Labor & Employment Law Daily Class action defense becoming more complex, expensive, Carlton Fields finds
Monday, April 22, 2019

Class action defense becoming more complex, expensive, Carlton Fields finds

By Pamela Wolf, J.D.

Labor and employment cases remain the most common type of class action, accounting for 28.7 percent of matters and 26.1 percent of spending, the survey found.

There is a continuing rise in class action defense spending, driven by more matters per company facing these cases, and collectively, more complex, high risk, and “bet-the-company” matters than ever reported in past surveys, the eighth annual Carlton Fields Class Action Survey shows. Altogether, companies spent $2.46 billion defending class actions in 2018. And spending and the number of class actions defended by company are expected to increase again in 2019.

The survey found the fourth consecutive annual rise in spending, after steadily decreasing expenditures from 2010 to 2014. The number of companies that reported facing class actions in 2018 dropped slightly to 54 percent, but the average number of matters per company increased from 6.3 in 2017 to 7.8 in 2018.

Labor and employment. Labor and employment cases remain the most common type of class action, accounting for 28.7 percent of matters and 26.1 percent of spending, according to the survey. In the past five years, nearly two-thirds of companies have faced at least one labor and employment class action. Overwhelmingly, companies report that wage and hour matters are their top concern in this category.

Data privacy. Although most companies have not yet faced a data privacy class action, they predict these cases will be the next wave, the survey found. The percentage of companies making such a prediction nearly doubled from last year’s survey, increasing from 28.9 percent to 54.3 percent. Moreover, 86 percent of companies have an action plan in place to address and limit the impact of a data breach, including class action exposure.

Almost 9 percent of companies identified collective actions under the European Union’s new privacy regulation (the GDPR) as a next wave, a significant enough number that it was reported separately in the survey. About two-thirds of companies reported concern stateside about the impending California Consumer Privacy Act, too.

More key findings. Additional key findings of the survey include these:

  • Arbitration. Companies increased their use of contractual arbitration clauses in 2018; the percentage of companies that included class action waivers in their arbitration agreements increased to nearly 50 percent. More companies now use arbitration clauses that bar class actions than in any previous survey.
  • Risk variables. Exposure, win probability, the relevant case law and facts, and reputational impact were the class action risk variables that companies ranked as most important. More than 95 percent of companies report relying on outside counsel for an early assessment of win-loss probability.
  • Management strategy. Increasingly, companies facing class actions employ a case-by-case approach to class action management, with 53.2 percent reporting that they defend at the right cost, assessing each case separately. Just 10.6 percent say they prefer to settle such matters early, while 21.3 percent take an aggressive stance, and 14.9 percent employ a “defend at all costs” strategy.
  • Settlement. Nonetheless, cases filed as class actions are most often resolved by settlement, with 53.1 percent of companies reporting that settlements typically occur pre-certification. Thirty-nine percent of matters filed as class actions are settled on an individual basis.
  • Politics. Companies are taking notice of the impact of the political climate in Washington on their management of class actions, with 23.5 percent of companies reporting that the political climate affects regulatory oversight and involvement relevant to class actions.
  • Fees. The use of alternative fee arrangements (AFAs) in class actions declined slightly in 2018. More companies identified fixed fees as a successful type of AFA for class actions than any other type of arrangement.
  • Discovery. While most companies have not seen a reduction in class action discovery costs as a result of the federal proportionality standard, they employ a host of strategies to control electronic discovery costs, such as aggressive negotiation of reasonable search terms, use of a single e-discovery vendor, and filing of motions to stay or for cost-shifting.

About the survey. The 2019 Carlton Fields Class Action Survey is based on interviews with general counsel or senior legal officers at 395 Fortune 1000 and other large companies across a variety of industries. Participating companies had an average annual revenue of $14.8 billion and median annual revenue of $6.7 billion. They operate in more than 25 industries, including banking and financial services, consumer goods, energy, high tech, insurance, manufacturing, pharmaceuticals, professional services, and retail trade.

“As predicted, class action defense spending rose again in 2018 and this is likely to continue through 2019,” said Julianna McCabe, director of Carlton Fields’ Class Action Survey and chair of the firm’s National Class Actions practice group. “As the resources and financing available to pursue these costly matters have become increasingly available, the volume and complexity of the class actions filed continues to rise. In-house legal departments are dedicating significant resources to these cases and relying on outside counsel for help in making early assessments of their win-loss probabilities, among other factors.”

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