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Shake off 'shakedown' lawsuits

With the right precautions and counter strategies, these suits can be mitigated and even avoided.
Photograph: Shutterstock

A disturbing increase in “shakedown” lawsuits has corporate counsels working hard to avoid paying out thousands, if not millions, in settlements. But there are smart strategies for defending yourself against them. That’s the key takeaway from the Restaurant Law Center’s webinar, “How to Handle ‘Shakedown’ Lawsuits and Emerging Litigation Trends,” available at Restaurant.org/legal.

 Angelo Amador, executive director of the Restaurant Law Center, teamed with attorneys from BakerHostetler to present the top five litigation trends and to share some of their best advice for countering suits and protecting the brand. BakerHostetler partners Kevin Shaughnessy and Shareef Farag and associate M.C. Cravatta presented.

  1. Class-action discrimination lawsuits are filed on behalf of federal agencies such as the Equal Employment Opportunity Commission or the departments of labor or justice. These often-high-profile suits are particularly concerning because these official behemoths don’t care about the cost of litigation, and they often challenge a systemic practice of your company.

A defense strategy: Rein in the scope of the suit to one isolated incident, one jurisdiction, one unit in your system, one employee.

Also, leverage your company’s inclusive policies and existing diversity. If possible, establish goodwill with the agency. Shaughnessy cites a case in which a company had a clear, supportive LGBTQ policy—one manager just didn’t follow it. This led to a cooperative, amicable settlement, resulting in a positive press release from the agency.

  1. Fair Credit Reporting Act lawsuits ding companies for failing to provide consumers and employees required notices concerning the handling of the credit and background information the company collects through third parties. The types of reports covered would include credit reports, criminal background checks, prior history information and ownership asset reports. The lawyers behind these suits are nicknamed “background bandits” because they look for lapses in how you handle these notices.

A defense strategy: Many employers forget that authorization and disclosure statements requiring signatures must be presented on a separate document, says Shaughnessy. “It can’t be included in a document containing other information.”

  1. Americans with Disabilities Act (ADA) website lawsuits cite a company for having a website that’s inaccessible to people with disabilities (e.g., blind). In these lawsuits, the plaintiff does not recover monetary damages. Instead, these cases are driven by plaintiff firms hoping to recover a large attorney’s fee. Cravatta says her firm has seen a dramatic increase in the number of these suits across the country. Part of the problem is that there are no definitive ADA regulations telling employers how to make their websites accessible, and the plaintiffs’ lawyers take advantage of the vagaries in the law.  

A defense strategy: Work proactively with an agency such as Columbia Lighthouse for the Blind or companies such as DigiPro Media to make your site more accessible and a less likely target of an ADA-based lawsuit. 

  1. Fair Labor Standards Act (FLSA) lawsuits focuson wage and hour issues, including unpaid overtime or minimum wage violations. “It’s a boutique legal industry in Florida and it’s spreading around the country,” says Shaughnessy of the growing number of FLSA suits.

A defense strategy: Review your job descriptions and make sure all employees classified as exempt from overtime are performing exempt functions. Be sure to also comply with state and local laws.

  1. California Private Attorney General Act (PAGA) lawsuits stem from a 15-year-old law that deputizes private citizens and allows them to stand in the shoes of the labor commissioner to enforce the California Labor Code and seek civil penalties on its behalf. Twenty-five percent of the penalties collected through a PAGA action are distributed to “aggrieved” employees, and 75% go to the state. These lawsuits are particularly insidious, Farag says; fortunately, they are limited to the state of California for the time being.


To hear much more detail and great defense advice, download the full-hour webinar.

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