Litigating California Wage & Hour and Labor Code Class Actions

For example, in particular industries where there is a transient workforce, it is common for
only about one quarter of the class members to make claims—either because they do not
receive notice or because the value of the individual settlement amounts is too low to
attract their attention. When a small percentage of the class submits claims in a
reversionary settlement, it may actually result in class counsel receiving significantly more
money than the class as a whole. For example, in connection with a settlement of one
million dollars, if class counsel received thirty percent, that would leave no more than
$700,000 for the class (actually less, because settlement administration costs are typically
paid out of the gross settlement). If the class claims only 25% of the amount set aside for
claims, then the class would receive no more than $175,000 versus the $300,000 class
counsel would be slated to receive. While this arrangement could be defended on the
ground that class counsel secured a potential one million dollar settlement, courts have
looked unfavorably on large payouts to class counsel as compared to the payment received
by the class.
One way courts can address this inequity is simply to cut the attorney’s fee and distribute
the difference to those members of the class who made claims. In the above example, if
class counsel’s fee was reduced to 15% of the gross, then it would result in the lawyers
obtaining $150,000, and the class receiving $325,000, an effective contingency of 31%. Of
course, this result is at odds with what class counsel negotiated, so a routine reduction in
fees would substantially reduce the willingness of plaintiff’s counsel to agree to
reversionary settlements.
Courts could also take greater pains to ensure that class members understand that they
have claims and make an informed decision whether to make claims. Courts could extend
the notice period, could order that the claims administrator send multiple reminders of the
need to return a claim form, or even that the administrator (or class counsel) actually
telephone class members and encourage them either to make claims or opt out. While
such steps make settlement administration more expensive, they serve the goal of
minimizing the number of situations where class members unwittingly receive no money
under a settlement as a result of simple ignorance.
Rather than address the problem of low claims rates through better notice or adjustment of
the attorney’s fee, many courts have simply refused to approve reversionary settlements. 473
That is, court have been reluctant to approve a settlement by which attorney’s fees are
calculated as a percentage of the gross value, but to the extent class members fail to claim
their designated portion of the settlement fund, the money is returned to the defendant. 474
473
474
See Managing Class Action Litigation, A Pocket Guide for Judges (Federal Judicial Center, 2005)
http://www.fjc.gov/public/pdf.nsf/lookup/classgde.pdf/$file/classgde.pdf.
This can be contrasted with a true “claims made” settlement, where the employer simply agrees to pay a sum consisting
of: (1) payments to class members who submit claims (pursuant to a formula), (2) payment to class counsel for fees
Seyfarth Shaw LLP | www.seyfarth.com Litigating California Wage & Hour Class Actions (12th Edition) 104