New School Rules for Old School Wage Wars

By Christopher Ray

From the American employee’s perspective, the state of our wage and hour laws is grim and getting worse all the time. Earlier this week, Martha Neil, of the American Bar Association Journal, joined a growing outcry over seemingly pandemic levels of wage and hour violations by American businesses. (See link below). Many have begun to refer to these violations as “Wage theft”. One survey, which was released this past month, revealed that nearly 90% of fast-food workers in the U.S. believe they have been victims of wage theft. (See link below).

Earlier this year, “wage theft” protesters in numerous cities took to the streets in a national campaign to fight not just for better wages, but also for better-protected wages. (See link below). But what is more shocking is that evidence suggests that nearly half of the dollars lost to wage theft are lost to companies contracted by the federal government. (See link below).

Ask a plaintiff’s attorney why the working class hasn’t thrown off its chains in class-action lawsuits of apocalyptic proportions, even in cases where the facts are relatively clear. The answer you receive will probably come from a single case….. Wal-Mart Stores v. Dukes. You may remember this as the highly publicized class-action case where roughly a million working Wal-Mart women cried out at once, and were suddenly silenced by the conservative wing of the Supreme Court, who said that the class of plaintiffs was just too big and too diverse to properly litigate the case. (See link below). The Supreme Court in Dukes essentially told employers two things: First, that violations of labor and employment laws are best when done in bulk. The Supreme Court commented that the sheer size of the class (about a million people) made the potential factual variation among the plaintiffs too broad for a single case. Second, if an employer wants to be immune from suits based on discrimination, the best policy is no policy. Wal-Mart for instance delegates broad discretion to managers on determining who to hire, promote and fire. This kind of policy against discrimination made it impossible for the plaintiffs in Dukes to show what Supreme Court Justice Antonin Scalia said they would have needed; a showing of a general hiring policy that discriminates.

At the very least, the outcome of Dukes has persuaded attorneys to select much smaller classes to pursue these types of lawsuits at the federal level. The economic incentive just isn’t strong enough for the plaintiff’s class-action legal team to take on cases like these when there is so much uncertainty about what kinds of employee-classes can survive the opening salvos of litigation. At best, Dukes has forced federal class-actions to proceed with ever smaller and more specifically-tailored classes, which has lead to smaller recoveries without offsetting savings in litigation costs, and the data reflects that. (See link below).

So short of overturning Dukes, what has to be done? Some pretty bad solutions have already been proposed. The notoriously ineffective liberal wing of Congressional Democrats are demanding more enforcement, as if spending more government money to make it harder for businesses to widen their profit margins actually has political promise. (See link below). The geniuses at the far-right Cato Institute have suggested what might be called a ‘minimalist’ approach; to simply abolish wage and hour laws altogether. (See link below). But raising wages merely increases the amount of money available to be stolen. Upping enforcement is meaningless if workers reasonably fear (illegal) retaliation for filing complaints, especially for those workers living paycheck-to-paycheck who just can’t wait the average four-month turnaround time, or worse, who fear deportation should they exercise their rights. (See link below). We’ve already tried the libertarian approach; we called in the “Gilded Age.” But I think that the great state of Massachusetts, my adopted home, has already honed in on an elegant solution.

Massachusetts can be seen as an anomaly in terms of employment law for a number of reasons. It is one of the few states where union participation has been held relatively steady over the last ten years. (See link below). It has one of the highest minimum wage amounts in the nation, and soon, it will not only be among the first states to index its wage against inflation, but it will have the highest minimum wage amount in the United States. (See link below). Massachusetts has specialized protections for workers with criminal records and it started protected gays and lesbians from workplace discrimination more than twenty years before the landmark Windsor case. (See links below). Perhaps most importantly for our purposes, it is one of the few states that has properly incentivized the plaintiff’s bar to take what otherwise would be penny-ante wage and hour cases with just a few hundred dollars on the table.

Since 2008, successful plaintiffs in Massachusetts wage and hour lawsuits have been entitled to treble (triple) damages, all costs associated with litigation, and most importantly for the plaintiff’s bar, attorney’s fees. Theoretically, a proper lodestar calculation could yield damages for wage and hour violations to the effect of “$150 in recovery for a day of unpaid overtime, plus $2,500 for ten hours of reasonable attorneys’ fees.” (See link below). The Commonwealth, in its wisdom, takes wage and hour complaints seriously enough to make it worth the time of competent counsel. (Indiana has a similar statute.) And perhaps most importantly, it is a state law: cases brought purely under its ambit are immune to the bizarre conclusions of Dukes.

A properly-incentivized plaintiff’s bar is a private-sector solution to a problem of significant implications in social policy. The federal enforcement mechanisms have clearly failed; the laws are useless when plaintiffs fear to complain, knowing that their retaliation complaints could take almost as many months or years to handle as their actual original complaints. The federal laws have been hopelessly winnowed in their effectiveness by an irredeemably employer-obsessed Supreme Court, and no repairs to such laws are possible in the current political climate. But the states are making progress. Massachusetts has codified the simple proposition that employees won’t take the risk of lawyering up unless they know that there’s enough in it to be worth the risks to them – and lawyers won’t help without the same assurances. Now that the plaintiff’s bar has to proceed with smaller classes, thanks to Dukes, assuming much the same risks of large class-action litigation with little savings elsewhere, the only meaningful reallocation of that risk is to up the recoveries. The Massachusetts wage and hour statute is a great start, giving employees the tools they need to protect themselves from wage-theft, by creating powerful financial incentives against employer abuses. The rules that exist are fine: but without a powerful private enforcement tool like the Massachusetts state statute, the risks to employers for wage theft will never scale to the rewards.

You can find Christopher Ray on Twitter @RayAtLaw and on LinkedIn.

Links:

http://www.abajournal.com/news/article/Claims_of_wage_theft_spark_movement_to_increase_federal_enforcement_req/