Case Name: Garcia v. Sanmina Corporation, et al.
Case No.: 17-CV-316369

This is a class and Private Attorneys General Act (“PAGA”) action alleging wage and hour violations by defendant Sanmina Corporation. Before the Court is plaintiff’s motion for preliminary approval of a settlement, which is unopposed.

I. Factual and Procedural Background

According to the operative complaint, plaintiff began working for defendant as a non-exempt employee in 2012, and continues to be employed in that capacity. (Complaint, ¶ 8.) Like other employees, plaintiff was required to routinely work overtime hours and was paid overtime wages. (Id. at ¶ 23.) He also earned non-discretionary remuneration in the form of shift differential pay, which was not factored into his regular rate of pay for purposes of paying overtime. (Ibid.) Consequently, plaintiff’s overtime wages were underpaid, and his wage statements were inaccurate as a result. (Ibid.) His wage statements were also deficient because they failed to identify the applicable rate and hours used to calculate his shift differential pay. (Ibid.) Finally, defendant required employees to work 7 days without any rest. (Id. at ¶ 40.)

Based on these allegations, plaintiff asserts claims for (1) violation of Labor Code sections 510, 558, and 1194 due to underpayment of overtime wages, (2) violation of Labor Code section 226 due to wage statement deficiencies, (3) violation of PAGA, and (4) violations of Business & Professions Code section 17200, et seq. (the Unfair Competition Law or “UCL”).

In August 2018, the Court entered a stipulated order certifying the first, second, and fourth causes of action for class treatment. It certified a “Regular Rate Class” of non-exempt California employees from September 27, 2013 to August 15, 2018 “who received overtime and shift differential pay in the same pay period,” along with a “Wage Statement Class” of non-exempt California employees from September 27, 2016 to August 15, 2018 “who received shift differential pay.” On August 30, 2018, the Court issued a stipulated order approving the form and method of notice to the class. The Court understands that the notice and opt-out processes have now been completed, and expects to receive an update on the results of those processes before it enters its order on the instant motion.

II. Legal Standards for Approving a Class Action/PAGA Settlement

Generally, “questions whether a settlement was fair and reasonable, whether notice to the class was adequate, whether certification of the class was proper, and whether the attorney fee award was proper are matters addressed to the trial court’s broad discretion.” (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 234-235, citing Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, disapproved of on other grounds by Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260.)

In determining whether a class settlement is fair, adequate and reasonable, the trial court should consider relevant factors, such as the strength of plaintiffs’ case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement.

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 244-245, internal citations and quotations omitted.)

In general, the most important factor is the strength of plaintiffs’ case on the merits, balanced against the amount offered in settlement. (See Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 130.) Still, the list of factors is not exclusive and the court is free to engage in a balancing and weighing of factors depending on the circumstances of each case. (Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245.) The court must examine the “proposed settlement agreement to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.” (Ibid., quoting Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1801, internal quotation marks omitted.)

The burden is on the proponent of the settlement to show that it is fair and reasonable. However “a presumption of fairness exists where: (1) the settlement is reached through arm’s-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.”

(Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at p. 245, citing Dunk v. Ford Motor Co., supra, 48 Cal.App.4th at p. 1802.) The presumption does not permit the Court to “give rubber-stamp approval” to a settlement; in all cases, it must “independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interests of those whose claims will be extinguished,” based on a sufficiently developed factual record. (Kullar v. Foot Locker Retail, Inc., supra, 168 Cal.App.4th at p. 130.)

Finally, Labor Code section 2699, subdivision (l) provides that “[t]he superior court shall review and approve any penalties sought as part of a proposed settlement agreement pursuant to” PAGA. Seventy-five percent of any penalties recovered under PAGA go to the Labor and Workforce Development Agency (“LWDA”), leaving the remaining twenty-five percent for the aggrieved employees. (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 380.) “[T]here is no requirement that the Court certify a PAGA claim for representative treatment” as in a class action. (Villalobos v. Calandri Sonrise Farm LP (C.D. Cal., July 22, 2015, No. CV122615PSGJEMX) 2015 WL 12732709, at *5.) “[W]hen a PAGA claim is settled, the relief provided … [should] be genuine and meaningful, consistent with the underlying purpose of the statute to benefit the public ….” (Id. at *13.) The settlement must be reasonable in light of the potential verdict value (see O’Connor v. Uber Technologies, Inc. (N.D. Cal. 2016) 201 F.Supp.3d 1110, 1135 [rejecting settlement of less than one percent of the potential verdict]); however, it may be substantially discounted given that courts often exercise their discretion to award PAGA penalties below the statutory maximum even where a claim succeeds at trial (see Viceral v. Mistras Group, Inc. (N.D. Cal., Oct. 11, 2016, No. 15-CV-02198-EMC) 2016 WL 5907869, at *8-9).

III. Settlement Process

According to a declaration by plaintiff’s counsel, defendant filed a motion for summary adjudication as to the first, second, and fourth causes of action in July 2018. Plaintiff deposed defendant’s person most knowledgeable on its policies regarding the calculation of overtime wages, shift premium wages, and the regular rate of pay. The deponent testified that defendant pays shift premiums to employees who work shifts other than the day shift and calculates the shift premium as a percentage of all earnings, including overtime compensation. Plaintiff filed an opposition to the motion for summary adjudication, which was scheduled to be heard by the Court on November 2, 2018.

On October 24, 2018, the parties participated in a mediation with Jeffrey Ross, an experienced wage and hour class action mediator. Prior to the mediation, defendant provided plaintiff with data for the certified class, including each employee’s dates of employment and pay periods at issue. Class counsel performed a comprehensive damage analysis based on this data. At the mediation, defendant argued that because the shift premium is paid as a fixed percentage of all wages, including overtime, Regular Rate Class Members would have received the same amount of pay had defendant included the shift premium in the regular rate of pay. It produced wage statements supporting this analysis. Defendant argued that plaintiff would be unable to establish a class-wide injury and/or a “knowing and intentional” violation of Labor Code section 226, subdivision (a). It also showed that employees must volunteer to work more than six consecutive days in a workweek, and a review of plaintiff’s time records showed only one instance where plaintiff worked an entire week without a day of rest.

After a full day of mediation, Mr. Ross made a mediator’s proposal of a $650,000 settlement, which the parties accepted. Defendant withdrew its motion for summary adjudication, and the parties executed a long-form settlement agreement on April 11, 2019.

IV. Provisions of the Settlement

The $650,000 gross settlement is non-reversionary. Attorney fees of up to $216,666 (one-third of the gross settlement), litigation costs not to exceed $20,000, and administration costs estimated at $8,500 will be paid from the gross settlement. $20,000 will be allocated to PAGA penalties, 75 percent of which will be paid to the LWDA. The named plaintiff will also seek an enhancement award of $10,000.

The settlement provides that the net settlement fund will be divided among participating class members pro rata based on their weeks worked during the settlement class period. The PAGA payment to class members will be allocated pro rata based on PAGA Members’ weeks worked during the PAGA period. Class members will not be required to submit a claim to receive their payments. Settlement awards will be allocated 20 percent to wages and 80 percent to interest and penalties, and defendant will separately pay the employer’s share of payroll taxes. Funds associated with checks uncashed after 180 days will distributed to Child Advocates of Silicon Valley. Based on the estimated 786 individuals in the putative class, the average payment to each class member will be $483.24, or $13.58 per workweek.

Class members who do not opt out of the settlement will release all claims “based on the allegations in the Action” for violations of Labor Code sections 226, 510, 558, and1194; PAGA penalties; claims for violation of Business & Professions Code section 17200 et seq; and associated claims for injunctive relief, liquidated damages, penalties, interest, fees, and costs.

V. Fairness of the Settlement

Based on the formal and informal discovery plaintiff obtained, plaintiff’s counsel concluded that Regular Rate Class Members sustained only nominal damages as a result of defendant’s overtime policy. Further, he concluded that PAGA penalties arising from defendant’s failure to provide a day of rest each workweek (the only relief available on this theory) would be insubstantial, as it was uncommon for employees to forgo a day of rest and defendant would argue that these instances did not violate Labor Code sections 551 and 552 because they resulted from class members’ voluntary choices to work a seventh day. Plaintiff’s counsel accordingly concluded that the wage statement claim was the strongest claim at issue in the case.

Based on the number of Wage Statement Class members (644), the maximum penalties associated with this claim are $2,162,500 and the maximum PAGA penalties are $10,944,300. Given the nature of the violation alleged and the outcome in similar cases that were litigated through trial, plaintiff’s counsel estimated that the likely PAGA penalties are closer to twelve percent of the maximum, or $1,313,316, for a total of $3,475,816 in potential liability.

Plaintiff submits that the settlement is fair and reasonable to the class based on the reasoning above and the general risks of litigation. The Court agrees with this assessment, particularly considering the portion of the case’s value attributable to uncertain penalties. Further, given that the alleged wage statement and overtime violations arise from the same theory, it is appropriate to allocate the settlement to the class as a whole based on their weeks worked during the class period. The Court also finds that the PAGA allocation provided by the settlement is genuine, meaningful, and reasonable.

The Court retains an independent right and responsibility to review the requested attorney fees and award only so much as it determines to be reasonable. (See Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 127-128.) While 1/3 of the common fund for attorney fees is generally considered reasonable, counsel shall submit lodestar information prior to the final approval hearing in this matter so the Court can compare the lodestar information with the requested fees. (See Laffitte v. Robert Half Intern. Inc. (2016) 1 Cal.5th 480, 504 [trial courts have discretion to double-check the reasonableness of a percentage fee through a lodestar calculation].)

VI. Settlement Class and PAGA Members

The Settlement Class consists of members of the already-certified Regular Rate and Wage Statement Classes who have not already opted out of the class and have not previously agreed to a general release of claims covering the class period. PAGA Members include Settlement Class Members along with any California employee who worked seven days in a row without a day off during the PAGA period, March 29, 2016 through December 31, 2018. These definitions are appropriate, and the settlement is fairly allocated among these groups.

VII. Notice

The content of a class notice is subject to court approval. (Cal. Rules of Court, rule 3.769(f).) “The notice must contain an explanation of the proposed settlement and procedures for class members to follow in filing written objections to it and in arranging to appear at the settlement hearing and state any objections to the proposed settlement.” (Ibid.)

Here, the notice describes the lawsuit, explains the settlement, and instructs class members that they may make a written or oral objection to the settlement. Because they were already provided with an opportunity to opt out of the class, class members are not permitted to opt out at this juncture. Class members are instructed that they may appear at the final fairness hearing to make an oral objection even if they do not submit a written objection. The gross settlement amount and estimated deductions are provided, along with each class member’s estimated payment. Class members are informed of their qualifying work days as reflected in defendant’s records and are given 45 days to dispute their workweeks or submit a written objection.

The notice is generally adequate, but section 10 must be modified to reflect the actual language of the release as provided by the settlement agreement. With this modification, the notice is approved.

Turning to the notice procedure, the court must consider: “(1) The interests of the class; (2) The type of relief requested; (3) The stake of the individual class members; (4) The cost of notifying class members; (5) The resources of the parties; (6) The possible prejudice to class members who do not receive notice; and (7) The res judicata effect on class members.” (Cal. Rules of Court, rule 3.766(e).) “If personal notification is unreasonably expensive or the stake of individual class members is insubstantial, or if it appears that all members of the class cannot be notified personally, the court may order a means of notice reasonably calculated to apprise the class members of the pendency of the action—for example, publication in a newspaper or magazine; broadcasting on television, radio, or the Internet; or posting or distribution through a trade or professional association, union, or public interest group.” (Cal. Rules of Court, rule 3.766(f).)

The parties have selected RG/2 Claims Administration as the settlement administrator. The administrator will mail the notice packet within 14 business days of preliminary approval, after updating class members’ addresses using the National Change of Address database. Any notice packets returned as undeliverable will be re-mailed to any forwarding address provided or located through reasonable efforts. Class members whose notices are re-mailed will have an additional 14 days to respond. These notice procedures are appropriate and are approved.

VIII. Conclusion and Order

Plaintiff’s motion for preliminary approval is GRANTED. The final approval hearing shall take place on August 23, 2019 at 9:00 a.m. in Dept. 1.

Prior to the hearing on this matter, plaintiff shall submit a declaration describing the results of the notice and opt-out processes that have already been completed, and disclosing the number of employees excluded from the class because they executed general releases. Plaintiff’s counsel shall appear at the hearing on this matter, by telephone if counsel prefers, to address any questions the Court may have on these subjects.

The Court will prepare the order.