Do Employee Layoffs Equal Litigation?
April 2009
According to the U.S. Equal Employment
Opportunity Commission (EEOC), the number of workplace discrimination
charges filed with the EEOC increased 15 percent in 2008, with the largest
increases in retaliation and age-based claims. In fact, the EEOC is
experiencing the highest level of charge filings since it opened its doors
in 1965.
by Paul
J. Siegel, Esq. and Ana C. Shields, Esq.
Jackson Lewis
LLP
Growth of all discrimination charges seems to be the result of an aging
workforce and increased reductions in force. In January 2009, 2,227 mass
layoff actions (i.e., affecting over 50 companies) resulted in the
separation of 237,902 workers, according to the Bureau of Labor Statistics.
During the 14 months from December 2007 to January 2009, there were 25,712
mass layoff events. In February 2009, the number of unemployed workers
increased by 851,000 to 12.5 million; unemployment reached 8.1 percent.
Consequently, continued growth of workplace claims seems certain.
With discrimination charges on the increase, costly lawsuits are likely
to follow. The 2008 Edition of Employment
Practice Liability: Jury Award Trends and Statistics, analyzed trends
in jury awards from 2001-2007. Among the statistics reported are the
following.
- 21 percent of verdicts obtained by prevailing plaintiffs were
between $100,000 and $250,000; 18 percent of the verdicts were between
$250,000; and $499,999. Approximately 45 percent of the verdicts were
over $250,000, while about 32 percent of the verdicts were over
$500,000.
- Between 2001 and 2007, the median jury award in discrimination cases
rose from $147,950 to $250,000.
- 22 percent of awards in age discrimination claims were between
$100,000 and $249,000; 52 percent of awards in age discrimination claims
were over $250,000 with 18 percent over $1 million.
- In 2007, the probability of a plaintiff's verdict in age
discrimination claims reached 62 percent, its highest since 2002. That
rate is slightly higher than the overall adverse verdict rate. Between
2001 and 2007, plaintiffs won about 61 percent of employment cases tried
before juries.
- Retaliation claims present the greatest exposure, as employers have
tended to fare poorly (i.e., 19 percent of retaliation verdicts between
2001 and 2007 were between $100,000 and $250,000; 20 percent of the
verdicts were between $250,000 and $499,999; and approximately 28
percent were over $500,000). The median verdict was $200,000. The
Supreme Court's Burlington Northern and Santa Fe
Railroad Co. v. White, 548 U.S. 53 (2006) decision, holding that
actions with no immediate monetary impact could be "retaliatory," will
continue to encourage retaliation claims.
- The median verdict in discrimination cases heard by state court
juries between 2001 and 2007 was $250,000, significantly higher than
federal court verdicts (median of $175,000).
- Although recent reports suggest litigation claims are decreasing,
given the number of recent layoffs and terminations and the struggling
economy, we expect there to be more cases filed during the next year.
- Among settlements reported to the
Jury Verdict Reporter, 23 percent resulted in payments of
$100,000 to $250,000; about 18 percent were over $250,000. These award
and settlement amounts are exclusive of legal fees—both claimants and
defense fees. Cumulative legal fees sometimes exceed the cost of
liability.
It is noteworthy that these awards and settlements do not include the
fastest growing and costliest kind of claim—unpaid wage and overtime
claims—which typically are prosecuted as collective or class actions. When
discharged workers seek post-separation legal advice, they are likely to be
asked by counsel about possible entitlement to overtime pay. Consequently,
Fair Labor Standards Act (FLSA) of 1938 and state wage claims also are
likely to increase.
Risk Management before Layoffs
To reduce exposure to costly liability, it is imperative that proper
layoff criteria are adopted and a disparate impact analysis is performed
before final decisions are made. To
reduce risks associated with layoffs (especially age discrimination claims),
employers should consider the following.
- Identify appropriate criteria (e.g., length of service or seniority;
status of worker—all temporary, part-time, or contract employees;
documented job performance data; work functions remaining after a
layoff, etc.).
- Evaluate how individuals are selected for layoff and ensure
consistency in the process.
- Review layoff decisions to assess the risk of adverse impact on
protected classes, as well as justification for each selection decision.
With the "baby boom" generation getting older, older workers may be
adversely impacted because they are likely to be higher paid. As a
result of the Supreme Court's recent decision in
Meacham v. Knolls Atomic Power Laboratory, 06-1505, 128 S. Ct.
2395; 171 L. Ed. 2d 283 (June 19, 2008), it is increasingly difficult to
obtain dismissal of disparate impact age discrimination claims. An
employer irrefutably must prove an affirmative defense that its policy
or action was based on "reasonable factors other than age"—the "RFOA
Affirmative Defense." Indeed, if a claimant sets forth a genuine issue
of material fact as to any element essential to the affirmative defense,
the case is likely to proceed to trial, exposing employers—and their
employment practices liability insurers—to increased defense costs and
liability.
- Review earlier the protocol and results from previous reductions in
force to avoid legal challenges based on the failure to follow company
precedent.
- If severance is paid, obtain waivers of claims and general releases.
For employees selected for layoff over 40 years of age (regardless of
whether younger workers also were laid off), release agreements must
comply with the Older Workers Benefit Protection Act, 29 U.S.C. §
626(f). For more information regarding preparing "group" release
agreements which would withstand legal challenge please contact the
authors directly.
- Determine whether statutory notices of layoff are required under the
Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C.
Sections 2101-2109 (or state plant closing statutes). If WARN applies,
timetables for advance notification of employees must be followed.
Ana C. Shields is a
senior associate in the Long Island office of Jackson Lewis. Since joining
Jackson Lewis, Ms. Shields has practiced exclusively in the area of
employment litigation and has been involved in proceedings before federal
and state courts, the American Arbitration Association, and administrative
agencies. She has advised employers on compliance with various state and
federal laws affecting the workplace. Ms. Shields can be reached at
shieldsa@jacksonlewis.com or
(631) 247-4657.
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