Wage & Hour Class Action Lawsuits: Little Mistakes add up to a lot of Money

October 4, 2007

A Federal Court judge in Philadelphia added another $62.3 million to a previous $78.5 million class action award for Wal-Mart workers who were working off the clock. The additional award was under Pennsylvania’s Wage Payment and Collection Law (WPCL) which, among other things, imposes penalties on employers that don’t pay wages within 30 days of the time they are due. The WPCL penalty is the greater of $500 or 25% of the unpaid wages. The additional award pays each of the 125,000 class members $500 each.

Class action wage & hour lawsuits pose a significant risk to large employers as observed in a recent BusinessWeek article. Class action cases are attractive to employees and lawyers because dollars grow quickly and attorney’s payoffs are big. Some of the specific aspects of these suits are as follows:

1)      Calculations of Damages under the FLSA.    Awards to class members consist of back pay (for a period of two or three years); back pay may be doubled for willful violations as liquidated damages; interest and attorneys fees. Sometimes examples can better make a point. Employers can mismanage lunch periods by automatically deducting 30 minutes a day from employee’s pay. An employee may later allege he or she regularly worked through lunch. For an employee, who is paid $12.00 per hour and who work only 40 hours per week, the mismanaged 30 minute lunch yields 2 ½ hours of unpaid overtime each week. That’s fifteen dollars of unpaid overtime a week, for 52 weeks, for 2 years, for one employees or a total back pay of $1,560. Then the amount is doubled for a grand total of $3,120. For a small employer with 20 employees that amounts to $62,400.00. For Wal-Mart with 100,000 employees, it amounts to $624 million.

2)    Ease of Proof in Class Actions. Class action claims involve challenges to employer’s policies or practices that implicate a large group of similarly situated individuals. There is a relaxed standard of proof for the individual employee. Therefore, the particular facts of each employee’s situation are less important, so long as the policy or practice applied to them.

3)    Attorneys Fees. The FLSA provides for attorneys fees award to successful litigants. Typically legal fees in a class action dwarf recoveries by individual class members. Contingent fees are typical. Imagine 20-30% of $62.3 million. Although classifying the fees as “excessive” is the subject of some debate. The race to the courthouse for some class action cases has lead to allegations of kickbacks and other attorney misconduct.

I have previously posted on wage and hour issues that could be the subject of class action claims.

The Five Most Common Wage and Hour Mistakes

Wage and Hour Violations: What are the Consequences?

Ten Tips for Surviving a Wage and Hour Audit