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By CYRIL TUOHY, managing editor of Risk & Insurance®

Later this year, the U.S. Supreme Court is expected to rule on Dukes v. Wal-Mart Stores Inc., the largest employment practices discrimination class-action dispute ever brought against a private employer.

The Supreme Court will deliver its decision--coincidentally or not--at a time when the atmosphere governing employer-employee relations is at a low ebb. In some workplaces, you can feel the tension between bosses and workers.

Indeed, many companies are getting bombarded with discrimination suits for the first time, even after many years of keeping a pristine-- at least on paper-- employer-employee record.

"We are getting a number of employers who never had a complaint filed against them," said Tiffany Miller, a law associate with Fisher & Phillips, a Chicago-based law firm representing employers in labor and employment cases, in an interview with Risk & Insurance® in January.

The friction between management and labor isn't taking place in a vacuum. Broader trends are at work, said labor experts and employment lawyers. They point to an activist Equal Employment Opportunity Commission intent on the vigorous pursuit of workplace complaints.

With the economy shedding tens of millions of jobs, employees are more likely to seek retribution or redress through the courts, experts said.

A broadening of employee rights has led to a jump in employment-related class-action filings. Last year, employment related class-action complaints rose to an all-time high of 14,559, up from 13,720 in 2009, according to a report by the law firm Seyfarth Shaw.

Employee Retirement Income Security Act (ERISA) lawsuits increased to 9,038 in 2010 from 8,944 in 2009; and Fair Labor Standards Act (FLSA) disputes jumped to 6,761 in 2010 from 6,120 in 2009, according to the 2011 edition of the Annual Workplace Class Action Litigation Report published by Seyfarth Shaw, which represents companies in workplace disputes.

Gerald L. Maatman Jr., co-chairman of the complex discrimination litigation practice group at Seyfarth Shaw, in introductory remarks to the report, writes that class-action litigation "will continue to be a source of significant financial exposures to employers well into the future."

The value of the 10 most expensive employment discrimination class-action settlements last year came to $346.6 million, a four-fold increase from the prior year, the report also said.

The largest discrimination settlement, Velez v. Novartis Pharmaceuticals Corp., in which plaintiffs accused the drug company of discriminating against 5,600 current and former female sales representatives in pay and promotions, was settled for $175 million.

The value of the 10 most expensive wage-and-hour class action settlements last year came to $336.5 million, down slightly from $363.3 million in 2009, the report said. The largest settlement, in which 232,000 California Wal-Mart employees argued that they did not receive full payment of vacation and personal time when they left the company, came to $86 million.

And so, it is in the midst of this poisoned atmosphere of employer-employee relations that the U.S. Supreme Court will decide on the gender and wage discrimination dispute Dukes v. Wal-Mart, the Bentonville, Ark.-based retailing giant.

Plaintiffs in the case have challenged the pay and promotion practices of the nation's largest employer. Plaintiffs allege they are paid less than men in comparable positions and that they receive disproportionately fewer promotions to in-store management positions. The company, plaintiffs said, is in violation of Civil Rights Act of 1964.

The original case dates back to 2000. Lower courts in California have upheld the prior arguments that an entire class of employees is involved. Now 1.5 million women in 3,400 store locations in 41 regions having worked for the retailer as far back as Dec. 26, 1998, are involved in the fight.

Wal-Mart appealed the district court's ruling and argued that the plaintiffs, part-time entry-level hourly employees to salaried managers, don't meet the requirements of a class. Wal-Mart also argued its ability to respond to each individual claim has been denied.

By virtue of the size of the defendant, this case, not surprisingly, has become the biggest private-sector workplace class action ever. "In terms of key decision, there was no class action ruling in 2010 quite like Dukes, et al. v. Wal-Mart Stores Inc.," the Seyfarth Shaw report said.

The Supreme Court's ruling is expected to become a landmark ruling with regard to meeting the criteria established by the so-called Rule 23, which sets parameters under which plaintiffs can sue as a class.

IMPLICATIONS FOR EPLI

Jim Nealon, a partner with Kelley, Drye & Warren, said that if the Supreme Court lets Dukes v. Wal-Mart stand, employers should beware. "If this thing stands, the threshold is so low for class actions against companies that there will be an explosion in these claims because the plaintiffs' lawyers know how to work this case," he said. "The damage goes up exponentially because 1.5 million people are involved."

Class-action claims from new classes of plaintiffs multiply the value of the sum of the claims insureds and insurance companies must defend against, and settlements with a class of plaintiffs are typically much higher than settlements with individual plaintiffs, legal experts also said.

Upholding the 9th U.S. Circuit Court of Appeals' decision in its entirety-- a worst-case scenario for Wal-Mart and other corporate insureds--would disarm employers of their ability to defend against discrimination claims, Nealon said.

The best Wal-Mart can hope for is for the Supreme Court to toss out the lower court's decision. A more likely outcome, however, is for the Supreme Court to limit or narrow the scope of the 9th Circuit's decision and alter the Ninth Circuit's standards for certifying members of a class.

Prior rulings in the case have attracted plenty of attention from corporate risk managers because of the size of the class, the spread of the locations and the different managers potentially involved.

"An employer wouldn't be able to get into the heart of each individual claim or determine if there are similarities among the individuals in the class," said Joni Mason, senior vice president and senior EPL product manager for Chartis Inc.

The time has come, Mason said, for corporate risk managers to think of employment practices liability coverage not as a discretionary outlay but as a necessity.

Insureds who carry employment practices liability coverage may want to review their policy profile and determine if they are adequate, she said, as affirming a class of this magnitude could open the door to an onslaught of new class-action claims.

"There will be an increase in the risk of class-action exposures with an increase in frequency, higher defense costs and settlements," Mason said.

The good news is that any decision by the Supreme Court isn't going to alter the terms and conditions in existing employment liability policies, though the case is likely to cause underwriters to scurry back to their spreadsheets and re-examine deductibles and retentions.

Nor will any Supreme Court decision alter the direction of the soft employment practices liability marketplace--at least in the short term--thanks to plenty of capacity generated by new insurance carriers that have swarmed into the employment practices liability marketplace in an attempt to compete on price.

Whatever the court decides, "Carriers will look at the increased risk on an account-by-account basis and figure out how the risk profile and exposure may be affected," Mason said.

On the surface, the near-term is still stable for buyers of employment practices liability coverage but it doesn't do risk managers much good over the long term if carriers are not going to be capable of handling a complex employment practices claim like the one now before the Supreme Court, Mason said.

"Risk managers should look for a carrier with expertise in the employment area and that has been in the industry for a long time and can handle these types of claims," Mason said. "These are not your garden-variety employment practices liability cases. You want to make sure it's going to be a carrier that is going to be around in the market long term."

March 1, 2011

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