It is no secret that the vast majority of wage-and-hour class actions are settled.  What is less clear is the going settlement rate.  Researchers from NERA, an economic consulting group, recently answered this question:  approximately $1,100 per plaintiff per class year. 

For several years, NERA has studied wage-and-hour class settlements data in an effort to track trends and developments.  In March 2011, NERA released a paper entitled “Recent Trends in Wage-and-Hour Settlements” that set forth its conclusions in detail.  Recently, NERA refreshed its analysis when it released “Trends in Wage-and-Hour Settlements:  2011 Update.”  The update provides interesting data and conclusions that should prove useful for employers as they evaluate class liability in the wage-and-hour arena.

The NERA study evaluated nationwide wage-and-hour class settlements from 2007 to 2011.  Mining data from various news articles and internet sites, NERA compiled a list of more than 100 wage-and-hour class action settlements where it was able to identify data reflecting settlement value, the number of putative plaintiffs in each class, and total length of each class period.  Based on these cases, NERA estimated that the average settlement amount per-plaintiff per-class period year was approximately $1,100.

The NERA report also highlighted a number of other useful highlights tidbits:

• Aggregate settlement amounts have decreased from an average of over $20 million in 2007 to under $5 million in 2011.
• The largest number of settlements occur in the $1 million to $2.5 million range.
• The average class period duration is 5 years (with 15 years being the longest).
• Settlements per class member range from $100 to $25,000.
• Cases with very large numbers of plaintiffs tend to have higher overall settlement values, but smaller per-plaintiff average settlements.

While NERA quite obviously believes its analysis and conclusions are meaningful, it is the first to note that the list of settlements it identified is “not likely to be comprehensive” and that the estimates may not account for myriad variables that inevitably increase or decrease settlement values.  This point cannot be overstated as settlement values are highly individualized and averages can be driven by numerous variables such as:

• The size of the potential class.
• The duration of any alleged class period.
• The number and type of allegations made in each case (e.g., some combination of off-the-clock work; unpaid overtime; missed, short, or late meal and rest breaks; misclassification of exemption status; failure to pay minimum wage or overtime; misclassification of independent contractors; and or improper tip pooling).
• The jurisdiction(s) involved.
• The industry involved.
• The company’s appetite for litigation and discovery.
• The company’s relative strength(s) or weakness(es) on each claim.
• The availability of public or non-confidential information or lack thereof.

In addition, the per-plaintiff per-class period average does not account for amounts deducted from the gross settlement total for attorneys’ fees, costs, named plaintiff incentive payments, and payments to government agencies.

As noted in the NERA report, the settlement numbers make clear that wage-and-hour class actions represent a significant cost facing employers of all sizes.  While overall settlement averages have decreased slightly in the last five years, writing a multi-million dollar check is still an expensive proposition.  To minimize the wage-and-hour pitfalls and litigation exposure, employers should analyze all applicable wage-and-hour requirements and consider auditing their workplace practices to ensure compliance with both federal and state laws and regulations.  An audit will likely pay for itself many times over by reducing the substantial risk that comes with wage-and-hour litigation.