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Employment: Both Old and New Issues Are Driving the Increased Likelihood of Class Action Suits

Publication | 01.15.25

Class actions are alive and well in the world of employment law. Much is happening, and there’s plenty more to come, says Rebecca Springer, a Crowell & Moring partner who serves as talent and inclusion lead in the firm’s Labor and Employment Practice.

Springer highlights four specific areas particularly worthy of attention: compensation; age discrimination in entry-level recruiting; artificial intelligence; and diversity, equity, and inclusion (DEI) programs.

Compensation: Looking for Greater Transparency and Equity

Class actions on pay equity issues aren’t new—but they’re picking up steam, and the drumbeat of pay equity cases will likely continue through the coming years. Federal and state governments, private litigants, shareholders, and the general public are all demanding greater transparency from companies about their compensation policies and pay profiles and are insisting on equitable pay practices.

The Office of Federal Contract Compliance Programs (OFCCP) considers itself the primary government watchdog for pay equity and has extracted numerous multimillion-dollar settlements from contractors in recent years. The Equal Employment Opportunity Commission (EEOC) has identified equal pay as a top enforcement priority for its 2024‒2028 fiscal years (see chart, page 21).

Activist shareholder groups are insisting on greater pay transparency from top companies and publishing scorecards on performance, which shine a light on potential class action targets. Pay equity class actions against big employers in recent years have generated sizable settlements, including $215 million from a large financial institution.

Springer recommends that employers take proactive steps to reduce their pay equity exposure. Notably:

  • Conduct regular (annual or biennial) pay equity assessments, pursuant to the attorney-client privilege, to identify and remediate potential areas of legal risk.
  • Establish guardrails when setting pay to ensure that hiring or promotion compensation decisions take into account the pay profile of the existing workforce in comparable roles.
  • Have a broad pay equity program that details your company’s compensation philosophy and pressure-tests it. Be able to explain the factors that legitimately affect pay and demonstrate that your pay practices are equitable.

Age Discrimination: Job Ads Pose Big Risk

Employers have long advertised entry-level job openings as requiring a recent college degree or only a few (e.g., one to three) years of experience. This sounds straightforward, but it exposes companies posting such ads to claims of age discrimination.

Multiple cases in recent years have alleged that companies that limit qualifications in job postings to recent college graduates or those with no more than a few years of relevant experience are unfairly discriminating against older workers in violation of the Age Discrimination in Employment Act.

Employer programs that recruit college graduates for particular roles only through campus recruiting are under direct attack, as well as other recruiting efforts focused on entry-level positions. AARP has taken up the mantle in several of these cases, and the EEOC has sided with older workers and has identified “job advertisements that exclude or discourage certain protected groups from applying” as one of its enforcement priorities.

While such entry-level recruiting practices remain commonplace for the moment, the conduct is not without consequences. PwC settled a claim for $11.6 million in 2020, a major tech firm paid $11 million in 2019, and other large employers are currently facing litigation.

Springer expects age discrimination class actions to gain momentum in the next few years. The conflict between two strong trends supports her view: The workforce is getting increasingly older while demand rises for candidates who know the latest technologies and have the requisite skills.

AI: Beware of Algorithms

Companies are increasingly relying on artificial intelligence in recruiting and hiring, promotion, succession planning, and performance management practices. As the use of AI in employment decisions grows exponentially, so too does the concern that it might yield discriminatory results. While there hasn’t been any significant class action litigation yet, Springer warns that “they’re coming, and companies need to carefully consider their use of AI to avoid being the next target.”

The pay equity drumbeat only grows louder over the years. Potential defendants need to be consistently attentive to their compensation practices to reduce exposure on an ongoing basis.

— Rebecca Springer

Some state and local governments have jumped into the fray, with Colorado, Illinois, and New York City passing laws governing the use of AI in employment. Others are likely to follow suit in 2025. Even where there aren’t AI-specific laws on the books yet, Springer notes that the coming year is likely to see AI practices challenged under existing federal and state civil rights laws.

Springer encourages employers to take several steps to mitigate the risk of class action litigation. First, companies must get their arms around how AI is being used in the workplace—new tools often are implemented without the involvement of in-house counsel, so even the magnitude of risk is unknown.

Second, to the extent possible, companies should ensure that their algorithms don’t have built-in biases that could trigger litigation. Third, they should analyze employment decisions based on AI tools to determine whether the tools’ use has an adverse impact on the basis of any protected characteristic (e.g., race, gender, etc.). Finally, if there is adverse impact, they should conduct a validation study under the attorney-client privilege and consider whether to modify their practices to minimize impact on a protected group.

Employers should engage outside counsel to help them navigate this new and as-yet untested area of law. External lawyers can provide insight into both the ever-evolving laws and how others in the company’s industry are addressing AI issues.

DEI: Programs Under Attack

Emboldened by Supreme Court decisions such as Students for Fair Admissions v. Harvard/UNC (which invalidated race-conscious affirmative action in college admissions) and Muldrow v. City of St. Louis (which lowered the bar for what constitutes discriminatory conduct), both state attorneys general and private litigants have been challenging programs designed to enhance diversity, equity, and inclusion in the workforce.

In the employment context, at issue are initiatives such as minority hiring or representation goals; targeted recruitment efforts; and internship, mentorship, or sponsorship programs. Also under scrutiny are companies’ supplier or contractor programs and financial investment programs. Springer expects these challenges to increase during the Trump administration.

While the DEI landscape certainly comes with increased risk these days, she notes that most companies nonetheless remain committed to DEI. Companies that maintain various DEI initiatives should carefully consider how the programs are structured in order to avoid being a prime target for efforts to dismantle them. They shouldn’t base their decision-making on race, gender, or another protected category.

In addition, DEI programs that are open to all can nonetheless emphasize a commitment to diversity-related themes. Making selections for participation based on individual circumstances and conduct can also reduce risk. Companies should carefully monitor evolving affirmative and defensive legal theories and litigation to understand how the risk profile of DEI programs and initiatives will evolve in 2025. 

To read more from Litigation Forecast 2025: What Corporate Counsel Need to Know for the Coming Year, visit here.

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