Litigating California Wage & Hour and Labor Code Class Actions

which United States District Court Judge William Alsup sharply criticized numerous aspects
of a negotiated class settlement on the ground that they were designed to benefit class
counsel and the defendant at the expense of the class. For example, he criticized
settlement terms providing that (1) class members were subject to a general release of all
claims (not just claims raised by the class action) if they failed to opt out of the settlement;
(2) the employer would receive back any money class members failed to claim, but the
plaintiff’s attorney fee award was to be a percentage of the gross settlement; (3) the named
class members were each to receive $15,000 incentive awards for acting as class
representatives; and (4) no explanation was provided why class members would receive
only about 11% of an amount the parties agreed was the maximum possible recovery. 479
Judge Alsup’s decision, although not binding on any other court, was quite influential on
judges in the complex courts in California who rule upon most of the class action
settlements. More recently, the criticism of large inventive payments to class
representatives was officially enshrined in an appellate decision, Clark v. American
Residential Services LLC, 480 which was written by an Orange County complex trial court
judge temporarily sitting by designation on the court of appeal.
C. Court Scrutiny of the Adequacy of the Settlement Amount
Traditionally, if class counsel was an experienced practitioner with a good reputation and
the case was settled using an experienced class action mediator, the courts would
presume that the settlement amount was fair as the product of an arm’s-length negotiation
between sophisticated parties. Indeed, longstanding case law for evaluating class
settlements in response to objections from class members that the settlement was
inadequate suggested that the court’s inquiry should not go beyond that level of scrutiny. 481
Furthermore, it has become a common practice with Labor Code class actions for counsel
for the parties to agree early in the action to forego formal discovery and set the action for
early mediation. The purpose of this exercise is to minimize expense and bring the matter
to a more rapid conclusion. Often, discovery will be informal and limited to disclosing
relevant policies, contact information for a sample of the proposed class to interview, and
enough payroll data to allow the parties to assess potential exposure under whatever
theory the plaintiffs advance.
Problems may arise, however, when multiple lawyers representing distinct potential class
representatives file essentially the same class action against the same defendant and then
differ in their view of the value of the case. They may also differ on the propriety of settling
479
480
481
Id.
175 Cal. App. 4th 785 (2009).
Id. at 1149.
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