Case Number: BC701978 Hearing Date: May 30, 2018 Dept: 34

SUBJECT: Motion to approve PAGA settlement

Moving Party: Plaintiff Marcy Faller, individually, and as a representative of other aggrieved employees

Resp. Party: None

The motion is DENIED without prejudice for the reasons stated below

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BACKGROUND:

Plaintiff commenced this action on 04/12/18 against defendant under Labor Code §§ 2698 et seq to recover civil penalties for violations of the Labor Code. Plaintiff alleges that defendant failed to provide salaried, non-exempt employees with accurate paystubs.

ANALYSIS:

Plaintiff seeks an order approving the settlement of the PAGA cause of action.

Relevant Law

“Notwithstanding any other provision of law, any provision of this code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in Section 2699.3.” (Lab. Code, § 2699(a).)

“A civil action by an aggrieved employee pursuant to subdivision (a) or (f) of Section 2699 alleging a violation of any provision listed in Section 2699.5 shall commence only after the following requirements have been met:

“(1) (A) The aggrieved employee or representative shall give written notice by online filing with the Labor and Workforce Development Agency and by certified mail to the employer of the specific provisions of this code alleged to have been violated, including the facts and theories to support the alleged violation.

[¶]

“(2) (A) The agency shall notify the employer and the aggrieved employee or representative by certified mail that it does not intend to investigate the alleged violation within 60 calendar days of the postmark date of the notice received pursuant to paragraph (1). Upon receipt of that notice or if no notice is provided within 65 calendar days of the postmark date of the notice given pursuant to paragraph (1), the aggrieved employee may commence a civil action pursuant to Section 2699.

“(B) If the agency intends to investigate the alleged violation, it shall notify the employer and the aggrieved employee or representative by certified mail of its decision within 65 calendar days of the postmark date of the notice received pursuant to paragraph (1). Within 120 calendar days of that decision, the agency may investigate the alleged violation and issue any appropriate citation. If the agency, during the course of its investigation, determines that additional time is necessary to complete the investigation, it may extend the time by not more than 60 additional calendar days and shall issue a notice of the extension. If the agency determines that no citation will be issued, it shall notify the employer and aggrieved employee of that decision within five business days thereof by certified mail. Upon receipt of that notice or if no citation is issued by the agency within the time limits prescribed by subparagraph (A) and this subparagraph or if the agency fails to provide timely or any notification, the aggrieved employee may commence a civil action pursuant to Section 2699.”

[¶]

“(e) (1) For purposes of this part, whenever the Labor and Workforce Development Agency, or any of its departments, divisions, commissions, boards, agencies, or employees, has discretion to assess a civil penalty, a court is authorized to exercise the same discretion, subject to the same limitations and conditions, to assess a civil penalty.

“(2) In any action by an aggrieved employee seeking recovery of a civil penalty available under subdivision (a) or (f), a court may award a lesser amount than the maximum civil penalty amount specified by this part if, based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary and oppressive, or confiscatory.

“(f) For all provisions of this code except those for which a civil penalty is specifically provided, there is established a civil penalty for a violation of these provisions, as follows:

“(1) If, at the time of the alleged violation, the person does not employ one or more employees, the civil penalty is five hundred dollars ($500).

“(2) If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.

“(3) If the alleged violation is a failure to act by the Labor and Workplace Development Agency, or any of its departments, divisions, commissions, boards, agencies, or employees, there shall be no civil penalty.”

(Lab. Code, § 2699 (a), (e), (f).)

A court has discretion to approve any penalty amount, even $0.00. (See Nordstrom Commission Cases (2010) 186 Cal.App.4th 576, 589.)

“Except as provided in subdivision (j), civil penalties recovered by aggrieved employees shall be distributed as follows: 75 percent to the Labor and Workforce Development Agency for enforcement of labor laws, including the administration of this part, and for education of employers and employees about their rights and responsibilities under this code, to be continuously appropriated to supplement and not supplant the funding to the agency for those purposes; and 25 percent to the aggrieved employees.” (Lab. Code, § 2699(i).

See also Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1195 [“If an employee successfully recovers an award of civil penalties, PAGA requires that 75 percent of the recovery be paid to the Labor and Workforce Development Agency, with the remaining 25 percent going to the employee.”].) “The superior court shall review and approve any settlement of any civil action filed pursuant to this part. The proposed settlement shall be submitted to the agency at the same time that it is submitted to the court.” (Lab. Code, § 2699(l)(1).)

Discussion

Plaintiff’s counsel declares that prior to commencing this action, a letter was sent “on behalf of plaintiff and other aggrieved employees, via certified mail to the California Labor & Workforce Development Agency (“LWDA”) and Defendant regarding Defendant’s alleged violation of certain Labor Code sections.” (Buchsbaum Decl., ¶ 10.) Labor Code § 2699.3(a)(1) requires that written notice be provided to LWDA by “online filing” rather than by mail. (See Labor Code § 2699.3(a)(1).) Counsel further declares that “[t]he LWDA never responded to the notice thus allowing Plaintiff to file the instant lawsuit.” (Buchsbaum Decl., ¶ 10.)

After mediation, the parties reached a written settlement which has been provided to LWDA prior to the hearing in compliance with Labor Code § 2699(1)(1). (See Buchsbaum Decl. ¶ 17.) Pursuant to the settlement, defendant has denied any liability or wrongdoing but has agreed to pay $500,000 into a common fund. (See Motion, p. 4:23-5:3.) The parties propose that the $500,000 be divided as follows:

$165,000 (or 33%) to cover plaintiff’s attorney fees.

$12,000 for litigation costs

$10,000 enhancement payment to plaintiff for her efforts and for releasing claims

$230,002.50 (75% of the remaining common fund) to LWDA

$76,667.50 (25% of the remaining common fund) distributed to aggrieved employees

(See Motion, p. 5:2-20.)

Plaintiff argues that the proposed settlement satisfies the purposes of the PAGA statute. $306,670 — the amount remaining after accounting for attorney fees, costs, and plaintiff’s $10,000 enhancement payment —“is large enough to punish or deter Defendant, and in fact we understand that changes have already been made internally to address the issues that were raised in our PAGA notice.” (Motion, p. 6:25-28; See Faller Decl., ¶ 5.)

Labor Code section 2699(g)(1) provides, in relevant part, that “[a]ny employee who prevails in any action shall be entitled to an award of reasonable attorney’s fees and costs.” (Lab. Code § 2699, subd. (g)(1).) Although plaintiff’s counsel initially took this case pursuant to a contingency fee agreement, because it “is a representative action, plaintiff’s counsel has agreed to a reduced fee consistent with similar class action approved fees that rely on a common fund analysis.” (Motion, p. 7:23-26.) As a result, plaintiff’s counsel seeks an award of $165,000, or 33% of the gross recovery. (See Id. at p. 7:27-28.)

Under the common fund doctrine, attorney fees may be paid out of the common fund rather than assessed against the opposing party:

“Because the common fund doctrine ‘rest[s] squarely on the principle of avoiding unjust enrichment . . . attorney fees awarded under this doctrine are not assessed directly against the losing party (fee shifting), but come out of the fund established by the litigation, so that the beneficiaries of the litigation . . . bear this cost (fee spreading).” (Lealao v. Beneficial Cal. Inc., (2000) 82 Cal.App.4th 19, 27.)

Plaintiff argues that her counsel’s efforts were instrumental in establishing the common fund and notes that, based on the work actually performed, the lodestar figure would be very close to the amount requested. (See Motion, p. 9:10-16; Buchsbaum Decl., ¶¶ 20-24.) The Court finds that the attorney fees requested by plaintiff are reasonable under the circumstances.

Nonetheless, the Court has one concern that prevents it from approving the settlement agreement as drafted.

Plaintiff asserts:

“the Settlement Agreement does not release any aggrieved employee’s non-PAGA claims for alleged violations of the Labor Code. Individual aggrieved employees who believe they have been denied overtime or minimum wage, for example, maintain those rights going forward to pursue those claims in another proceeding.” (Motion, p. 7:3-6.)

However, it does not appear that the settlement agreement explicitly states that defendant’s employees who are covered by this PAGA action retain the right to pursue individual claims. Further, the proposed letter to all employees affected by this action does not explicitly state that the employees retain their right to pursue individual actions for the various Labor Code violations alleged in this action.

The Court will approve the settlement when the agreement explicitly states – and the letter to employees explicitly informs – the employees that they maintain their right to pursue any individual actions they may have against defendant.