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New Class Action Law May Dampen Hopes of Plaintiffs in Discrimination and Wage Hour Litigation

By Paul J. Siegel
  • February 24, 2005

Although the new Class Action Fairness Act is aimed primarily at products liability and other types of tort claims involving injuries to persons or property on a large scale, the Act will have a significant impact on class and collective actions arising from workplace disputes. Designed to reduce frivolous lawsuits and curb awards of attorneys' fees to plaintiffs' counsel, the new law is expected to decrease significantly  the practice of "forum shopping" in an attempt to find the most sympathetic court. 

Enacted on February 18, 2005, the Act dramatically revises the rules for individuals collectively to press discrimination, wage and hour, and other employment law claims.  Under the new rules, it will be harder for a group of individuals to prosecute a class action and easier for employers to defend against those efforts.  The Act states that it will "(1) assure fair and prompt recoveries for class members with legitimate claims; (2) restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction; and (3) benefit society by encouraging innovation and lowering consumer prices."  

Specifically, the law requires that cases filed in state courts with the potential to have at least 100 members in the class of plaintiffs be removed to federal court. Generally it has been easier for plaintiffs to pursue class action status in state courts rather than federal court where the procedural rules for class certification and other aspects of the litigation process are more arduous. The Act authorizes the federal courts to have the discretion to review orders granting or denying the request of parties to send cases back to the court in which they originally were filed.  The new law does not apply retroactively. 

Key provisions of the Class Action Fairness Act include the following.

  1. Federal courts will have jurisdiction over civil class actions involving claims not based on federal law and in which the amount of compensation sought exceeds $5 million.  In addition, there must be some diversity of citizenship between the parties; for example, if any plaintiff and any defendant are citizens of different states, the federal court may take jurisdiction.  This requirement is less stringent than that governing non-class action cases, where federal court jurisdiction depends on complete diversity of citizenship between the plaintiffs and defendants.
  2. A federal court may decline jurisdiction if more than one-third, but less than two-thirds, of the potential class members and the defendants are citizens of the state in which the action was filed.  However, if two-thirds or more of the members of all proposed plaintiff classes and at least one primary defendant are citizens of the state in which the action is originally filed, a federal court will not have jurisdiction over the matter.
  3. Federal courts may not approve product coupon settlements, which provide class member consumers with coupons for more purchases while attorneys receive large fees, unless the court finds the settlement is fair, reasonable, and adequate.
  4. Federal courts may not approve settlements involving payments to class counsel that would result in monetary loss to class members, unless the court finds that the loss is substantially outweighed by non-monetary benefits.
  5. Federal courts may not approve settlements that provide greater recovery to some class members than others solely because those class members are located geographically closer to the court.

At a recent meeting of the American Bar Association's Federal Labor Standards Litigation Committee, attorneys discussed how the new Act may influence litigation of collective wage and hour actions under the Fair Labor Standards Act.  In overtime pay cases, plaintiffs' attorneys increasingly have pursued a dual track strategy in both federal and state courts to increase the number of class members and take advantage of state wage laws.  Technically, potential class members "opt-in" in collective actions in federal court, and "opt-out" in class actions in state court.  By pursuing both courses, the size of the class was likely to increase.  Under the new Act, state law overtime pay class actions will be subject to removal to federal court.

Some members of Congress who opposed the Act were concerned that it would diminish the protections available to individuals because of the more rigorous class action standards in the federal courts.  Senator Edward Kennedy objected to the application of the stricter federal rules, which are more likely to prevent the certification of a class action and may result in some cases never being heard.  Arguing that federal courts are likely to interpret state law narrowly, providing lesser protection to workers, Senator Kennedy unsuccessfully had sponsored an amendment to exempt from the Act all class actions based on state civil rights and wage and hour laws.  Speaking for the supporters of the measure, Senator Jeff Sessions countered that workers will have the same rights under the Act because any case removed to federal court still will be governed by relevant state law.  Senator Sessions noted that federal courts frequently certify large discrimination class actions and federal courts already have jurisdiction over federal law-based employment claims. 

From a practical standpoint, the Class Action Fairness Act is likely to result in removal of a significant number of cases from state to federal courts.  As a result, the Act may also encourage the transfer of cases to locations more convenient for corporate defendants, under federal procedural rules. For example, if a plaintiff files a class action with more than $5 million in controversy in state court in a state where the employer is not incorporated and does not have its principal place of business, the action may be removed to federal court if the employer is the sole defendant in the case. If there are other defendants in the case who are citizens of the state where suit was filed, the case could still be removed if the plaintiffs are not seeking significant relief from those defendants, if the alleged conduct of those defendants does not form a significant basis for the claims asserted, or if fewer than two-thirds of the individuals making up the proposed class are citizens of the state in which the action was originally filed. The federal court could transfer the case, in the interest of justice, to any District in which the action could have been filed. The Act's requirements may serve to reduce the number of class actions that are allowed to proceed because federal courts will apply stricter federal certification rules and the Act's requirements may prevent cases from being heard in courts far from the Company's headquarters.

For more information about the new legislation, or class action litigation generally, please contact the Jackson Lewis attorney with whom you regularly work, or Paul J. Siegel

©2005 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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