Deloitte’s document review branch hit with $384-million class action lawsuit

Deloitte Lawsuit
According to the lawsuit, hundreds of lawyers were misclassified as independent contractors, depriving them of their basic employment rights

By Daniel Fish

On Friday March 13th, 2015

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A Toronto lawyer has filed a massive class action lawsuit against Deloitte LLP, seeking $384 million on behalf of lawyers who worked at the accounting giant’s document-review branch. 

Deloitte stormed into the document-review game last January, when it acquired ATD Legal Services, a start-up that specialized in outsourced legal work, often assisting on major files for the largest law firms in the city. Founded in 2010, ATD was the brainchild of Shelby Austin, a former partner at Davies Ward Phillips & Vineberg LLP, who continues to oversee the document-review team at Deloitte. Both ATD and Deloitte hired contract lawyers to perform much of the work on a project-by-project basis.

But according to the lawsuit, filed this week by Shireen Sondhi, ATD misclassified the lawyers as independent contractors, when they should have been employees. The suit alleges that this allowed ATD to deprive them of vacation and overtime pay — and to fire them from a project, at whim, without any financial recourse.

The plaintiff is suing Deloitte as a successor employer for the actions of ATD.

At both ATD and Deloitte, according to the statement of claim, some document-review “projects which were projected to last several weeks would end without warning after only a few days, leaving [lawyers] without expected income.” And, the claim continues, lawyers that worked too slowly were sometimes “sent home in the middle of [a] workday.”

If these lawyers were, indeed, independent contractors, this behaviour would be legally sound. But their work bore many of the hallmarks of employment, says Andrew Monkhouse, the lawyer for the plaintiff. None of the document reviewers, he notes, could work from home, use their own computers or negotiate their wages. As Monkhouse puts it, this is “sounding an awful lot like an employee relationship.”

 

Deloitte might “fall on its sword”

If Monkhouse has his facts right, then his legal analysis is “dead-on,” says David Whitten, a Toronto employment lawyer who has reviewed the statement of claim. “Deloitte had a bunch of ducks in the office and they were calling them geese for convenience,” he says. “If something quacks like a duck, but you call it something else, it’s still a duck.”

Whitten also speculates that Deloitte knows ATD had misclassified its lawyers for years. He points to the fact that, according to the statement of claim, after Deloitte bought ATD last year, the company started to deduct employment insurance and Canada Pension Plan contributions from each contract lawyer’s hourly rate. This is only necessary, he says, if the lawyers are employees.

“Someone behind the curtain realized that these people could be designated as employees, as opposed to independent contractors,” says Whitten. “So, to cover off on that liability, they started treating them like employees for payroll purposes, but without giving them any of the benefits that an ordinary employee would enjoy.”

The lawsuit also alleges that Deloitte did not warn the lawyers in advance of entering into an agreement that it would be making payroll deductions.

The decision to make those deductions, says Whitten, is likely to backfire if the lawsuit lands in a courtroom.

“It’s, in effect, an admission that these people could be employees,” he explains. If Deloitte’s legal defence is that the lawyers have always been contractors, he adds, then the company “is going to fall on its sword.”

The lawsuit names Deloitte and Procom Consultants, a placement agency that manages employment contracts for Deloitte, as co-defendants.

When given an opportunity to comment, Deloitte spokesperson Vital Adam said in an email: “We believe that the claim has no merit and we will vigorously defend the proposed class action. As the matter is now before the courts, it is not our intention to discuss the matter publicly.” Procom did not respond to requests for comment.

 

The value of the lawsuit is “insane”

Although Whitten agrees with the legal analysis in the claim, he says the damages sought by the plaintiff are “overblown.”

He cites the fact that the lawsuit seeks, on behalf of all potential plaintiffs, $260 million of pay “in lieu of reasonable notice.”

For that number to make any sense, he says, the class action would need to represent almost a thousand lawyers, all of whom earned $150,000 a year. Plus, he adds, they would need to convince a judge that they all deserve a full 24 months of paid notice — the chances of which are “slim to none” because the contracts were short-term, and most of the potential plaintiffs are at an early stage in their careers.

“There’s just no way that there’s going to be that many people out there that are entitled to that much money,” he says. “It’s insane. That part of the claim is so overblown that, on it’s face, it looks ridiculous.”

Employment lawyers, he explains, often inflate the damages they are seeking “for the purposes of generating outrage.” But in this case, he says, it might be a strategic misstep, because, in general, judges evaluate lawsuits with “extra vigilance” if “it’s just not possible that there could ever be that amount of damages.”

 

Resentment has been “brewing” for more than a year

Monkhouse says his client’s frustration began when Deloitte acquired ATD last January.

After taking over, the lawsuit claims, Deloitte reduced the hourly rate for contract lawyers from $50 to $47. “I think there has been a lot of resentment brewing in the class members from that point,” says Monkhouse.

At the time, to justify the pay cut, Deloitte said that document-review done for its projects would not be legal work — and so, contract lawyers would no longer need to pay for their own legal insurance. (This is a controversial argument in its own right, as reviewers at ATD did have to buy insurance.)

But, according to the statement of claim, Deloitte had another reason for reducing the hourly rate for contractors: the company wanted to use the extra cash to pay placement “fees levied by Procom” Consultants.

So far, Sondhi is the only lawyer listed as a plaintiff, but Monkhouse says “many” of Sondhi’s colleagues have expressed support for the claim.

Now that the lawsuit has been filed, a judge will have to certify the class action, which, according to Whitten, might not happen for six months to a year. If the action is certified, then everyone who has performed document review for ATD or Deloitte as an independent contractor will automatically become a plaintiff, unless they opt-out of the lawsuit.


Photo: Grid Engine