Labor & Employment Law Daily Wrap Up, WAGE-HOUR–CLASS ACTIONS–N.D. Cal.: Proposed settlement of state law misclassification claims receives preliminary approval, (Jan 29, 2025)

By Nadine E. Roddy, J.D.

The agreement requires the employer to establish a non-reversionary $5.25 million gross settlement fund.

A proposed settlement of a wage-hour class action, which asserted numerous claims under the California Labor Code, was fair, adequate and reasonable, a federal district court in California ruled in granting preliminary approval of the settlement. The agreement required the employer to establish a non-reversionary Gross Settlement Fund of $5.25 million in exchange for the plaintiffs’ release of claims (Norton v. Strategic Staffing Solutions-S3, LLC, No. 3:23-cv-06648-JSC (N.D. Cal. Jan. 27, 2025)).

Employee misclassification. The named plaintiff in a putative class action, an employee of a staffing company, brought a multi-claim wage-and-hour action against her employer, alleging that the company systematically misclassified its recruiters as exempt employees in violation of the California Labor Code. The employer removed the case to federal court, asserting jurisdiction under the federal Class Action Fairness Act of 2005. The complaint was then amended to add a proposed class of non-exempt employees asserting many of the same Labor Code violations. Following private mediation, the parties reached a class-wide resolution of all claims.

The proposed Settlement Agreement (Agreement) provided for a Settlement Class of two sub-classes: (1) the Non-Exempt Class, composed of all non-exempt persons who worked at least one 3.5-hour shift for the employer, whether as a direct-hire or agency employee, in California during the Release Period; and (2) the Exempt Class, composed of all persons who worked at least one 3.5-hour shift for the employer in California and were classified as an exempt employee during the Release Period. The employer was required to establish a non-reversionary Gross Settlement Fund of $5,250,000, and the following amounts could be deducted to yield the Net Settlement Fund:

1. $1,700,000 in attorney fees;

2. $50,000 in litigation costs;

3. $35,000 as a Class Representative incentive payment;

4. $8,500 in estimated settlement administration costs; and

5. $550,000 for the California Private Attorneys General Act (PAGA) released claims, with $412,500 (75 percent) paid to the relevant state agency and $137,500 (25 percent) paid to class members.

The remaining Net Settlement Fund of at least $2,856,500 would be distributed to class members in pro rata shares based on the number of workweeks worked. Workweeks worked by exempt employees would be weighted at 5:1 to the workweeks worked by non-exempt employees to account for the difference in their legal claims. In return, the Named Plaintiff and the class members who did not timely opt out would release all claims against the employer, including any PAGA penalties.

Before the court was the Named Plaintiff’s motion for preliminary approval of the Agreement.

Class certification. The court determined that the proposed Settlement Class, consisting of the two sub-classes of employees, met the requirements of Rule 23(a) and (b) for conditional certification. Among other factors, the court noted that class actions are preferred in wage-and-hour actions when workers might forgo pursuing their claims individually for fear of retaliation.

Fairness of proposed agreement. The court noted that before approving a class action settlement, a court must find that the settlement is “fundamentally fair, adequate and reasonable.” A court may preliminarily approve a settlement if it (1) appears to be the product of serious, informed, non-collusive negotiations; (2) does not grant improper preferential treatment to class representatives or other segments of the class; (3) falls within the range of possible approval; and (4) has no obvious deficiencies.

In this case, the settlement was reached on a well-developed record after extensive factual and legal investigation of the claims. The parties reached the settlement following a full-day mediation session with a retired judge who specialized in mediation of wage-hour class actions and employment litigation. Regarding preferential treatment, although the court had concerns about the proposed $35,000 award to the Class Representative, the court deferred ruling on the appropriateness of the amount until the final approval stage. To determine whether the settlement amount was within the range of possible approval, the court balanced the plaintiffs’ expected recovery against the value of the settlement offer, concluding that the settlement amount was within the range of reasonableness. Finally, the court found no obvious deficiencies on the face of the Agreement.

For these and other reasons, the court preliminarily determined that the Agreement was fair, reasonable, and adequate.

PAGA settlement. The court noted that the PAGA allocation represented about 10% of the plaintiffs’ potential PAGA recovery at trial, and about 10 percent of the overall settlement recovery. That the PAGA recovery—as a percentage of the total recovery—was roughly proportional with its percentage of the employer’s overall exposure suggested that the proportions were reasonable and adequate.

Attorney fees. Although the court expressed some concern about the amount of the attorney fees request, it deferred the issue until the final approval stage.

The court thus granted preliminary approval of the proposed class action settlement.

The case is No. 3:23-cv-06648-JSC.

Judge: Corley, J.

Attorneys: Elliot J. Siegel (King & Siegel) for Paula Norton. Eileen Regina Ridley (Foley & Lardner) for Strategic Staffing Solutions, L.C.

Companies: Strategic Staffing Solutions, L.C.

Cases: WageHour ClassActions Exemptions Procedure AttorneysFees StateLawClaims CaliforniaNews