Survey blames class action spike in-part on surge in 'employee activism'
Labor and employment class actions accounted for 43.4% of legal departments' class action matters in 2023 – an increase of nearly 10 percentage points from a year earlier.
A new study from Carlton Fields shows that labor and employment (L&E) class action lawsuits climbed in 2023; accounting for 43.4% of legal departments’ class action matters in 2023. This was an increase of nearly 10 percentage points from the 33.6% reported in 2022.
The Carlton Fields Class Action Survey said the increase in L&E class actions was occurring as “employee activism surges.” Other major contributors were tension over hybrid work policies, layoffs, growing discrimination claims, and unionizing attempts reaching a 40-year high.
That’s reflective of a long-term trend that survey respondents expect will snowball. Asked what will drive the next wave of class actions, 39.4% identified L&E, with no other class action category even close. Number 2 was data privacy/cybersecurity at 25.5%.
The survey was based on interviews with 332 chief legal officers, general counsel or their direct reports. Surveyed companies spanned a wide range of industries and had median annual revenue of $16.1 billion.
L&E class actions long have stretched legal department budgets, a reality the latest activity exacerbates. Along with accounting for 43.4% of total matters in 2023, L&E class actions accounted for 38.9% of spending, the study found. A distant number 2 was consumer fraud class actions, which accounted for 18.8% of matters and 18.9% of spending.
The L&E activity is occurring against a backdrop of class action litigation increasing overall. In 2023, U.S. companies spent $3.9 billion defending class actions, Carlton Fields said. Legal departments spent 14.6% of their budgets fighting class actions last year, up from 14.4% a year earlier, the study found.
“Because labor and employment already is the largest share of class actions being filed, it stands to reason that as filings grow generally, labor and employment filings will grow in proportion,” said Matt Allen, one of the authors of the study and chair of Carlton Fields’ national class actions practice.
To mitigate the growing threat of L&E class actions, Carlton Fields recommends that companies scrutinize their labor and employment practices for potential vulnerabilities. On the wage-and-hour front, for instance, departments can conduct audits to ensure compliance and proper employee classification.
Carlton Fields said two potential tools to head off class actions—requiring that employees sign class action waivers or agree to resolve disputes through arbitration—are falling out of favor among employers, as the perception grows that they are unfair to workers.
The study found that 41.2% of survey respondents do not use mandatory arbitration provisions, up from 29.4% a year earlier. “Companies report the reduction is due to regulatory scrutiny and public pressure,” the study said.
The study recommended that legal departments engage in early case assessment and aggressively seek to ferret out meritless claims by swiftly filing a motion to dismiss for failure to state a claim.
Allen opined that the most effective tool to reduce and control costs is relying on trusted counsel. The study said that working with a small number of firms leads to more trusting relationships, improved dialogue at matter inception, a stronger understanding of client goals, and improved cost controls.
On the other hand, working with a large number of firms can cause legal departments to miss out on those benefits while burdening in-house teams with management headaches that can offset whatever benefits bringing additional law firms into the fold might provide.