Tuesday, January 8, 2008

Estreicher & Yost Examine Employment Class Action Settlements

Estreicher Yost_3Samuel Estreicher (NYU) and Kristina Yost (Jones Day) have just posted on SSRN their article Measuring the Value of Class and Collective Action Employment Settlements: A Preliminary Assessment.  Here's the abstract:

This paper represents an initial effort to test, quantitatively, whether the class or collective action is a necessary vehicle for resolving employment disputes because typical claims are not valuable enough for individuals to pursue them on their own. Because most class actions ultimately settle, this study begins the process of evaluating the hypothesis by calculating the potential recoveries individual members of class actions are slated to receive in class action settlements as a comparison point for awards obtained in individual employment arbitration. Examining public data on employment class or collective action settlements, we find that with the exception perhaps of certain "off the clock" wage-hour and ERISA claims, the average individual potential recovery found was not an insignificant amount, though still generally smaller than the average employment arbitration awards. This result calls into question the "negative value" justification for the claimed superiority of class action litigation.

Much work needs to be done to determine if these potential recoveries would be obtainable in individual litigation or arbitration, or whether there is something special about the class action vehicle that makes possible such potential recoveries. We would also need to account for a selection bias in class action cases - that plaintiff lawyers may under-report less favorable settlements and are highly selective in picking cases for class action treatment. If so, the characteristics of individual and class claims may differ in systematic ways. In the interim, our data shows that potential individual recoveries for many types of employment disputes are valuable enough to place in question the arguments that these are "negative value" cases that will be brought forward, if at all, only through the class action vehicle.

    This article is important because several courts recently have struck class-action bars from arbitration agreements.  Most of these cases are consumer cases in which individual damages are low and the number of claimants is high, such as the Illinois Supreme Court case from last year challenging Cingular's $150 termination fee on cell phone contracts (Kinkel v. Cingular Wireless LLC).  As Estreicher and Yost point out, however, many employment cases may not fit this  low-damage model.  I look forward to seeing more empirical work on this topic.



Arbitration, Scholarship | Permalink

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