Friday, May 23, 2008

Estreicher and Yost on Measuring the Value of Class and Collective Action Employment Settlements

Estreicher Samuel Estreicher (NYU) and Kristina Yost (Jones Day) have given us a preview of their new piece: Measuring the Value of Class and Collective Action Employment Settlements: A Preliminary Assessment.

From the Introduction:

    There has been a recent debate in the literature on the relative merits of arbitration,
individual litigation, and class action litigation in providing adequate remedies for disputes
arising out of the employment relationship. For the last decade and a half, the debate centered on whether arbitration provided a fair forum for plaintiffs, despite the relative informality of the process, the employer’s ability to tailor procedures, and the claimed propensity of arbitrators to curry the favor of repeat-player employers. The empirical literature has not borne out these criticisms. Almost without exception, the studies find that employment arbitration is quicker; less costly; and results in a win-loss rate that is no different than in litigation, with median awards somewhat lower (perhaps due to the fact that low-value claims are more likely to proceed to hearing in the more informal process of arbitration).

    With the introduction by employers of express provisions in employment arbitration
agreements purportedly barring class action claims, the debate has shifted to the relative merits of individual arbitration versus class action litigation of employment claims. Proponents of class action litigation make two empirical arguments for the superiority of their preferred mode of dispute resolution over individual arbitration. First, it is maintained, class actions are likely to do a better job of providing compensation for claimants (and thus deterring employer
wrongdoing) because by aggregating claims in a single proceeding, the employer will not be able to benefit from the costs of delay or costs of relitigating underlying liability in individual
proceedings. Second, it is further argued, class actions provide the only practicable vehicle for obtaining redress of certain low-value claims which, if required to be asserted on an individual basis, would never be championed, thus allowing the employer to escape with impunity. Thus, plaintiff advocates argue, with some support in the courts,3 there should be a nearly blanket rule banning agreements precluding class action treatment for certain types of employment claims . . . .

    For this study, we have assembled a data set of major employment settlements reached
since 1993. Employment claims are those arising under Title VII of the Civil Rights Act of 1964 (“Title VII”), the Age Discrimination in Employment Act of 1967 (“ADEA”), the Americans
with Disabilities Act of 1990 (“ADA”), and other federal and state anti-discrimination laws, the
Fair Labor Standards Act (“FLSA”) and similar state wage-hour laws, and the Employee Retirement Income Security Act (“ERISA”).

    Our essential finding is that, contrary to assumptions of some academic commentators
and courts, mean individual potential recoveries and (with the exception of certain ERISA and
state/federal off-the-clock claims) median potential individual recoveries are not negative-value
amounts. One therefore cannot assume as a prima facie matter that such claims would not be pursued by individual employees, whether in arbitration or litigation. Much, of course, depends on institutional design -- the costs of access to the forum, the delay factor, and whether attorney representation is required. Class actions arguably reduce access costs and provide a mechanism for funding legal counsel but do so in a manner which through aggregation of claims may reduce the value of individual claims and entail a considerable loss of party autonomy. We hope to provoke additional empirical research on whether class actions do a better job at providing compensation, both as to amount (net of costs) and time from claim to recovery, than individual arbitration; and whether any such difference outweighs the loss of party autonomy inherent in class adjudication.

Innovative piece that is likely to bring some additional debate and response.  The authors ask that there be no reproduction or dissemination of the piece without express consent of the authors.


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