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Hospitals Settle Wage-Fixing Claim For Over $22.5 Million

After three years of litigation, 36 hospitals have agreed to pay more than $22.5 million to settle a class-action lawsuit accusing them of fixing the wages of per diem and traveling nurses.  The settlement payment in this case, Johnson v. Arizona Hospital and Healthcare Association, is believed to be the largest to date in cases of this kind, and serves as a stern reminder of the risk to employers of sharing wage data, even indirectly, with other businesses in the same industry.

Background Of Johnson Case

In July 2007, a number of per diem and traveling nurses filed a class-action lawsuit in the U.S. District Court for the District of Arizona on behalf of all similarly situated nurses who had worked for the hospitals and medical centers (referred to in this article collectively as “hospitals”) that belonged to the Arizona Hospital and Healthcare Association (“AzHHA”).  (Per diem nurses usually are employed directly by a hospital and work on short notice to cover a single shift.  Traveling nurses normally are employed by a staffing agency, which sends them to work at a hospital, where they work for a few weeks or months.  Traveling nurses often come from out of state, and are given temporary housing.)

According to the plaintiffs, in 1988 the AzHHA began a “Registry” of nurse staffing agencies.  (Most per diem and traveling nurses in Arizona find jobs through nurse staffing agencies.)  The Registry initially focused on quality: to be in the Registry, the nurses provided by a staffing agency, and the agency itself, had to meet certain standards.  Hospitals that belonged to the AzHHA were expected to use Registry staffing agencies when they needed per diem or traveling nurses.

For the first few years of the Registry, nurse staffing agencies negotiated directly with hospitals in setting wage rates.  But beginning in 1997, the plaintiffs alleged, the Registry began requiring that nurse staffing agencies negotiate solely with the AzHHA and accept uniform rates for per diem and traveling nurses for all hospitals.  Thus, if a nurse staffing agency wanted to supply per diem or traveling nurses to an AzHHA member hospital, it could charge no more than the AzHHA rate – and pay nurses no more than the uniformly set amount.

The plaintiffs alleged that AzHHA’s system of setting uniform nurse wage rates for its member hospitals artificially depressed nurses’ wages.  They claimed that their wages were reduced anywhere from five to40 percent.  In 2005 alone, they alleged, nurses lost between $17.7 million and $24.8 million in pay as a result of this wage-setting system, which they challenged under the federal Sherman Antitrust Act and theArizonaantitrust laws.

The suit as originally filed in July 2007 named only AzHHA and 12 member hospitals as defendants, but by November 2008, 65 hospitals had been joined as defendants.  The four named plaintiffs filed the case as a class action, potentially representing thousands of similarly situated per diem nurses and traveling nurses in Arizona who had worked at these hospitals and were allegedly harmed by the wage fixing.  In July 2009, the court agreed that the plaintiffs could represent a class of per diem nurses but denied class status for traveling nurses.

A few months later, the parties commenced intense negotiations that included several meetings with a mediator.  Approximately one year later, on September 9, 2010, the plaintiffs agreed to settle with 36 of the 65 defendant hospitals, with each agreeing to pay a portion of a $22.5 million settlement payment.  In return, the plaintiffs agreed on behalf of the class to waive and release all claims against these 36 defendants.  On September 27, 2010, the court preliminarily approved the settlement.  However, before the settlement can become final, the court must hold a “fairness hearing” to consider any objections that class members may raise; that hearing will be held in March 2011.

Nationwide Litigation Trend

The Johnson case is one among a series of class-action antitrust lawsuits filed against major healthcare systems nationwide in the past several years.  Those lawsuits targeted healthcare systems inAlbany,Chicago,Detroit,Memphis andSan Antonio, among other places.  In each, hospitals were accused of conspiring to fix the wages of registered nurses by explicitly agreeing to hold nurses’ wages artificially low and/or by sharing confidential wage information with the intent of fixing wages.  Service Employees International Union assisted the plaintiffs in these cases by locating class representatives and witnesses—and even by providing some of the attorneys’ fees and costs.

The plaintiffs in these lawsuits have had a mixed record.  Four of the fiveAlbanydefendants settled for over $9.1 million.  Likewise, three of the eightDetroitdefendants settled for approximately $21 million.  On the other hand, the courts in theChicagoandMemphiscases refused to certify the putative classes, meaning that those suits can proceed only as to the individual named plaintiffs and not on behalf of anyone else.  TheSan Antoniocase remains pending, with no decision yet on class certification.

Advice For Employers

This line of cases shows that plaintiffs’ attorneys are giving antitrust wage issues heightened attention – and are obtaining sizeable settlements when their cases are permitted to proceed as class actions.  Thus, employers are advised to be proactive to avoid liability in this area.

Pursuant to guidelines of the United States Department of Justice and the Federal Trade Commission, healthcare employers can share wage data only as part of a survey featuring certain specific safeguards.  A wage survey will pass muster under these guidelines only if:

1. The survey is conducted by a third party (such as a purchaser, a government agency, a consultant, an academic institution or a trade association);
2. The information provided by respondents to the survey is more than three months old; and
3. There are at least five respondents to the survey, no single respondent’s data represent more than 25 percent of any statistic reported in the survey, and the information is aggregated so that there is no way to determine how any particular respondent answered.

Surveys that do not satisfy these criteria will be judged on a case-by-case basis to determine whether they violate federal antitrust law.  Significantly, any information exchange about future compensation or wage increases will likely be deemed anticompetitive under the guidelines.

While Johnson and the other cases discussed above involved healthcare organizations, employers in all industries may be subject to wage-fixing claims under federal and state antitrust laws.  Accordingly, all employers are encouraged to take the following actions:

• Formulate and maintain a policy of keeping wage information (including wage information contained in collective bargaining agreements) confidential;
• Provide training to supervisors and managers to ensure that they understand and adhere to the policy (as even the casual sharing of wage information with another industry employer, such as when human-resources representatives from different organizations discuss wages with each other at a conference, may provide the basis for a class-action wage-fixing suit);
• Limit access to wage data only to those employees who need to know it in order to carry out their jobs; and
• Participate in industry-wide wage surveys only with the advice and assistance of legal counsel to ensure compliance with any and all applicable safe-harbor requirements.

That said, please be reminded that any policy or practice of prohibiting employees from discussing their wages with each other would likely be unlawful under the National Labor Relations Act, even in a nonunion environment, as this statute treats such information sharing between and among employees as legally protected.

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Please let us know if you have any questions about the Johnson case in particular or the permissible bounds of sharing wage data in general.  We also are available to assist with the development of applicable policies, corresponding training and litigation defense.