Volume 18, Number 6
September 2001


Building an Internal Defense against Class Action Lawsuits and Disparate Impact Claims

By G. Roger King and Jeffrey D. Winchester

Federal class action lawsuits are governed by Rule 23 of the Federal Rules of Civil Procedure, pursuant to which a court may certify a class action when the procedural requirements of numerosity, typicality, commonality, and adequacy of representation are met. Specific federal statutory claims that may pose class-action threats to employers include:

Civil Rights Act of 1964, Title VII. Title VII prohibits discrimination in the workplace on the basis of race, color, national origin, religion, sex and/or pregnancy, and has been interpreted to prohibit harassment on the basis of these protected characteristics. Title class actions are governed by Rule 23.

Americans with Disabilities Act (ADA) and the Rehabilitation Act. The ADA and the Rehabilitation Act prohibit discrimination against persons with physical or mental disabilities. Class actions are governed by Rule 23. Certification of class suits here can be difficult because these claims tend to be highly individualized, requiring a case-by-case analysis.

Fair Labor Standards Act (FLSA). The FLSA requires payment of minimum wage and overtime. It permits class actions on behalf of "similarly situated" employees, but such actions are not controlled by the "opt out" notice requirements of Rule 23. Instead, FLSA § 16(b) requires that notice be provided to putative class members that they will not be bound by a judgment unless they "opt in" to the suit.

Age Discrimination in Employ-ment Act of 1967 (ADEA). The ADEA protects persons 40 years of age and older from workplace discrimination. Its enforcement provision incorporates the collective action "opt in" approach of FLSA § 16(b).

Equal Pay Act. The Equal Pay Act prohibits differentials in employee pay based on gender. Plaintiffs often pursue class actions under the Equal Pay Act, rather than under Title VII, because it provides for recovery of double damages in the event of a willful violation. Class actions must be brought in accordance with the "opt in" requirements of FLSA § 16(b).

Employee Retirement Income Security Act (ERISA). ERISA governs benefit and retirement plans. Most class claims involve nondisclosure, breach of duty, or nonforfeiture with respect to an employee benefit or retirement plan.

The effect of filing a class action lawsuit on individual employees' federal discrimination claims. Before filing a discrimination-based suit, the plaintiff must file a charge of discrimination with the Equal Em-ployment Opportunity Commission (EEOC). However, the filing of a class action by a coworker that implicates an employee's potential cause of action effectively tolls the running of the charge-filing period for that employee, even if the class is never certified or is later decertified.

The landscape alters significantly when the EEOC brings suit on behalf of a class of employees. Because the EEOC is unfettered by the class action procedural requirements of numerosity, typicality, commonality, and adequacy of representation that govern private-plaintiff discrimination class action lawsuits, it is difficult to obtain dismissal of an EEOC collective action, and most EEOC actions proceed to argument of the merits of the claims. However, with regard to some types of claims, EEOC class actions take precedence over, and extinguish individual causes of action. Therefore if a covered individual fails to join, his or her cause of action is permanently barred.

Avoiding disparate impact class action lawsuits. Claims of disparate impact discrimination allege that facially neutral employment practices have an unintentional, significant adverse affect on a protected group. Depending upon the jobs at issue, examples of such practices include: restriction of job advertising to local newspapers; requirement that applicants meet certain minimum educational requirements; and reliance on subjective personal/family ties as hiring criteria.

To help prevent exposure to liability, employers should:

  • Consider the impact of employment and recruiting policies and procedures on protected groups.
  • Establish nondiscriminatory standardized hiring and promotion criteria, and ensure the application of those criteria by employees who conduct interviews and make hiring decisions.
  • Conduct regular training and reviews of interview and applicant evaluation practices and procedures.
  • Apply the statistical analyses used by the courts to their own workplaces to identify and eliminate any hiring barriers that may exist.

Wage and hour claims under the FLSA. Wage and hour class actions commonly arise because an employer failed to pay minimum wage or overtime for more than 40 hours of work per week and/or miscalculated the proper rate of overtime. Employers can minimize exposure by taking the following steps:

  • At the time of hiring, inform employees of their employment status and detail the terms of their payment in writing.
  • Where appropriate, install a time clock or other timekeeping procedure and issue a written policy regarding its use.
  • Require employees to review and sign their time records every week and initial any changes made.
  • Do not institute policies docking salaried or exempt employees' pay for disciplinary reasons or for being absent from work in increments of less than a full work day.
  • Reimburse employees quickly for inadvertent miscalculated wage deductions.

Sexual and other harassment claims. Employers can minimize exposure to actions premised on sexual harassment by taking the following steps:

  • Publish a policy forbidding discrimination and harassment. Include examples of prohibited conduct.
  • Institute a discrimination/harassment reporting procedure that allows employees to report harassment to someone other than their immediate supervisor and that requires all management employees to pass on reports of harassment to upper management.
  • Ensure that the policy and procedure is distributed to every employee. Require employees to sign a form certifying that they have read and understand the policy and that they will abide by it.
  • Post copies of the policy and procedure prominently in the workplace, and distribute updates and reminders of the policy to all personnel.
  • Investigate reports of harassment immediately. During the pendency of an investigation, separate the employee claiming harassment from the alleged harasser and protect the complaining employee from possible retaliation.
  • Train supervisory personnel on their reporting and investigation duties.
  • Where harassment is found to have occurred, discipline the harasser; transfer the harasser to another workplace or shift, or offer the victim a transfer to another workplace or shift; and obtain the victim's signed agreement that the measures taken were an adequate and satisfactory response to the problem.

ERISA claims. Plaintiffs may bring ERISA class actions alleging that an employer's conduct constitutes a "pattern and practice" of interference with existing or future rights under a benefit plan. Plaintiffs must show that this pattern or practice is part of the employer's "regular and standard operating procedure." Examples of class action claims include: unlawful termination of vested health care benefits; fraudulent inducement of employees to retire prior to benefit vesting; unlawful forfeiture of pension credits; and breach of fiduciary duty for failure to adequately advise employees of the terms of a benefit plan, alteration thereof, or termination of a plan.

The following can help minimize exposure:

  • State language pertaining to vesting rights in benefit plans clearly and unambiguously.
  • Plan in advance for multiple terminations, layoffs, and changes in benefit plans.
  • Be aware of the vesting status of employees that are subject to recall after a layoff.
  • Be aware of the pension liability of each work site.
  • Disclose all interpretations and material terms of any benefit plan to employees.
  • Ensure that all notices, advisories, or directions given to employees concerning enrollment in, alteration of, or termination of a benefit plan are accurate and timely.

Impact of Federal Rule 23(f). Subdivision (f) of Rule 23 provides for immediate permissive interlocutory appeals from orders granting or denying class action certification. This provision is of great significance to class actions arising in the employment context because of its potential for saving employers from having to choose between settling a groundless class lawsuit or taking their chances by going forward and hoping for the best on the merits or on appeal.

G. Roger King is a partner in the Labor and Employment Section of Jones, Day, Reavis & Pogue's Columbus, Ohio, office. Jeffrey D. Winchester is an associate in the firm.

This article is an abridged and edited version of one that originally appeared on page 371 of The Labor Lawyer, Winter/Spring 2001 (16:3).

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