Case Name: Jesus Chavez v. Guess? Retail, Inc., et al.

Case No.: 16CV300341

Case Name: Chuck Clark v. Guess? Retail, Inc., et al.

Case No.: 20CV361750

Before the Court are two actions under the Private Attorneys General Act (“PAGA”) by employees of defendant Guess? Retail, Inc. At issue is plaintiff Jesus Chavez’s motion for approval of a global settlement, which is unopposed.

Plaintiff Chuck Clark seeks to join in Chavez’s motion, and this request is GRANTED. Clark and his counsel have also filed declarations supporting the approval of the settlement.

I. Factual and Procedural Background

According to the operative complaint in Chavez, plaintiff Chavez was a non-exempt employee at defendant’s Gilroy store until December of 2015. (Chavez Second Amended Complaint (“SAC”), ¶ 7.) He alleges that defendant failed to pay minimum and overtime wages for time employees spent undergoing security checks and also failed to provide required meal and rest breaks, as well as accurate itemized wage statements, in light of the security checks. (Id. at ¶¶ 19-20.)

On September 26, 2016, Chavez filed his complaint, asserting five causes of action for Labor Code violations, a claim under PAGA, and a claim for violation of Business & Professions Code section 17200. After the Court granted defendant’s petition to compel arbitration of the other causes of action, Chavez filed a First Amended Complaint alleging a PAGA claim only. Chavez filed the SAC on August 24, 2017, in response to the Court’s order granting defendant’s motion to strike certain allegations regarding the recovery period governing the penalties sought.

Meanwhile, on August 20, 2018, another putative wage and hour class action was filed against defendant in Los Angeles County by plaintiff Chuck Clark. According to counsel for Clark, the original complaint in that action alleged unfair competition and violations of the Labor Code and applicable wage order for failures to pay overtime, failures to comply with meal and rest break requirements, failure to provide accurate itemized wage statements “by failing as a matter of policy and practice to provide accurate payroll records,” and failure to timely pay wages. The moving papers do not address to what degree the allegations in Clark arose from defendant’s security check practices and to what extent they are different from those in this action. On November 1, 2018, Clark filed an amended complaint adding derivative PAGA claims to the Los Angeles action. On January 14, 2019, he filed a second amended complaint alleging claims under PAGA only. At some point, the Los Angeles action was stayed in favor of this action, and it has now been dismissed.

After the parties to Chavez and Clark reached the global settlement now before the Court, Clark re-filed his operative complaint in Santa Clara County. The complaint alleges that defendant failed to properly calculate overtime and missed meal period premiums in light of its incentive compensation program. (Clark Complaint, ¶¶ 8-11.) It also alleges that aggrieved employees were not provided with meal and rest periods “[a]s a result of their rigorous work schedules.” (Id. at ¶¶ 12-13.) Finally, Clark alleges derivative and independent wage statement violations. (Id. at ¶ 14.)

Plaintiffs now move for an order approving the parties’ PAGA settlement.

II. Legal Standard for Approving a PAGA Settlement

Under PAGA, an aggrieved employee may bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 380.) 75 percent of any penalties recovered go to the Labor and Workforce Development Agency (“LWDA”), leaving the remaining 25 percent for the employees. (Ibid.) PAGA is intended “to augment the limited enforcement capability of [LWDA] by empowering employees to enforce the Labor Code as representatives of the Agency.” (Id. at p. 383.) A judgment in a PAGA action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. (Id. at p. 381.)

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. “[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.)

There is little case law addressing the standard for approving a PAGA settlement. (See Syed v. M-I, L.L.C. (E.D. Cal., Feb. 22, 2017, No. 112CV01718DADMJS) 2017 WL 714367, at *13, fn. 8.) As one federal court recently noted, “aside from [the] bland mandate” that courts “review” PAGA settlements, “the Act is surprisingly short on specifics. … [N]either the California legislature, nor the California Supreme Court, nor the California Courts of Appeal, nor the [LWDA] has provided any definitive answer to th[e] vexing question” of what standards govern the courts’ review. (Flores v. Starwood Hotels & Resorts Worldwide, Inc. (C.D. Cal., May 19, 2017, No. SACV1401093AGANX) 2017 WL 2224265, at *1.)

What guidance there is comes largely from federal cases. In connection with one such case, the LWDA indicated that “when a PAGA claim is settled, the relief provided for under the PAGA [should] be genuine and meaningful, consistent with the underlying purpose of the statute to benefit the public ….” (Villalobos v. Calandri Sonrise Farm LP, supra, 2015 WL 12732709, at *13.) The PAGA 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 and the Parties’ Agreement

According to a declaration by Chavez’s counsel, following the filing of the SAC, the parties to Chavez propounded and responded to discovery requests, engaged in extensive meet and confer regarding discovery, sent a Belaire-West notice to aggrieved employees, and took and defended the depositions of the named plaintiff and defendant’s person most knowledgeable.

In July of 2019, they agreed to schedule a mediation with Michael E. Dickstein, a well-respected neutral with experience mediating wage and hour class and representative actions. Prior to the mediation, defendant produced data regarding the number of aggrieved employees and other information that enabled plaintiff to perform a thorough analysis of damages and liability. The mediation took place on September 26, 2019, and was also attended by counsel for the Clark plaintiff. The parties reached a settlement in principle that day.

The settlement requires defendant to pay a total of $980,000. $326,666.67 in attorney fees and $26,431.23 in costs will be deducted from the gross settlement, along with $19,000 in administrative costs. The net settlement will be distributed 75 percent ($455,926.57) to the LWDA and 25 percent ($151,975.52) to the aggrieved employees, based on the number of pay periods worked by each employee during the PAGA period. The 7,944 aggrieved employees will receive an average payment of approximately $19.13.

The settlement does not appear to provide for incentive awards to the named plaintiffs, and the moving papers do not address whether the plaintiffs are receiving any compensation beyond what will be provided to all aggrieved employees.

In exchange for the settlement, aggrieved employees will release “any and all PAGA claims or causes of action of whatever kind or nature which occurred during the PAGA Period that were alleged, or that reasonably could have been alleged based on the facts alleged in Plaintiffs’ LWDA letters, complaints, or the Action,” including, but not limited to specified wage and hour claims.

IV. Analysis of the Penalties Provided by the Settlement

As an initial matter, both plaintiffs must disclose any compensation they are receiving from defendant beyond what will be paid to all aggrieved employees under the settlement, and must lodge any individual settlement agreements with the Court.

As to the dollar value of the settlement, the Court is not able to determine whether the parties’ agreement merits approval based on the record currently before it. Counsel for Chavez estimates the maximum value of the case to be $12,348,900, based on a maximum penalty of $100 for each pay period at issue. However, counsel does not explain why this valuation assumes there was only one violation per pay period and why it assumes a maximum penalty of $100 for an initial violation as opposed to $200 for subsequent violations.

Moreover, Chavez provides no substantive discussion of the merits of his claim. While the Court is aware of and gives weight to the possibility that the maximum penalties may not be awarded even in a successful PAGA action, the SAC alleges that “it is well-settled that Defendants should have paid applicable minimum and overtime wages, for time spent in these security checks, as well as meal and rest period premium pay for the shortened meal and rest breaks as a result of having to undergo these security checks ….” (SAC, ¶ 19.) In view of the eight percent recovery that the settlement represents, the Court wishes to understand plaintiff’s views regarding how well-settled the applicable law is, as well as regarding how clear defendant’s liability is in this case. Moreover, the Court wishes to understand plaintiff’s assumption that a single security check violation occurred in each pay period.

The moving papers also include no discussion of the merits of plaintiff Clark’s claim. Clark submits a declaration discussing his experience with security checks, which implies that his claim essentially duplicates Chavez’s. However, the violations alleged in his complaint arise from failure to properly calculate overtime and missed meal period premiums in light of an incentive compensation program and from missed meal and rest periods due to employees’ “rigorous work schedules.” (Clark Complaint, ¶¶ 8-13.) The Court requires further information regarding plaintiff Clark’s claims to evaluate the settlement before it.

Finally, on February 3, Chavez’s counsel filed a reply brief notifying the Court that “[b]ased on Defendant’s review of its own updated records, the applicable pay periods ha[ve] now exceeded” the 126,352 pay periods the parties assumed for purposes of negotiating their settlement. The parties intend to shorten the applicable PAGA period so that the settlement will continue to apply to 126,352 pay periods. In light of this development, the Court wishes to know how many pay periods defendant determined are at issue based on its review of its updated records, and how many employees will be excluded from participating in the settlement given the proposed change to the PAGA period.

Plaintiffs’ counsel shall file supplemental declarations addressing these issues prior to the hearing on this matter if possible. In addition to the issues discussed above, the declarations shall describe to what extent the employees aggrieved by the violations alleged in Chavez overlap with those aggrieved by the violations alleged in Clark.

V. Administration Process

The Court must also be apprised of process through which the settlement will be administered if approved. Counsel’s supplemental declarations shall describe the process proposed by the parties. Finally, counsel’s supplemental declarations shall address the results of the Belaire-West process that has already been completed in this action, and shall inform the Court whether such a process was completed in Clark and to what result.

VI. Conclusion and Supplemental Filings Required

Plaintiffs’ counsel shall file a supplemental declaration addressing the issues raised by the Court prior to the hearing on this matter if possible. Also prior to the hearing, plaintiffs shall lodge any individual settlement agreements between defendant and the named plaintiffs for the Court’s review.

The Court will prepare the order.

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