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04/15/2022

Insight: Retailers Concerned With Class Action And Employment Litigation

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For almost two decades, our firm has conducted its Annual Litigation Trends Survey, analyzing litigation trends to assess the state of the legal landscape and consider their impact on organizations.

The 2021 Survey gathered responses from more than 250 general counsel and in-house litigation leaders across the United States. We found that most participants felt their teams had largely come to grips with the new normal of remote and hybrid working, but feared a host of evolving trends could pose financial and reputational risks to their organizations.

Participants were asked to identify three types of disputes of most concern to them. In-house counsel at retail companies identified class action lawsuits

52% vs. 24%) and labor and employment litigation (47% vs. 27%) more frequently than all respondents. We’ll dive into the reasons underlying these responses.

Class Action Risks
Retailers are understandably concerned about class action lawsuits, given the growth in filings over the last few years. Plaintiff-friendly jurisdictions like California, Illinois, and New York allow “no-injury” claims to be brought under their deceptive trade practices acts. These laws are interpreted broadly in favor of consumers, and allow consumers to sue for anything they claim to be unlawful, unfair, or misleading. It is difficult to have a case dismissed before trial, and courts often resolve doubts in favor of certifying classes to determine “common” questions of law or fact.

Plaintiff’s lawyers use strategies designed not necessarily to win at trial, but to survive a motion to dismiss and obtain class certification, in order to create settlement leverage. Class action litigation – with its one-sided and often burdensome discovery – can be very expensive and can create staggering potential liability. It is little wonder that a trial of a class action is, as the California Supreme Court said, an “exceedingly rare beast,” and most companies are forced to settle to avoid staring down economic ruin.

Retailers face a wide range of potential claims in consumer class action litigation. We discuss some examples below.

Labeling and other product-based claims
Retailers face a broad range of claims over labeling of products they sell, with particular exposure for private label products carrying a retailer’s own brand. Some cases focus on technical labeling violations – such as required additional labeling for food products marketed as “no sugar added,” or failing to comply with California’s law requiring disclosure that a product registration form is not required in order to obtain warranty service – regardless of whether consumers are actually deceived.

Other cases assert that claims made on supplements or cosmetics are “drug” claims that require premarket approval from FDA, again without proof of any harm to consumers.

Plaintiff’s lawyers are very in bringing claims over “natural” and “pure” label claims, often asserting that such claims are interpreted by consumers to mean that there are no artificial ingredients whatsoever in the product. One line of cases asserts that foods labeled as having “natural flavors” are deceptively labeled if they contain citric acid, even if the citric acid is not used as a flavoring agent.

And consumer litigation over environmental/sustainability claims are growing rapidly, including lawsuits against brands making “organic” and “sustainable” claims about their products. The presence of artificial ingredients or components of products with such claims opens up the company to potential liability.

Some companies face claims because they made statements about their company’s commitment to sustainability, and plaintiffs assert that the presence of unwanted chemicals (such as PFAS substances) in products or environmentally detrimental or unethical supply chain practices, renders the sustainability claims deceptive.

Finally, retailers are facing more traditional claims in class actions, including heavy metals, phthalates, and PFAS substances in foods, drugs, cosmetics and children’s products.

Data breach and privacy claims
Many retailers collect a lot of data about their customers, whether through mailing lists, loyalty programs, smartphone apps, or e-commerce platforms. Several high-profile data breach cases have shown the perils of having that data exposed to threat actors. Data breach class actions are filed daily throughout the US, and can be expensive to litigate and resolve.

More states are beginning to follow California’s lead with the CCPA to regulate how businesses collect personal information, and require disclosure of how a business uses personal information and allow consumers to opt-out of such collection and request businesses to delete their data.

Pricing Litigation
Retailers have seen a wave of litigation over their pricing practices. Some cases allege that retailers mislead consumers when they show fake comparison prices for department and specialty stores selling the same goods.

Other cases assert that outlet stores sell inferior goods to those sold in the brand’s primary brand stores, and misrepresent that the price discount is for comparable merchandise. Still other cases assert that “sale” pricing violates deceptive advertising laws, where retailers continuously hold “sales,” such that there is no “regular” price for their goods.

Labor and Employment Litigation
Retailers, like many other employers, have faced a steady stream of employment class action litigation over wage and hour issues, and by all indications, those claims have been magnified by the pandemic and will continue for the foreseeable future.

Common issues include timekeeping errors in timesheets or misclassification of workers, which continue to represent costly mistakes for employers. California employers continue to be burdened with PAGA lawsuits, which the California courts have held are exempt from mandatory arbitration agreements.

Claims directly related to COVID include lawsuits over vaccine mandates, reasonable accommodations, and lay-offs. Employers are also getting hit with litigation over booster shots, leave policies, and OSHA COVID requirements. To top it off, remote work has also led to potential problems relating to overtime, misclassification of workers, or privacy issues.

Take-Away
Retailers are rightly concerned about the threats of class action and employment litigation. These cases are likely to continue to be a major source of anxiety, and disruption when they hit, and in many ways represent the unfortunate cost of doing business in modern society.

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