Does anyone remember when Iron Man 3 came out back at the beginning of May? Does anyone care that it’s the highest grossing movie of 2013? Probably not. And most people probably don’t care that July 2013 went down as the second highest-grossing month of all time, thanks to Despicable Me 2, Monsters University, and (ugh) Grown Ups 2. No, when people look back on the summer of 2013, they’ll likely focus on one massive story — that this was the summer Americans decided to reject tent pole summer films. The Lone Ranger, Pacific Rim, White House Down — these are just a handful of the box office under performers this summer, and a stark reminder to movie studios that simply throwing $200 million onto film does not necessarily mean it will generate a massive box office return. Big budget spectacle used to equal box office gold mine, but no longer.
The same can be said with settlements in FLSA collective actions. It used to be that so long as the parties cut a decent deal, it was as given that the court would place its seal of approval on the proceedings, if for no other reason than to simply usher the parties out of the courtroom and back to work. But that is not necessarily the case in the Ninth Circuit district courts lately. We’ve noted a number of such cases in recent weeks but take, for example, the recent decision of Cordy v. USS-Posco Industries, et al., Case No. 3:12-cv-00553 (N.D. Cal., Aug. 1, 2013). A standard wage and hour story forms the action, where production and maintenance workers alleged the company denied them overtime pay, accurate wage statements, and adequate meal and rest periods. Specifically, the plaintiffs alleged that the company required its employees to clock in six minutes before the start of their actual shifts and did not pay them for their extra time. The employees spent those six minutes donning and doffing, as well as conferring with employees departing their shifts about various issues on the plant floor that day.
After more than a year of litigation, including lengthy discovery of tens of thousands of documents, personnel files, and pay records, the parties agreed to settle the lawsuit for $3.5 million. In terms of dollar amounts, just over $2.17 million was set to go to the putative class members at approximately $3,375 per worker. The remainder of the funds was to be divvied up for payment to the settlement administrator, payment to the State Labor Workforce Development Agency, and the largest piece was for the attorneys’ fees.
Much like audiences refused to accept Johnny Depp pretending to be a Native American, the court slapped down the settlement and sent the parties back to negotiations faster than After Earth disappeared from the weekend charts. Among the “obvious” deficiencies in the agreement, the court noted that the proposed settlement contained a cy pres award that lacked a nexus to the plaintiff class (specifically, there was no explanation why they were giving money to the Juvenile Diabetes Research Fund), and more significantly, that the calculation for determining the amount for each class member may not have been proportional to the amount of time worked. In other words, the court could not tell whether the settlement was fair to compensate all of the employees only on the basis of their time worked.
The parties were given 60 days to submit a revised proposed order before appearing in front of the court again in October.
The Bottom Line: Contrary to the way things may have been done in the past, courts are now spending more time to scrutinize settlement agreements. Courts appear more willing to reject settlement agreements they do not understand, particularly if the parties cannot explain why or how something is a good deal for the plaintiff class members.