a system for document storage, collection and retrieval – take special care where class members are current employees because the case will not be a "still picture," but will be ever changing.

8. Advise key management team members who interface and supervise class members of the litigation, privilege issues and the potential for retaliation claims.

9. Develop protocol within human resources for dealing with sensitive issues related to the class members who also are current employees

10. As the case progresses, brainstorm stream-lining tactics for repetitive tasks such as witness preparation and depositions.

VI. Conclusion

Looking toward the future, employers must remain ever more aware of the potential for significant collective and class actions in the employment area. As large settlements continue to be reached and publicized, the odds of facing such at suit increase for every employer. And as suits are filed collectively rather than individually, the stakes are raised for employers, thereby making vigilant compliance with company policies and with governing laws ever more important. If an employer finds itself staring at the face of a complaint asserting class action allegations, the employer must immediately move into action to begin the daunting, yet exciting, task of defending the action.

Footnotes

¹ Bill Martucci leads the Shook, Hardy & Bacon National Employment Litigation and Policy Practice Group. He holds a Master of Law degree in Labor and Employment Law from Georgetown University in Washington, D.C. He has successfully defended various employment lawsuits, and written and lectured extensively on employment law issues throughout the country. Recognized as an employment lawyer of national caliber and included in The Best Lawyers in America, Mr. Martucci is noted for his innovative work in employment litigation and policy matters on behalf of America's corporate interests.

² Eric Smith is a partner in the Shook, Hardy & Bacon National Employment Litigation and Policy Practice Group. Mr. Smith concentrates his practice in the areas of complex employment litigation and employment policy matters. He received his J.D. from Yale Law School. Mr. Smith received his B.A. from the University of Kansas, with highest distinction, and was elected to Phi Beta Kappa.

³ Karen Cain focuses her practice on complex employment litigation and policy matters in Shook, Hardy & Bacon's National Employment Litigation and Policy Practice Group. Ms. Cain received her J.D. from the University of Kansas School of Law, where she was managing editor of the Kansas Law Review. She received her B.S., magna cum laude, from Avila College and a Master of Science in counseling psychology from the University of Kansas.

⁴ Joyce E. Cutler, "Judge Approve $25 Million Settlement of Suit Against Pacific Telesis Group," 132 Daily Lab. Rep. (BNA) A-11 (July 12, 1999) (emphasis added).

⁵ Nan Netherton, "Judge Approves $14.2 Million Accord in African Americans' Suits Against Boeing," 192 Daily Lab. Rep. (BNA) A-2 (Oct. 5, 1999) (emphasis added).

⁶ Equal Employment Advisory Counsel chart entitled, Class Action Leverage printed in Investor's Business Daily, October 13, 1997.

⁷ "Shoney's to Pay Employees $18 Million to Settle Alleged Violations of Wage Laws," 59 Daily Lab. Rep. (BNA) A-6 (March 29, 1999).

⁸See note 6.

⁹ Drew Douglas, "Publix Super Markets to Pay $10.5 Million in Settlement to End Race Bias Class Action," 02 Daily Lab. Rep. (BNA) A-1 (Jan. 3, 2001).

¹⁰ See Appendix, "Some Top Settlements in Class Action Litigation 1992 - 2001."

¹¹ The text of subsections (a), (b) and (f) of Rule 23 are set forth in Appendix A.

¹² 29 U.S.C. § 216(b).

¹³ General Tel. Co. v. E.E.O.C., 446 U.S. 318 (1980).

¹⁴ Rule 23 recently has been under revision. The Civil Rules Advisory Committee has recommended adoption of several proposed changes. There are numerous subtle revisions, all of which can be found in the Class Action Litigation Report, ISSN 1529-0115, Vol. 2, No. 11. There are five primary revisions: (1) the timing of certification; (2) judicial oversight of settlements; (3) control of duplicative and inconsistent class litigation; (4) attorney appointment; and (5) attorney compensation. Attorneys involved in class action litigation should be on the lookout for developments in these areas.

¹⁵ 521 U.S. 591 (1997).

¹⁶ 457 U.S. 147 (1982).

¹⁷See Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998).

¹⁸ See, e.g., Lemon v. Int'l Union of Operating Eng'rs, 216 F.3d 577 (7th Cir. 2000)(allowing a hybrid form of certification); Jefferson v. Ingersoll Int'l, Inc., 195 F.3d 894 (7th Cir. 1999) (adopting Allison's reasoning but concluding the class should be certified under a hybrid form); Robinson v. Sears, Roebuck and Co., 111 F. Supp. 2d 1101 (E.D. Ark. 2000) (allowing a hybrid form of certification); Shores v. Publix Super Markets, Inc., No. 95-1162-CIV-T-25(E), 1996 U.S. Dist. LEXIS 3381 (M.D. Fla. 1996)(allowing a hybrid form of certification).

¹⁹ See note 4.

²⁰ See Smith v. Texaco, Inc., 88 F. Supp. 2d 663, 679-80 (E.D. Tex 2000), vacated, 281 F.3d 477 (5th Cir. 2002).

²¹ See Robinson, 111 F. Supp. 2d 1101.

²² See Jefferson, 195 F.3d 894.

²³ Advisory Committee Notes on Rule 23(b)(3).

²⁴ Fed. R. Civ. P. 23(b)(3).

²⁵ Blair v. Equifax Check Services, 181 F.3d 832 (7th Cir. 1999) (discussing court's discretion to hear interlocutory appeal of class certification decision).

²⁶ Faragher v. City of Boca Raton, 524 U.S. 775(1998), and Burlington Indus., Inc. v. Ellerth, 524 U.S. 742 (1998).

²⁷ Administrative exhaustion is required under Title VII, the ADEA and the ADA. To proceed with a class action, the administrative charge must give notice that the allegations at issue are on behalf of a class. That notice then is imputed to the class members for the purpose of satisfying the exhaustion requirement.

²⁸ Employers may refer to this phenomena as the "glob factor."

²⁹ In collective actions, the employer defendant's goal is to prevail on a motion to sever or to defeat joinder, depending on the manner in which the case is brought.