Violations of statutory wage and hour requirements represent a very big problem for corporate employers. Cumulative payouts in private lawsuits and government enforcement for wage payment violations run into the billions, according to a new report from an organization called Good Jobs First. The June 5, 2018 report, entitled “Grand Theft Paycheck: The Large Corporations Shortchanging Their Workers’ Wages” (here), details the findings from an analysis of private collective actions since 2000 and regulatory enforcement actions in eight states, concluding that the litigation and enforcement activity has involved thousands of claims and resulted in billions of dollars in payouts. But, as detailed below, as a result of a recent U.S. Supreme Court decision, the trend lines could take a different direction in the future. The June 5, 2018 press release from Good Jobs First about the report can be found here. The background data and detailed analysis reflected in the report can be found here.


The report is focused on lawsuits and regulatory actions alleging violations of federal and state wage and hour laws. The typical allegations involve, for example, claims that employees were forced to work off the clock or deprived of required overtime pay.


The findings in the report are based on analysis of 1,283 collective lawsuits involving wage law violations brought against large companies since 2000. These cases resulted in aggregate payouts of $8.8 billion.


The report also analyzed actions against large employers pursued by the U.S. Department of Labor and by regulatory agencies in eight states (California, Illinois, Kentucky, Massachusetts, Minnesota, Missouri, Pennsylvania, and Washington). These regulatory actions involved 4,220 cases against large employers that generated total payouts of $9.2 billion. The two categories of actions together amount to payouts of over $18 billion.


The report’s authors also found that the payouts tend to fluctuate from year to year. The highest annual total for payouts was in 2016, when the total amounts reached $1.3 billion. In 2017, the total was $732 million, the fourth-highest yearly total.


The authors also found that the private lawsuits were not even distributed around the county. Of the 1,283 lawsuits analyzed, more than half came from a single state, California (which has its own labor code, often enforced separately or in combination with the federal wage and hour laws).


As a result of multiple actions and very large class action payouts, some companies have had to pay massive amounts in connection with these kinds of actions. For example, at the top of the list, Walmart has paid out a total of $1.4 billion in various actions. FedEx is second on the list, with payouts totaling $502 million. Many of the companies at the top of the list for total payouts are in the financial services industry, including Bank of America ($381 million); Wells Fargo ($250 million); JP Morgan Chase ($160 million) and State Farm Insurance ($140 million). The top 25 list includes companies in a variety of other industries, including telecommunication, information technology, pharmaceuticals and investment services.


The very largest companies accounted for the bulk of the actions in the database. Companies listed on the Fortune 500, the Forbes list of the largest privately held companies, and the Fortune Global 500 represented half of the cases.


Very large individual settlements accounted for a large portion of the total dollar payout. There are seven separate settlements over $100 million, including the largest, a $640 omnibus settlement by Walmart resolving 60 lawsuits. Two FedEx settlements exceeded $200 million. Walmart also leads the list of the largest verdicts, with a judgment of $242 million, and the list of the largest single administrative-case fine, $33 million to the U.S. Department of Labor.


The report notes that its analysis is based only on payouts that have been publicly disclosed. In many cases, the employers have successfully petitioned the courts to keep the details of the settlements confidential. The report notes that the authors were able to identify 127 confidential settlements involving 89 large companies. The report also does not include any awards in arbitration actions. Presumably, the payouts in these confidential settlements and arbitration actions would swell the aggregate total payouts to even higher levels, as would the inclusion of results of regulatory actions in the states other than the eight specific states included in the study.


As might be predicted, many of the settlements involve employers in lower-wage jobs, such as cashiers, cooks, and security guards. Interesting, many of the settlements also involved employees in higher paid positions, including nurses, pharmaceutical sales representatives, and stockbrokers.


The presence of these higher wage workers may point to one of the problem areas for employers – that is, figuring out who is exempt from the wage and hour law requirements. In a June 6, 2018 article about the report (here), the Wall Street Journal quotes one legal expert as saying that the law that governs overtime eligibility isn’t entirely black and white; “there’s a lot of gray, and that’s a breeding ground for litigation.”


One particularly interesting finding in the study is that of the ten most penalized industries, all but two employ large numbers of women according to data from the Bureau of Labor Statistics. In addition, in about half of the top ten industries, the percentage of black and latino workers is greater than in the workforce as a whole.


The Journal article to which I linked above quotes several commentators as saying that there may be “far fewer” wage and hour law class actions in the future, as a result of a recent U.S. Supreme Court decision.


On May 21, 2018, in the case of Epic Systems Corp. v. Lewis (here), a 5-4 majority of the court ruled employers can require workers to sign arbitration agreements with class action waivers as a condition of employment. These kinds of agreements could require workers to bring wage and hour disputes in arbitration rather than through litigation, and on an individual basis rather than on a group basis. This development could reduce the likelihood of the kinds of “astronomical payouts” that sometimes result in wage and hour class actions.


For readers of the blog, one question of interest is the extent to which any of these payment amounts were funded by insurance. The likelihood is that very little of these payment amounts were paid for by insurers. Most Employment Practices (EPL) insurance policies contain express exclusions for actions alleging violations of the wage and hour laws. Most insurers take the position that insurance of amounts not paid to employees in violation of wage and hour laws would represent a moral hazard, as the insurance could encourage employers to withhold compensation due. On a practical level, insurers don’t want to be in a position where employers underpay their employees and then try to pass the bill for the underpaid amounts to their insurer.


Some insurers offer a Wage and Hour law extension, but on a very limited basis –usually for very modest sublimits ($250,000 or less) and for defense expense only. There are products available in London and Bermuda that are designed to provide to very large employers indemnity protection for wage and hour law liabilities; however, these products are often subject to very large self-insured retentions (as much as $5 to $10 million), often include co-insurance, and come at a steep premium.