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Taco Bell, U-Haul and Pacific Bell may not seem like they have much in common. But over the past year, all three have shelled out millions of dollars to compensate employees for unpaid overtime. The three companies are just a tiny sample of businesses affected by California’s latest “growth industry”: wage-and-hour class action lawsuits. Over the past couple of years, plaintiffs’ lawyers have targeted one company after another, extracting increasingly large verdicts and settlements in the process. Last summer’s $90 million jury verdict against Farmers Insurance Co. is the current record holder. But while the spate of suits has clearly been a boon for the plaintiffs’ bar, management-side employment firms also have seen their fortunes rise, reaping a steady stream of work at top-dollar rates. As recently as 1998, employment defense firms could count their wage-and-hour class action cases on one hand. These days the big defense firms say they are each handling anywhere from 20 to 30 such cases. Wage-and-hour class action litigation is “the engine that’s feeding our growth,” says Seyfarth Shaw partner Kenneth Sulzer. In its Los Angeles office alone, Seyfarth is currently working on some 25 cases and has even created a wage-and-hour class action subgroup to handle the work. So desirable are these cases that the big defense firms routinely compete against each other to get them. Attorneys at Seyfarth as well as San Francisco’s Littler Mendelson and Morrison & Foerster all report participating in “beauty contests.” Some firms are even poaching. “One of our clients got sued,” recalls MoFo partner Robert Naeve, “and one of our competitors got to the new case filings before we did.” MoFo first learned about the case because the competing firm had sent the company a package detailing its experience in wage-and-hour class action cases. “It was a total pitch,” chuckles Naeve, adding that the competitor did not get the case. Wage-and-hour suits are without a doubt the most popular employment class action these days, says Littler Mendelson partner Margaret Hart Edwards. According to Edwards, the flood of wage-and-hour class action litigation stems from a disparity between federal and state law. While federal law distinguishes overtime-exempt employees by their primary job title, California law looks at how employees spend their time at work. Thus, if a “manager” spends a significant amount of time doing non-supervisory work — such as waiting on customers or folding sweaters — he or she can claim entitlement to overtime pay. Big national chain stores that don’t have California-specific employee classification policies have made easy targets. And when several hundred employees say they were denied overtime pay for the past three years, the damages quickly mushroom. The upshot is that companies facing these types of suits have proved more than willing to pay top dollar to defend themselves. “If the potential exposure is $100 million, and I’m the employer, I might be willing to spend $400 an hour on a lawyer instead of $250,” says Oakland, Calif., employment attorney Thomas Klein. Most employment firms say they don’t charge more for wage-and-hour class action work per se, but admit that there’s less downward pressure on rates. In garden-variety employment discrimination cases, for instance, billing rates are often negotiable. Not so in high-stakes wage-and-hour class actions. “It is less likely that a client is going to expect some kind of discount off hourly rates for this kind of litigation,” says Littler Mendelson’s Edwards. “At the end of the day, if you lose your case you may lose your company.” And since wage-and-hour class action cases tend to be complex and document-intensive, there are a lot of hours to be billed. These are very expensive cases to defend, says Foley & Lardner partner Stephen Parrish. “If it’s a class of any significant size, 100 employees plus, you’re looking at anywhere from three quarters of a million to a million in fees, easily.” Parrish has worked on several of these cases without going to trial on any. Even so, he says, the early investigative phases of the cases can require up to 10 attorneys. This can involve a year’s worth of interviewing company employees, reviewing things like security videotapes of employees at work and assessing the defendant’s potential exposure. Compared to other types of employment litigation, says Parrish, wage-and-hour class actions are factually intensive cases. This has pushed some defense firms to bulk up. The headcount at Seyfarth Shaw’s L.A. office has increased about 10 percent as a direct result of wage-and-hour class action litigation, says Sulzer. At MoFo, says Naeve, the Los Angeles employment group is bigger now than it was five years ago. But he can’t say this is directly attributable to the firm’s increase in wage-and-hour class action litigation. To some extent, he says, the firm was already ramped up for this type of work. “We’ve been doing these cases in whatever form they appeared for years,” says Naeve.

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