Influx of employment lawsuits, regulations a bright spot for law firms

September 2, 2012

Companies’ demand for legal services is falling in nearly all areas of the law except labor and employment — the lone area where the fallout of the recession appears to be helping rather than hurting large law firms.

While demand for corporate-, real estate- and bankruptcy-related work all dropped 2 to 3 percent, labor and employment work rose nearly 5 percent during the second quarter of 2012 compared with the second quarter of 2011, according to a survey of the nation’s 135 largest law firms by the Hildebrandt Institute’s Peer Monitor Index, a unit of Thomson Reuters. Demand for legal services in the Washington market dropped 2 percent, compared to 0.2 percent nationally.

Although labor and employment work represents a relatively small chunk of the legal market — 8 percent, compared to litigation (33 percent) and corporate (23 percent) — it is the only practice area that has consistently posted growing demand for the past 18 months.

Unlike mergers and acquisitions and other corporate work that tapers off during an economic downturn, employment law tends to be countercyclical. Lingering high unemployment pushes many laid-off workers to sue their former bosses over workplace-related claims — and that means more business for law firms that represent companies.

“In most jurisdictions, employment is at will,” said Constantinos Panagopoulos, a partner at Ballard Spahr. “You can be let go for any reason, or no reason, so the only remedy most employees have is to make a claim of employment discrimination. That’s why you’re seeing a broader uptick in that area. That results in more lawyers being hired to defend those lawsuits.”

Legal action against companies over unpaid wages and alleged employment discrimination surged during the recession, and continues to climb. Charges of workplace discrimination hit an all-time high of nearly 100,000 in 2011, the Equal Employment Opportunity Commission found.

Similarly, the 12 months ending in March saw a record number of complaints filed under the Fair Labor Standards Act, the federal law that requires employers to pay minimum wage and overtime to workers, according to data compiled by the law firm Seyfarth Shaw. About 7,000 FLSA lawsuits were filed against employers during that period — more than triple the number from a decade ago.

One is an ongoing lawsuit against the Georgetown restaurant Epicurean and Co., which in July was sued by three former restaurant workers accusing management of not paying them overtime. Attorney Kimberly Jandrain of Coburn & Greenbaum, who is representing Epicurean, said the company is still reviewing time records, but plans to contest the claims.

Firms also going after employees

Panagopoulos, who represents employers, added that a tighter economy is also ushering in more non-compete lawsuitsbrought by employers against their former employees to stop them from bringing clients or trade secrets to their new employer, often a competitor.

Employers are also facing more regulations and audits from federal agencies, which means they need more advice on how to comply with the law, said Richard Alfred, who leads the labor and employment practice at Seyfarth Shaw.

Since 2008, the Labor Department has sought to expand the types of activities hourly workers must get paid for, and has begun scrutinizing the pay practices of government contractors. Changes to the American with Disabilities Act in 2008 also expanded protections for workers with disabilities, setting a higher standard employers must meet in order to ensure the workplace is accessible.

“That is additional work for law firms such as Seyfarth and other firms that have substantial labor and employment practices,” Alfred said.

But within the labor and employment market, many corporate clients are shifting their business away from large law firms to specialty firms that handle only labor and employment matters, said Mark Medice, senior director of the Peer Monitor program that issues the quarterly law firms report. The shift, which Medice said began in early 2011, mirrors the trend in the broader legal market of employers seeking lower-priced legal services.

“Many firms with labor and employment practices that have been unable to differentiate their labor and employment practices are perhaps feeling the pinch of those specialty firms out-maneuvering [them], whether it’s because of price efficiency or greater expertise and specialization,” he said.

Catherine Ho covers law and lobbying for Capital Business, which she joined in 2011. She was previously a reporter at the Daily Journal in Los Angeles, covering LA civil courts and labor and employment law.
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