These days, everyone seems to be jumping on the wage and hour bandwagon, predicting an endless stream of lawsuits for 2008, just as there was for 2007. But just as mutual funds preach that "past performance is no guarantee of future success", I would argue that focusing too much on one trend, misses an opportunity to see another.
Indeed, having looked into my crystal ball for 2008, I believe lawsuits involving reductions in force will be the latest trend to emerge in the next year. (And lest you think me too radical, I do think wage and hour lawsuits will certainly continue as well, albeit in lesser amounts as companies adapt to the litigation trend by addressing wage and hour issues preemptively.)
What is a reduction in force? Really, just a lawyerly way of saying "layoff". Back in the early to mid 1990s, lots of companies went through them. And the number of lawsuits arising from those reductions went through a major peak in 1995 or so.
But these types of lawsuits rise and fall with the economy. When the economy is good, lawsuits go down. When it’s not so good, they go up. One reason is that when people can find another job quickly (i.e. the unemployment rate is low), then tend not to sue as much.
So what leads me to think that reductions in force lawsuits are on the horizon?
Well, for one, the unemployment rate numbers crept up over 5 percent on Friday. The second, is that financial sector companies have announced major layoffs in late 2007, as a result of the mortgage crisis. And when these people get laid off, more dollars are at stake. And lawsuits typically follow the money.
Moreover, with the overall economy in a stall pattern at best, companies will continue to resort to the cost-cutting measure they have used before — layoffs.
To be sure, the landscape involving RIF lawsuits has changed in the last 15 years; more companies offer severance packages (with accompanying separation agreements) and more companies do statistical analyses to determine if their RIFs have any statistical disparities among protected groups. And layoffs for 2007, fell to their lowest since 2001.
But harder times nearly always means more employment claims.
One more factor suggests to me that more lawsuits are on the horizon — it’s much easier for a few employees to band together than in the past. Previously, people would have to use their existing networks to find laid off employees to hear their stories (indeed, outplacement firms were a good source for employees looking to talk with other laid off workers). But now, with the rise of social networking sites, it seems only a matter of time before a group of employees will form a Facebook or MySpace page to compare experiences. Employees from around the country can share information instantly, making it much easier to figure out if there are trends associated with the layoff that may give rise to a lawsuit. (Unions already have started marshaling the Internet, like this site for a group of Washington Post workers.)
This should give employers some pause; multiple plaintiff cases are always a challenge and expensive, and class actions (where attorneys fees could be recovered) could also be an attractive option.
Will this happen? Let’s check back in a year. But absent the economy rocketing ahead in 2008, I don’t think it’s a stretch to see reduction in force lawsuits making a comeback.