Cases alleging wage and hour violations are an ongoing source of potential liability for employers in the United States. A significant number of these cases continue to be filed, both in state and federal court, and companies continue to pay substantial settlements.
Plaintiffs in wage and hour litigation allege that employers have failed to pay some compensation owed. Specific allegations may include off-the-clock work; unpaid overtime; missed, short, or late meal periods and rest breaks; misclassification of exemption status; failure to pay minimum wage; and/or improper tip pooling.
We have expanded our analysis of settlements in wage and hour cases to include 107 cases settled in 2011. In total, from 2007 through 2011, our data now contains 344 settlements.2 Aggregate settlement amounts for wage and hour cases have decreased in 2011: the mean settlement amount was $4.6 million for cases settled in 2011, lower than the mean in the prior four years. However, the pattern is different after controlling for the number of plaintiffs in the class and the length of the class period. The average per-plaintiff settlement amount has remained relatively steady at approximately $5,000 from 2009-2011, and the average per-plaintiff per-class period year settlement has increased from approximately $900 in the 2007-2010 period to $1,500 in 2011.
TRENDS IN SETTLEMENTS
Throughout 2011, wage and hour cases continued to settle at a steady pace. We identified 107 settlements in 2011, slightly more than the approximately 90 identified cases settled in both 2009 and 2010 and well above the publicized settlements in 2007 and 2008 (Figure 1).3 As we discussed in our original paper, the increase in settlements may reflect an increase in the number of settlements reported rather than an increase in the number paid.
For 78 cases in our database, the settlement amount was confidential and not reported in public documents. To resolve the 266 non-confidential wage and hour cases settled between 2007 and 2011, a total of $2.3 billion was paid, for an average of $8.5 million per case. The median settlement—the settlement at the 50th percentile of the distribution—was $2.5 million.
Aggregate settlement amounts have continued on a downward trend from 2007 through 2011. By year, the average settlement amounts per case decreased from over $20 million in 2007, to under $5 million in 2011 (Figure 2).
Average settlements can be affected by outliers—for example, a few very large settlements can lead to a big increase in the average. Here, though, outliers do not explain the observed decreasing trend. Median settlements, less affected by any outliers, also declined between 2007 and 2011, in tandem with average settlements. The median settlement in 2011 was $1.6 million, down from $12.8 million in 2007 (Figure 3).
Substantial variation exists in settlement amounts across cases. Approximately 27% of the cases settled for less than $1 million, while 12% settled for $20 million or more (Figure 4).
The distribution of aggregate settlements has shifted over time. In 2007 and 2008, very few identified settlements were less than $1 million. In 2009, 2010, and 2011, we find an increased proportion of these lower-valued settlements in the data, which brings down both the overall average and the median settlement amounts (Figure 5).
As noted in our original paper, the lack of settlements less than $1 million in 2007 and 2008 may be a result of data limitations to the extent lower-value settlements were systematically less publicized in earlier years. Alternatively, it is possible that fewer lower-value settlements were made in 2007 and 2008, perhaps reflecting differences in the underlying characteristics of the cases resolved during this time period. In 2011, the majority of cases settled for between $1 million and $2.5 million.
CHARACTERISTICS OF SETTLED CASES
Case-specific factors will affect the aggregate settlement amount for any case. These factors include, but are not limited to, the size of the potential class, the duration of any alleged class period, the number and type of allegations made in each case, and the jurisdiction involved.
While the public data on these case-specific factors is somewhat limited, where available, we collected data on these case characteristics for settlements in our database. With this data, we can see how settlements vary with these characteristics, as well as how the characteristics vary over time.
Settlements by Number of Plaintiffs and Class Period Years
The size of the damages alleged may be one of the factors affecting settlements. As such, two particularly important drivers of the variability in wage and hour settlements are likely to be the number of class members and the duration of the class period. Plaintiffs' alleged damages are often a function of the number of work-days in the class: more plaintiffs and a longer class period will lead to more work-days and higher alleged damages.4
For 263 of the 344 cases in our data, we were able to determine the number of plaintiffs participating in the litigation from the information published at the time of settlement. As shown below, approximately 150 of the cases had fewer than 1,000 plaintiffs, while a handful—six cases—had more than 100,000 plaintiffs (Figure 6).5
Limiting the sample to cases with information on both the number of plaintiffs and size of the settlements, we find that, as expected, settlements significantly increase with the number of plaintiffs in the case.6 In addition, we found that settlements ranged from less than $100 per plaintiff to over $25,000 per plaintiff (Figure 7). On average, from 2007 through 2011, the per-plaintiff settlement amount was approximately $5,600, and the median was approximately $2,700.
Mirroring the decline in average aggregate settlement values since 2007, average settlement values per plaintiff also dropped initially. But more recently, average settlement values per plaintiff have stabilized. The average per-plaintiff settlement in 2011 (approximately $5,000) was similar to the 2009-2010 averages (Figure 8).
The average settlement values per plaintiff also appear to be affected by the number of plaintiffs in a case. The underlying data reveal that the handful of cases with very large numbers of plaintiffs (over 50,000) tended to have smaller per-plaintiff averages than cases with fewer plaintiffs. In 2011, there were no cases settled with more than 50,000 plaintiffs.
For 161 of the 366 settlements in our data, we were able to extract the number of years in the class or collective action period. We find that the duration of the class periods ranged from one to 15 years, with five years being the most common (Figure 9).7
Cases with longer alleged class periods tend to have higher settlements.8 Over the entire period (2007 through 2011), the average settlement amount per year of the alleged class period was $0.9 million, ranging from a low of $30,000 to a high of $10.85 million per class year.
Approximately 30 percent of the settlements in our data (111 cases) had information on settlement value, number of plaintiffs and length of the class period (Figure 10). For these cases, we estimated that the average settlement amount per plaintiff-year was approximately $1,100.
Only a handful of the settlements per plaintiff-year were over $5,000, and just one case had a per-plaintiff-year average of over $25,000. This case, a suit against MetLife Bank, involved 37 plaintiffs alleging misclassification and a two-year class period. It settled in 2011 for $2 million, bringing the per-plaintiff-per class year average up to over $1,400 for the year (Figure 11).
Settled Claims by Type of Allegation and Jurisdiction
Other case-specific factors, including plaintiffs' allegations and the jurisdiction in which the case is brought, are also likely to have some impact on settlements.
While we are not able to capture case-specific information about the strength of particular allegations in our database, we are able to collect data and classify allegations into a number of broad categories. Wage and hour plaintiffs often make a number of allegations against an employer in the same case. For example, allegations of off-the-clock work (including donning and doffing cases) often go hand-in-hand with alleged overtime violations. Similarly, misclassification cases are often linked to overtime or minimum wage claims. Considering all such allegations over the period from 2007-2011, we find that over one-third of the allegations involved unpaid overtime, and approximately one-fifth of the allegations related to off-the-clock work (Figure 12).9
In 2011, the mix of allegation types for settled cases shifted slightly. Overtime claims made up a higher proportion of the allegations in 2011 than in prior years, with approximately three-quarters of all cases settled involving some type of overtime claim. Allegations relating to missed meals and breaks also increased in 2011, and there was a relative increase in the number of minimum wage claims included in settled cases in 2011 (Figure 13).
Additionally, we looked at the distribution of settlements by state. Because settlements may involve both FLSA and state cases—and may globally settle cases brought in multiple states—it is difficult to identify many clear trends in settlements along this geographical dimension. In all years, substantial wage and hour litigation activity occurred in California, both in terms of number of settlements and total settlement amounts paid. This pattern continued in 2011.
Limiting to settled cases with known state information, we find that about 45% of aggregate settlement payments were related to California cases this year, down from 75% in 2007 but higher than the 28% observed in 2009. At the same time, there was an increase in New York settlements in 2011, with approximately 20% of all settlement spending related to New York cases (Figure 14).
Settled Claims by Industry
Another case-specific factor that may impact settlements is industry. Over half of the settlement dollars over the 2007-2011 period were concentrated in two industries: the retail industry accounted for over a third of the settlement dollars, while the financial services/insurance industry represented over 20% of the total (Figure 15).
The average settlement amount also differed by industry. Over the 2007-2011 period, settlements averaged over $16 million for cases in the retail and technology industries, while cases involving defendants in the manufacturing industry settled for less than $3 million on average during this period.
Some allegations are relatively concentrated in specific industries. For example, both the retail and financial services/insurance industries have a substantial number of cases alleging overtime and off-the-clock violations. The retail industry has the most cases alleging missed meals and breaks, while most of the misclassification allegations occur in cases filed against employers in the financial services/insurance industrial group.
CONCLUSION
Companies continue to settle a number of wage and hour cases each year, with a large fraction of these cases involving allegations of unpaid overtime or off-the-clock work. This trend has continued into 2011.
The average settlement amount, however, has declined over this five-year period—the mean has dropped from over $20 million to less than $5 million per case, and removing large outlier cases from the analysis does not substantially change this pattern.
When we control for the number of plaintiffs in a case and years in the class period, however, we observe a relative increase in the average 2011 payment.
Even after controlling for number of plaintiffs and length of class period, we still see substantial variation in the magnitude of wage and hour settlements across cases. This variation is likely tied to the nature of the allegations, jurisdiction, and relative strength of the plaintiffs' claims, and can be investigated further as the size of our dataset increases.
Footnotes
1 We thank Mary Elizabeth Stern for her peer review and Neil Fanaroff and Shawn Qian for additional research assistance.
2 Data obtained from Law360 based on an evaluation of articles published between 1 January 2007 and 31 December 2011. Analysis also included a review of the Seyfarth Shaw annual litigation reports for 2007 through 2011. Additional case-specific details were obtained from Factiva. While this data collection methodology yielded a substantial number of wage and hour settlements, particularly those with large settlement amounts and/or large classes, it is not likely to be comprehensive. Also, due to incomplete information, we excluded the Wal-Mart Multi-District Litigation settlement in 2008, which resolved 63 wage and hour class action cases for over $600 million.
3 In this update, we supplemented our original data by expanding our review to include additional search parameters. As such, the number of settlements reflected in this paper for the 2007-2010 period is higher than was reported in our original paper.
4 One driver of class size and class period length is venue. Cases filed at the federal level, under the Fair Labor Standards Act (FLSA), are typically "opt-in," requiring plaintiffs to actively elect to participate in the class or collective action. Other cases in state court may be "opt-out," with all employees named in the complaint considered class members unless they chose to withdraw from the class. Very large numbers of employees may be involved in these "opt-out" cases. States also have different statutes of limitations related to wage and hour allegations, so alleged class periods may tend to be longer in some jurisdictions than others.
5 Includes all settlements with known plaintiff counts, including those where the settlement amount was confidential.
6 Using regression analysis, we find that for the 218 cases in our database with counts of plaintiffs and settlement amounts, there is a statistically significant positive correlation between settlement size and number of plaintiffs in the case.
7 Includes all cases with known class period information, including those with confidential settlement amounts.
8 Using regression analysis, we find that for the 120 cases in our database with known class periods and settlement amounts, there is a statistically significant positive correlation between settlement size and number of years in the class.
9 Includes all cases with known allegation information, including those with confidential settlement amounts.
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