Staff are suing their employers like never before in the US. Companies are hoping the Supreme Court can intervene. Sue Reisinger reports

What could bank loan officers, bartenders, phone company engineers, financial research associates, exotic dancers, drugstore assistant managers, computer technicians, janitors, paramedics, delivery truck drivers, exterminators, waiters, cable TV repair workers and chicken processors all possibly have in common? Well, at least this: Each group sued their employers over pay issues in 2010.

And for that they share a special place – they are part of why wage and hour lawsuits under the US Fair Labor Standards Act jumped to record levels last year. Workers filed nearly 6,800 suits, or some 700 cases more than the year before. Most of these were filed as collective or class actions, even though the number of non-employment class actions remained stable.

If you add this increase to the soaring number of worker discrimination complaints, then it is clear why employment lawyers like Gerald Maatman (pictured) are receiving more and more calls from worried general counsel. Maatman says the lawyers complain that employment litigation is devouring the lion's share of corporate legal resources. A Seyfarth Shaw partner who splits his time between New York and Chicago, he relates this lament from in-house counsel: "We don't want to be the target of a workplace class action this year. It will break the budget. Help!"

Unfortunately for these general counsel, there is a perfect storm of workplace litigation swirling around them. Ellen Hoadley, whose firm, Lexington Insurance Company in Boston, insures businesses against worker claims, has watched the storm clouds gather each year. Hoadley recalls recently hearing one defence counsel complain" "For the plaintiffs Bar, employment law is the new slip-and-fall."

From the legal department's perspective, the pressures are building on several fronts. First, many workers seek to sue when they are caught in extensive layoffs, company closings and the general job insecurity that accompanies troubled economic times. After all, the workers often have nothing to lose.

Then comes the increased activism by the Obama administration in both discrimination and wage and hour claims. For example, in 2010 the US Department of Labor hired some 200 additional field investigators to strengthen its enforcement efforts. Now some defence counsel complain that federal agencies are turning what used to be small, resolvable workplace matters into full-scale investigations and class actions.

At the same time, the plaintiffs Bar is pursuing novel theories. And the US Supreme Court is recognising some of them. For instance, in January the high court ruled that the law protects third parties from retaliation in addition to the person bringing the original discrimination claim. The case involved the firing of a man three weeks after his fiancee, also an employee, filed a discrimination complaint. Ordinary retaliation claims were already rising before this ruling; now they will only grow.

Even Congress has piled onto the companies' burden. Last year it broadened protections in the Americans with Disabilities Act and passed another law, called the Genetic Information Nondiscrimination Act (GINA), that added a space-age category of discrimination. Guidelines for GINA took effect in January. They make it illegal for employers to use genetic or family information in hiring, firing or promotion decisions.

With all these rapid changes across government entities, no wonder general counsel are having a hard time putting controls on the legal spend. Could things get any worse? Maybe, but they also could get better, some experts think. Maatman, for one, calls 2011 "a make-or-break year" for workplace litigation. "The US Supreme Court's acceptance of three cases for review may signal a coming transformation," he says.

One area where corporate counsel have high hopes for change involves limits on class actions. The bellwether case this year is lead plaintiff Betty Dukes' gender bias suit against Wal-Mart Stores, now before the US Supreme Court. The high court agreed to decide whether certification was proper and if monetary damages are appropriate in the case. Wal-Mart, of Bentonville, Arkansas, is appealing the lower court's certification of a class of 1.5 million current and former female workers over pay and promotion issues.

In certifying the class, the lower court said it found that there was significant evidence of centralised corporate-wide practices involving sexual stereotyping and excessive subjectivity in personnel decisions, as well as statistical evidence of gender disparities and anecdotal evidence of gender bias. The court said it saw a "common pattern" of Wal-Mart's discrimination against women workers nationwide.

In its brief to the court, Wal-Mart argues that millions of discretionary personnel decisions on pay and promotions by thousands of individual managers defy any common pattern of treatment. The brief challenges plaintiffs' statistics as defective and insufficient. And it claims that over 90% of the stores had no significant pay rate differences between men and women, so the aggregated statistics cannot support the commonality needed for a class action.

But the plaintiffs' brief, filed in late February, argues that women's pay lags far behind that of male employees in every major job in each of the company's 41 regions. Their brief says that overwhelming evidence supports the lower court's class certification order. And it insists that overturning that decision would dismantle the "fundamental pillars" of the Civil Rights Act employment discrimination laws.

A host of companies have filed amicus briefs in support of Wal-Mart, along with numerous foundations and associations. Filing one group brief were Altria Group; Bank of America; Cigna; Del Monte Foods; Dole; Dollar General; EI du Pont de Nemours; Fedex; General Electric; Hewlett-Packard; Kimberly-Clark; McKesson; Microsoft; NYSE Euronext; Pepsico; Tyson Foods; United Health Group; United Parcel Service; Walgreen; and The Williams Companies.

Intel and its general counsel Douglas Melamed felt so strongly about the case that the company filed its own brief urging a limit on class size. It's an important issue to Intel, because Melamed's company faces nearly 100 putative class actions of various types, with a new one added every year for the past 10 years, according to its brief.

Intel's brief argues that large class actions create "blackmail settlements". It refers to "bet-the-company litigation, even for a company of Intel's size". Melamed explains that even if a claim is weak, the aggregate value of the case can be so enormous that the risk is too great for a company to reasonably take. Just the cost of deposing tens of thousands of plaintiffs could be overwhelming, he says.

Intel did not take a position on the merits of the Wal-Mart case, Melamed adds, but focused solely on what is called rule 23. The rule is a procedural device that is applied by federal judges in deciding whether to certify a group as a class. Another part of the rule that is usually applied in cases seeking large money damages requires that class members be given the opportunity to receive notice and opt out to pursue their own claims for relief. The lower court didn't do that. "We wanted to be heard on the issue of when damages are appropriate in class actions," Melamed adds. "If weak claims can be leveraged into large settlements, there is an injustice and abuse."

The high court was scheduled to hear oral arguments on 29 March and is expected to rule later this year. Maatman, who helped write an amicus brief for Costco in the case, expects the lower court to be overturned. "I don't think the Supreme Court accepted it to merely affirm it," he says. "I think they are going to change what was done. The decision will tighten up and bring clarity to the standards for establishing a class case."

Not everyone desires that result. Scott Nelson, senior lawyer for litigation with the non-profit advocacy group Public Citizen, says a class action is the only answer for a case like Wal-Mart's. "The allegation is that the company has systematically fostered a workplace culture where women as employees are not valued, not paid the same and not given the same opportunities for promotion," Nelson argues. "It's really only possible to prove that on a large claim basis."

Nelson scoffs at the idea of letting the world's largest retailer fight each individual claim in separate court cases or on a retail store level. Many plaintiff lawyers wouldn't take on such a small case, he says. And letting companies plead that the class is too large just "means that if a company discriminates on a large enough scale, then you can't fight it," Nelson adds. The stakes are high for companies. Class action suits like Wal-Mart's are proliferating, with ever higher costs. In fact, the value of worker discrimination settlements increased fourfold in 2010. Much of the increase was due to a record settlement in a case involving 5,600 women employees against Novartis Pharmaceuticals of New Jersey.

After losing a record $250m (£154m) verdict at trial, Novartis settled the sex discrimination suit for $175m (£108m). By comparison, that amount more than doubled the $86m (£53m) paid out in 2009 for all top 10 settlements combined. And it sent a message to workers and the plaintiffs Bar.

Employees went on to file nearly 100,000 discrimination claims against private-sector companies with the Equal Employment Opportunity Commission (EEOC) in fiscal 2010, up some 7% from a year earlier – the most claims filed in one year in the commission's 45-year history.

Hoadley, the risk insurer, says that 80% of the EEOC claims are closed without any finding of discrimination. Even so, she notes that the reputational damage may already have been done. "And corporate counsel have to deal with 100% of those cases, whether valid or not, and that's where costs are piling up," she says.

As horrific as the spiral in discrimination claims may be to in-house legal departments, suits for wage and hour disputes now outnumber discrimination suits in all categories combined. Some seven out of 10 workplace suits now involve wage and hour disputes. Typical cases concern employees who claim that they were not paid for overtime, vacation time, work-related travel time, business-related expenses or bonuses. Many cases involve employees in quasi-management roles who claim that they are misclassified as exempt and not eligible for overtime. Maatman, for one, believes that "wage and hour cases pose the top exposure to companies in 2011″.

Again, Wal-Mart holds a dubious distinction. It is the only company with two cases listed in Seyfarth Shaw's list of the top 10 class action settlements for wage and hour disputes in 2010. The retailer settled the largest case of the year, for $86m (£53m) – nearly twice that paid by number two, Merrill Lynch. (Wal-Mart did not return messages asking for comment on this story.)

But the store had plenty of company. The 6,773 wage and hour cases filed in 2010 represent more than a 50% increase over the number just five years ago. It's not surprising. With employers under increasing pressure to save money in difficult financial times, experts say they sometimes do so at the employees' expense by demanding extra work in fewer hours, and especially by cutting overtime pay.

Besides the economic crisis, professor Marion Crain, director of the Center for the Interdisciplinary Study of Work and Social Capital at Washington University School of Law in St Louis, blames the spike on several other factors. Crain cites increased media attention to workers' rights and successful lawsuits, with more details being available on websites. "Ordinary people, as well as lawyers, can easily find information about wage and hour protections, particularly overtime," she says. "All these factors lead to more litigation."

Another factor in the growth, Maatman points out, is that employees with wage and hour complaints don't have to first go through an agency like the EEOC. "Every year I've thought the tsunami had crested for wage and hour litigation," he says. "But every year it just gets bigger. And we still haven't seen the top of it."

As if that weren't bad enough for in-house lawyers, the American Bar Association (ABA) began a programme last December that will help plaintiffs find private legal counsel for claims brought under the Act. According to the Labor Department, its wage and hour division receives 35,000 employment-related legal complaints in a typical year. The agency lacks the resources to pursue all the claims it receives. Now, through the ABA's Bridge to Justice programme, the Labor Department will connect the individual to an ABA referral system to pursue a private action.

There's one more piece of bad news for companies: most insurers do not offer liability insurance to cover wage and hour suits. The cases are considered uninsurable risk because they usually result from deliberate and illegal acts, as opposed to negligence. This leaves in-house counsel on their own to either strongly enforce compliance with labour laws, or expose the company to a major lawsuit.

All these facts add up to this: the financial stakes in workplace class action litigation increased substantially last year and are expected to grow. In fact, both lawyers and insurers say, the risk of employee suits for both discrimination and wage and hour complaints has never been as high as it is today. In Maatman's view: "Plaintiffs lawyers have continued to push the envelope in crafting damages theories to expand the size of classes and the scope of recoveries…. This trend is unlikely to abate in 2011."

One person especially unhappy with this litigation climate is Richard Samp, chief counsel for the conservative, pro-business Washington Legal Foundation. "Every year employers pay billions in damages to settle employee class actions, and at the end of the day the companies still deny any wrongdoing. It's not an appropriate way to run [a justice system]," Samp says.

He would rather see class action suits limited to a particular store or a particular manager, rather than an entire company. That way, a case is more likely to go to trial than be settled. "And if somebody is guilty of wrongdoing, then the employee should receive punitive damages," Samp says.

Still, companies see hope for change, thanks to three cases before the Supreme Court this year. Besides the Wal-Mart case, the high court is considering two other challenges to class action suits. Although these two are consumer rather than worker litigation cases, the decisions will deeply affect workplace suits, according to Maatman.

At press time the high court is expected to rule this spring on a class action suit against Atlanta-based AT&T Mobility for allegedly fraudulent sales actions. The company insists that the suit is banned by its agreement with consumers to take all disputes to arbitration. A lower court decided that ban is invalid. If the Supreme Court overturns that ruling, plaintiffs lawyers fear that language banning class actions could end up in worker contracts.

The other case is a procedural one involving two suits brought against Bayer of Pittsburgh. After a state suit was moved to federal court in West Virginia, the federal judge refused to certify the class. Then another group of plaintiffs brought a similar suit in state court. They sought to certify the class on the same legal basis that the federal court had already rejected. Bayer filed to block the state certification, and the US court issued an injunction saying that the federal ruling had precluded the state court from certifying the class. The Supreme Court is also expected to rule on preclusion by this spring.

Never before in modern times, Maatman says, have three class action cases arrived at the Supreme Court at the same time. "Companies and their lawyers are all looking to the Court in 2011 to make bellwether decisions that will affect the way these cases are brought, structured, litigated and resolved," Maatman says.

And so are the workers.

This article first appeared in Corporate Counsel, a US affiliate title of Legal Week.