Economic Downturn, Rising Unemployment: More Labor and Employment Litigation
Companies are seeing a litigation wave that corporate counsel expect to swell in the coming year, according to respondents of Fulbright & Jaworski’s 6th Annual Litigation Trends Survey Report, and labor and employment disputes will account for a significant number of those lawsuits. In fact, labor and employment was cited by 45 percent of respondents as the most numerous type of litigation pending in 2009, and about four in 10 of all respondents have seen increases in wages and hour multi-party labor and employment cases this year.
Corporate counsel say they are steeling themselves for a big year of litigation with 42 percent of US respondents anticipating an increase in legal disputes their companies will face in the next 12 months. That is up from 34 percent last year.
The expectation comes during a year when 83 percent of US respondents reported that new litigation has been commenced against their companies in the past year, up from 79 percent last year. More than one-third of companies say the economic downturn has resulted not only in an increase in their litigation caseloads, but also their use of alternative fees. Tighter cost control, more than anything else, is the most important way in which the economic crisis has affected litigation management, respondents say.
“Generally, litigation rises in an economic downturn as regulators tend to step up enforcement, laid-off workers head to court and companies need to file more suits in order to collect on money owed,” said Stephen C. Dillard, head of Fulbright’s global litigation practice. “Perhaps most telling about this year’s results is that companies across the spectrum expect no substantial decreases in any area of litigation.”
This is the sixth year that Fulbright has polled corporate law departments in the US and UK on the state of global litigation. The survey, initially launched by Fulbright in 2004, is the largest canvas of corporate counsel on litigation issues and trends.
Litigation: Where has it gone? Where is it going? Companies agree on what is bothering them most. From small-cap to large-cap, from private to public, from the US to the UK, the main problems are the same: In light of the downturn, companies face big increases in bankruptcy, contracts and labor/employment litigation. More modest increases have been cited in intellectual property, insurance and regulatory actions.
Don’t forget about the whistleblowers. Regulatory investigations and whistleblower allegations are expected to eat up litigation resources in the year ahead. Looking to 2010, 16 percent of all respondents (and 23 percent of large-caps) say they expect the number of internal investigations involving their company to increase. Industry-wise, approximately 20 percent each of financial services, insurance and technology companies expect internal investigations to rise in the coming year. This tracks expected increases in whistleblower cases: 24 percent of all respondents and 31 percent of large-cap companies expect the number of claims brought by whistleblowers in their industries to go up.
A brief look back. In both Fulbright’s 2006 and 2007 surveys respondents reported declines in actual litigation filings. Then, in last year’s survey, corporate counsel anticipated an uptick in new actions and government probes. Last year’s predictions were right. Large-cap companies took the brunt of big cases during the past 12 months, with 39 percent reporting having faced one or more $20 million-plus suit last year, and a striking 54 percent of large-caps reporting having a case go to trial in the past 12 months. (In fact, large portions of companies across industries faced trial last year, with the exception being real estate companies, of which 13 percent went to trial).
With bigger size sometimes comes bigger payouts: Of the 97 large-cap companies that had a case go to trial last year, 15 percent report higher damage awards than prior periods versus 2 percent of large-caps reporting lower awards.
A closer look at labor and employment litigation. As the economy dips and unemployment spikes, the unemployed sue their former employers in greater numbers. For the second straight year, survey respondents report sizeable increases in multi-plaintiff cases in the area of wage and hour disputes (up 15 percent), age discrimination cases (up 11 percent) and disability discrimination (up 8 percent). Corporate counsel also report increases, during the past 12 months, in race discrimination cases (up 10 percent), sex discrimination cases (up 11 percent), religious discrimination cases (up 4 percent) and ERISA cases (up 4 percent).
According to the survey, the three types of employment claims that create the greatest monetary exposure for a company are: age (35 percent); race (21 percent); and harassment (30 percent).
What types of labor suits? Wage and hour disputes remain the primary concern when it comes to multi-plaintiff cases. On the class action front, labor/employment account for 40 percent of cases (while consumer litigation comes in second, and securities litigation third).
Which area of labor/employment litigation has seen the biggest jump? Nearly 40 percent of respondents point to wage and hour, with misclassification, overtime and meal and rest break claims accounting collectively for the vast majority of wage and hour cases, and with minimum wage cases accounting for the remaining 6 percent. The wage and hour case trend started several years ago when plaintiffs lawyers discovered that state and federal law in this area provided the basis for recovery of small amounts per employee for events or practices covering hundreds of workers, but in addition attorneys’ fees, and in some cases double damages. In the past year, discrimination cases have seen the greatest jump as employees lose job security or the jobs themselves.
Sex and race. Sex discrimination cases came in second and race cases came in third. And when asked which labor and employment area has seen the greatest increase—when looking at both multi-plaintiff and single-plaintiff cases—54 percent of respondents said discrimination, while only 25 percent said wage and hour, again attributable to the depressed job climate and related reductions in force.
California bound For wage and hour claims. US respondents say that nearly half of all suits are filed in California because of that state’s more protective laws. While some other states have state laws that are more restrictive than the federal Fair Labor Standards Act, none seem to be as generous as the Golden State.
A word on arbitration. Company-required arbitration is down from a year ago when 25 percent of US companies were requiring it. About 60 percent of small companies and almost as high a percent of the largest companies surveyed estimate the average cost to arbitrate a single-plaintiff employment case to its conclusion ranges below $100,000, yet in litigation, more than half of the companies surveyed with $1 billion or more in revenues spend $100,000 or more per employment case. However, more than 80 percent of all respondents view the arbitration process as beneficial from an employee relations standpoint, according to the survey.
Web 2.0. Given the popularity of social technology websites, such as Facebook, MySpace and Twitter, this year Fulbright asked how companies are restricting use of these sites among their employees.
Rate of restriction. Fulbright’s survey indicates that 46 percent of US respondents restrict some mix of Facebook, MySpace, Bebo, LinkedIn, Plaxo, Twitter and YouTube, while 52 percent of UK respondents reported restrictions. In the US and the UK, Facebook, MySpace, Bebo and YouTube are the most commonly blocked sites. Notably, tech companies are the least likely to block social networking sites, with 56 percent of tech companies who participated in the survey saying they have no restrictions on such sites.
In the past 12 months, 8 percent of companies that participated in the Fulbright survey report having been required, as part of discovery in the US or disclosure in the UK, to produce electronically stored information (ESI) from one of the above sites. But ESI production from social media sites appears to be more common in the UK: 18 percent of UK respondents reported having had to produce ESI from a social media site in the past 12 months versus only 4 percent of US companies.
Gearing up for litigation. What have in-house counsel done to gird their companies for legal battle? Hire and budget.
This year, 48 percent of large-cap respondents indicate they now employ six or more in-house lawyers to manage or conduct litigation, up from 26 percent last year. It appears, however, that in-house hiring will cool. Only 11 percent of respondents forecast an increase in the number of in-house litigators over the next 12 months.
With litigation on the rise and resources on the wane, Fulbright asked in-house counsel about their planned budgets for the coming year. Budget increases largely track anticipated areas of concern: 18 percent of respondents say they plan to increase their budget for labor/employment litigation and 14 percent will up the amount spent on contract disputes. Meanwhile, 11 percent say they will spend more on regulatory and investigations work, while 16 percent are planning to spend more on e-discovery.
“While companies aren’t necessarily spending less on litigation, in-house counsel are finding other ways to cut costs,” Dillard said. Cost-cutting measures include in-sourcing e-discovery, using law firms with specialized e-discovery practices and outsourcing certain e-discovery functions through preferred provider relationships. Stricter document retention policies, such as systematic destruction, also help keep discovery costs down.
About the survey. Fulbright’s 6th Annual Litigation Trends Survey Report was conducted from May through July 2009 by Greenwood Associates, a business research firm in Houston that has produced previous editions of the report. The survey, launched by Fulbright in 2004, is the largest polling of corporate counsel on litigation issues and concerns.
Fulbright’s 2009 survey asks companies to consider, among other things, what types of litigation most concerns them, where they’re spending limited budgets and how they are adjusting approaches to litigation management in light of the downturn. This year's survey also delves into special topics, such as how companies are dealing with rising e-discovery costs and employee use of social media Web sites, such as Facebook and Twitter.
The survey reflects information collected from 408 company lawyers—13 percent more respondents than last year—most of whom identify themselves as either general counsel or head of litigation. Companies polled are both public and private, and span industry groups, from education to energy, engineering, financial services, healthcare, insurance, manufacturing, real estate, retail and technology. A quarter of respondents do business in at least 11 countries. Companies in the survey also are well-represented by size: 16 percent report revenues of under $100 million, while 31 percent have revenues between $100 and $999 million, and another 53 percent are at $1 billion and above.
Reprinted with permission. © CCH
(Submitted Oct. 2009)
<p>Companies are seeing a litigation wave that corporate counsel expect to swell in the coming year, according to respondents of Fulbright & Jaworski’s 6th Annual Litigation Trends Survey Report.</p>
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