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Employment Practices

Do Employee Layoffs Equal Litigation?

Paul Siegel | April 1, 2009

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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.

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.

  1. 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.).
  2. Evaluate how individuals are selected for layoff and ensure consistency in the process.
  3. 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.
  4. Review earlier the protocol and results from previous reductions in force to avoid legal challenges based on the failure to follow company precedent.
  5. 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.
  6. 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.

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