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Labor and Employment Law

NERA Reports on Latest Wage and Hour Lawsuit Settlement Trends

 One of the most significant areas of litigation in the employment practices liability arena has been the employee lawsuits seeking damages for employer violations of federal and state wage and hour laws. But while these kinds of lawsuits remain important, many of the trends in the settlements have shifted in the most recent years, according to a recent study from NERA Economic Consulting. The July 14, 2015 report, entitled “Trends in Wage and Hour Settlements: 2015 Update,” can be found here. NERA’s July 14, 2015 press release about the report can be found here.

The report’s analysis is based on NERA’s database of 613 wage and hour case settlements during the period January 2007 through March 2015.

Based on their review of the settlements in the database, the authors conclude that during the most recent periods “companies continued to pay substantial amounts to settle lawsuits involving wage and hour violations.” The authors identified total wage and hour wage settlements of $445 million in 2013, $400 million in 2014, and $39 million through the first three months of 2015. The total aggregate amount for all settlements since January 2007 is over $3.6 billion.

But while the aggregate settlement figures have been and remain substantial, both average and median settlement amounts recently have been declining relative to prior years. For example, on average, companies paid settlements of $5.3 million in 2014, below both the $6.9 million average for the 2007-2015 period and below the $6.3 million average in 2013. The average for the first three months of 2015 was even lower; the average 1Q15 settlement was $2.8 million. The median settlement for the period 2007-2015 was $2.2 million, compared to median settlements of $3.0 million for 2013, $2.4 million for 2014, and $1.9 million for the first quarter of 2015. (The bar graphs accompanying the report’s description of these data show that the average and median settlements were substantially larger in 2007 and 2008 compared to the other years included in the analysis, suggesting that as time goes by the averages and medians will continue to drop as the early years constitute proportionately less of the overall data.)

More than half of the settlements in the data set (of those for which the number of plaintiffs was available) involved fewer than 1,000 plaintiffs. More than 86% of all of the settlements in the data pool involved classes of under 5,000 plaintiffs.

As average settlement values have decline, so too have the averages of settlement value per plaintiff. The peak settlement value per plaintiff was in 2011, when the per plaintiff value exceeded $1,400. The overall average per plaintiff settlement value during the period 2007-2015 was $1,097. However, the average settlement value per plaintiff declined to $686 in 2014 and to just $353 through the first three months of 2015. The cases with more plaintiffs tend have higher total settlements but lower settlements per person.

As has been the case in prior years, the most common allegations in 2014 and 2015 were allegations of overtime violations. In 2014 and 2015, the proportion of settlements that included minimum wage violations increased relative to prior years. The most common industries in all years were financial services/insurance, retail and food & food service. The authors found that in 2014 and 2015, there was an increase in the proportion of settlement dollars spent in the food & food services industry relative to prior years.

In 2014 and 2015, as in prior years, the majority of settlement dollars were paid out in New York and California.

The authors compared the settlements in their database to data available from the U.S. Department of Labor’s Wage and Hour Compliance Division. They found that nearly 60% of the companies with a wage and hour settlement between 2007 and 2015 also had been investigated by the DoL’s compliance division.

Readers of this blog know that in domestic Employment Practices Liability (EPL) Insurance policies, loss resulting from claims alleging violations of the wage and hour laws typically are excluded. The exception in recent years has been the inclusion of sublimited defense cost coverage, typically no more than $250,000, and in many cases as little as $100,000. In recent years, many carriers have tried to pull back even on this limited defense cost coverage, particularly for companies with exposure to California.

While domestic insurers generally will not insure the exposures associated with the requirements of federal and state wage and hour laws, insurance solutions to address these exposures have developed offshore. These solutions in some instances include liability protection as well as defense cost coverage. However, these kinds of solutions generally are available only for very large employers (currently, those with employee counts of 1,000 or greater). These insurance programs often include large minimum retentions ($100,000) and large minimum premiums, as well.

Watching the Headlines: It is just a guess, but I strongly suspect that the headline writer who captioned the July 19, 2015 Business Insurance article “Wall Street Reform Law Yet to Effect D&O Market” (here) actually intended to have the headline read “Wall Street Reform Law Yet to Affect D&O Market.”

2015 ACI D&O Conference in New York: On September 17 and 18, 2015, the American Conference Institute will be holding is 19th Forum on D&O Liability in New York. This annual event features an all-star line-up of speakers and will be co-chaired by my friends, Diane Parker of AWAC and Doug Greene of the Lane Powell law firm. Readers of The D&O Diary are eligible for a $100 discount off registration if they mention discount code DOD100. Information about the event including registration instructions can be found here. The event brochure can be found here.

 Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.

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