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An Economically Rational Approach to Resolving Wage and Hour Claims In California

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In this three-part article*, California employment attorney Patrick Kitchin describes an economic-based approach to resolving wage and hour cases.  His approach to case resolution is designed to conserve a company’s resources and minimize its exposure to future claims.  In Part 1 Kitchin describes how employers can identify those cases that are best suited for prompt and confidential settlement.

In Part 2 Kitchin uses three wage and hour cases to demonstrate how different case management decisions led to dramatically different results for three employers.

Finally, in Part 3, Kitchin discusses how early case management decisions based on the economic realities of the wage and hour litigation process generally lead to the best outcomes for employers.

Introduction

Employers sometimes respond to employee wage and hour claims in ways that cause them to sustain unnecessary financial loss and workplace stress.  They pay more money in attorneys’ fees and litigation costs than they should.  They sacrifice the time and resources of key employees over the course of litigation lasting a year or more.  And they expose their workforce to the stress of an ongoing lawsuit, leaving employees guessing as to what is happening in the case or, worse yet, directly participating in the proceedings.  People take sides.

Once litigation begins these same employers produce reams of internal documents to the employee’s attorney whose singular goal is to take as much money away from the company as the law permits on behalf of as many of the employer’s workers as possible. To add even more workplace stress and potential future loss to the equation, employers expose themselves to an increased risk that other employees will assert similar claims against them as they learn about the claims and the law.

All of these things can happen as a result of decisions employers make or fail to make within days of learning about an employee’s wage and hour claim.   Whether employers are guided by their attorneys, who generally have a financial interest in defending the claims[2], or by the employer’s emotional reactions to the claims, early case management decisions have significant consequences. 

In this article I examine some of the consequences that flow from decisions employers make when faced with certain kinds of wage and hour claims.[3]  Using three of my firm’s recent cases as examples, I show that under certain conditions the only economically rational choice is to move a wage and hour claim toward resolution as quickly as possible.

The Right Strategy for the Right Case

Within days of receiving notice of a wage and hour claim[4], an employer should begin to develop a strategic response plan based on the key characteristics of the claim.

Identifying cases that should be resolved expeditiously and confidentially is usually fairly straightforward.  Such cases generally have three common characteristics:  (1) the employee has asserted at least one valid wage and hour claim in court[5]; (2) the valid wage and hour claim will require the employer to pay the employee’s attorney’s fees at the end of the case; and (3) the employee has retained an attorney.[6]

Defending cases with these three characteristics through the litigation process generally results in poorer outcomes for an employer than can be achieved through settlement at the beginning of the case—even if the employee’s claim is exaggerated.[7]

When faced with claims displaying all three of these characteristics, an employer should carefully answer three preliminary questions:

First, how much money and other resources should the employer commit to defending the claim?  Though this is an obvious initial inquiry, it requires the employer to engage in a thoughtful and candid assessment of the probable costs of proceeding through various stages of the litigation process.  The civil discovery process in a wage and hour claim can subject an employer to tens of thousands of dollars in attorneys’ fees and costs.  Is the investment appropriate?

Second, how long should the employer remain engaged in the dispute?  The consequences of remaining locked in a fight with an employee are significant.  Co-workers and managers will need to be interviewed.  The employee’s attorney will take the depositions of key employee witnesses, from supervisors to co-workers.  Employees will talk about the case among themselves and with family and friends, despite instructions to the contrary.  The workplace and the attitudes of current employees will be affected.  Former employees will learn that a former co-worker, perhaps one who had the same duties, has sued the employer for unpaid wages.  As employees learn about the claims and spend time talking with the employee and her attorneys, some of them will entertain thoughts of suing as well.  Not infrequently, one or more of them will be represented by the same lawyers.

Third, how important is it to the employer to demonstrate that it will resolutely defend any similar claims and invest the time and money necessary to defeat them?  Although employers are inclined to focus on deterrence, it is the least consequential of the three inquiries an employer should undertake when faced with valid wage and hour claims.  The more time the employee is engaged in the fight, the more likely other employees will learn of the allegations and bring similar claims.  Defending these kinds of wage and hour claims is more likely to increase the risk that the employer will be sued again than to deter others from asserting similar claims.  The risk is amplified when the employer has a high turnover rate.  Former employees are more likely than current employees to filed wage and hours claims against an employer.


[1]© 2013 Patrick R. Kitchin

[2] If an employer’s attorneys are compensated on an hourly basis, they have an incentive to work as many hours as possible on the case.

[3] “Wage and hour” claims are those that relate to the payment of wages and the provision of other benefits of employment that are either imposed on the employer by law or established by contract between an employer and employee.

[4] Included in the category of wage and hour claims are those claims made by an employee directly to the employer, claims asserted through any process established by contract or by a collective bargaining agreement, claims asserted through a governmental administrative process, such as the U.S. Department of Labor or the California Division of Labor Standards Enforcement, demands for non-judicial arbitration and cases filed in the United States District Courts and California Superior Courts.

[5] By “valid,” I mean a claim that the employer or its legal advisors believe has validity.  For example, the employer knows that some days the employee worked more than 8 hours, but was only paid for 8 hours.  The employer knows the employee’s claim for overtime wages is a valid one.

[6] Under California law employees are entitled to their attorneys’ fees if they prevail at trial in court or, generally, in binding arbitration.  Employees are not entitled to attorneys’ fees if they seek their wages through an administrative process at the California Division of Labor Standards Enforcement or the U.S. Department of Labor.  Sampson v. Public Parking Service 2000 Com., Inc. 117 Cal.App.4th 212,223 (2004); and Bell v. Farmers Ins. Exch. 115 Cal.App.4th 715, 746 (2004).

[7] Settlement of such cases does not require the employer to pay the full amount the employee demands.  In almost every case, the employer will be in a position to negotiate the demand down in value.

* PART TWO OF THIS SERIES CAN BE FOUND  :An Economically Rational Approach to Resolving Wage and Hour Claims In California 2

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Biography

Patrick R. Kitchin
Kitchin Legal,
APC

Patrick Kitchin is a graduate of The University of Michigan Law School and has practiced in California since 1992.  Patrick represents and advises employers and employees in all aspects of labor and employment law.  Patrick also represents and advises businesses in a wide range of other matters, from business formation to dissolution.

Kitchin Legal’s Flat Rate Employment Policies and Practices Audit provides business owners and managers a tool for assessing a company’s litigation risk profile and a platform for implementing policy and practice changes to reduce litigation risks.

Patrick is an active member of the California Bar Association, the Bar Association of San Francisco and the Alameda County Bar Association. He serves as vice-chairperson of the Alameda County Bar Association’s Labor and Employment Law Section Executive Committee.

Patrick is ranked “A-V®” by Martindale-Hubbell®, its highest peer-review rating for legal knowledge, skill and ethics.

Patrick can be reached at (415) 677-9058 or by email at prk@kitchinlegal.com.  Kitchin Legal can be explored at www.kitchinlegal.com.

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