Judge: David S. Cunningham, Case: 24STCV03110, Date: 2025-06-12 Tentative Ruling
Case Number: 24STCV03110 Hearing Date: June 12, 2025 Dept: 11
Rodriguez (24STCV03110)
Tentative Ruling Re:
Supplemental Declarations Re: Motion to Approve PAGA Settlement[1]
Date: 6/12/25
Time: 10:30
am
Moving Party: Omar Rodriguez (“Plaintiff”)
Opposing Party: None
Department: 11
Judge: David S. Cunningham III
________________________________________________________________________
TENTATIVE RULING
Plaintiff’s motion to approve PAGA settlement is
granted as to the gross and net settlement amounts.
The April 2, 2025 ruling on the incentive award
stands.
The Court will rule on the scope of the releases
during the June 12, 2025 hearing.
BACKGROUND
“This is a wage-and-hour
action.” (4/2/25 Ruling Re: Motion to Approve PAGA Settlement, p. 1.)
“In June 2024, the parties
participated in mediation and eventually reached a PAGA-only settlement.” (Ibid.)
On April 2, 2025, Plaintiff’s
motion to approve the settlement came on for hearing. The Court granted the motion as to “attorney
fees ($33,333.33), attorney costs ($14,500.00), administration costs
($2,750.00), and incentive award (reduced to $5,000.00)” and ordered Plaintiff
to provide supplemental evidence regarding “the gross and net settlement amounts.”
(Ibid.)
On May 20, 2020, Plaintiff’s
counsel and defense counsel filed supplemental declarations.
Now, the Court must determine
whether the supplemental declarations support granting the rest of the
settlement.
LAW
PAGA
permits an “aggrieved employee” to recover Labor Code civil penalties on the LWDA’s
behalf, if the LWDA declines to collect the penalties itself. (Cal. Lab. Code, § 2699, subd. (a); see also Mejia
v. Merchants Building Maintenance, LLC (2019) 38 Cal.App.5th 723,
732-733.) The California Supreme Court
has distinguished between Labor Code “civil penalties” that are “intended to
‘punish the employer’ for wrongdoing, often ‘without reference to the actual
damage sustained’” and “statutory damages” that “primarily seek to compensate
employees for actual losses incurred” – a PAGA action can recover only the
former. (Z.B., N.A. v. Superior Court
(2019) 8 Cal.5th 175, 182, 198 [holding that Labor Code section 558 “amount
sufficient to recover unpaid wages” is not a “civil penalty” recoverable via
PAGA].) “A PAGA action is ‘fundamentally a law enforcement action designed to
protect the public and not to benefit private parties.’” (Mejia, supra, 38 Cal.App.5th
at 732; see also Iskanian v. CLS Transportation Los Angeles, LLC (2014)
59 Cal.4th 348, 381.)
PAGA
requires a court to “review and approve any settlement of any civil action
filed” under PAGA, but it does not provide review and approval standards or
guidelines. (Cal. Lab. Code, § 2699, subd. (l)(2).) The California Supreme Court has interpreted PAGA
as requiring courts to ensure that “any negotiated [PAGA] resolution is fair
to those affected.” (Williams v.
Superior Court (2017) 3 Cal.5th 531, 549, emphasis added).) The parties affected by a PAGA settlement
include: (1) the LWDA, who receives 75% of settlement funds and is “bound by
the outcome of the proceeding to adjudicate the employee’s PAGA claim” (Mejia,
supra, 38 Cal.App.5th at 732); (2) the aggrieved employees, both party
and non-party, who receive 25% percent of settlement funds and are, like the
LWDA, bound by a PAGA action judgment; (3) plaintiffs’ counsel, who may be
awarded reasonable attorney fees and costs; and (4) defendant, who pays the
settlement.
Moniz v.
Adecco USA, Inc. (2021) 72 Cal.App.5th 56 provides
greater detail about the standard courts should apply when evaluating PAGA
settlements. The opinion adopts the
“fair, reasonable, and adequate” standard used in class settlements.
(4/2/25 Ruling Re: Motion to Approve PAGA
Settlement, pp. 1-2.)
DISCUSSION
Incorporation
The Court incorporates the April 2nd
ruling.
Gross Settlement Amount
Plaintiff’s counsel’s supplemental declaration
states:
6. The Settlement
defines Gross Settlement Amount as follows: “$100,000.00, the total amount
Defendant agrees to pay under the Settlement, except as provided in Section 7
herein. The Gross Settlement Amount will be used to pay the Individual PAGA
Payments, LWDA PAGA Payment, PAGA Counsel Expenses Payment, PAGA Counsel Fees
Payment, PAGA Representative Enhancement Payment, and Administration Expenses
Payment.” A true and correct copy of the Settlement is attached as Exhibit
B. (See Settlement, ¶ 1.12.)
7. As detailed in
Plaintiff’s Motion, the Gross Settlement Amount is based on three main factual
allegations supported by (1) the results of Plaintiff’s expert’s analysis of a
twenty percent (20%) sample of the time and corresponding payroll records of the
Aggrieved Employees; (2) Plaintiff’s review of additional, relevant documents
produced by Defendant in discovery, including the Employee Handbook applicable
during the PAGA Period; and/or (3) information from Plaintiff about his
personal experiences and observations while employed by Defendant.
8. The first is
Plaintiff’s allegation that Defendant failed to properly calculate Aggrieved
Employees’ respective regular rates of pay for purposes of paying overtime and
meal break premium wages. The sample of time and corresponding payroll records
demonstrated that 26.7% of sampled pay periods included both biweekly overtime
and additional non-discretionary remuneration, with the latter not incorporated
in the former, resulting in at least $5,102.00 of extrapolated underpayment;
and 5.4% of sampled pay periods included both meal break premiums and
additional non-discretionary remuneration, with the latter not incorporated
into the former, resulting in at least $1,537.00 of extrapolated underpayment.
In evaluating this claim, PAGA Counsel considered that, on the one hand, the
alleged regular rate violations were demonstrable on the face of the sample
records, and thus, an award of civil penalties for any pay period in which a
violation occurred was apt. On the other hand, PAGA Counsel considered that the
violations did not result in substantial underpayment and were only identified
in roughly 27% of all pay periods, and thus, the Court was likely to
discretionarily decrease a maximum penalty award.
9. The second is
Plaintiff’s allegation that Defendant failed to pay Aggrieved Employees meal
period premium wages for short, late, and/or missed first and second meal
periods. The sample of time and corresponding payroll records demonstrated that
Aggrieved Employees recorded approximately 33,670 meal periods for shifts
greater than five hours, and that 29.1% were recorded after the end of the
fifth hour but were not waived or compensated through attendant meal period
premium wages. In evaluating this claim, PAGA Counsel considered that the
alleged meal period violations were demonstrable on the face of the sample
records and were identified in roughly 78% of all pay periods. In addition,
PAGA Counsel considered that the sample records could not support a record-based
analysis of interrupted meal periods, which Plaintiff claims resulted in a
majority of meal period violations, and thus, an award of civil penalties for
any pay period in which a violation occurred was apt and likely to earn Court
approval.
10. The third is
Plaintiff’s allegation that Defendant failed to reimburse Aggrieved Employees
for all necessary business expenses incurred. The sample of time and
corresponding payroll records demonstrated that Aggrieved Employees were never
reimbursed for any expenses, yet Plaintiff personally experienced and observed
other Aggrieved Employees experience (1) Defendant’s policy and practice of
requiring Aggrieved Employees to utilize their personal cellphones to
communicate about scheduling and other work-related topics on a weekly basis,
and (2) Defendant’s policy and practice of requiring Aggrieved Employees to
purchase at least one pair of non-slip shoes each year. In evaluating this
claim, PAGA Counsel considered that, on the one hand, Plaintiff’s claims
support the allegation that Aggrieved Employees suffered from an unreimbursed
business expense violation each pay period as a result of having to use
their personal cellphones daily but not being reimbursed for such use. On the
other hand, PAGA Counsel considered that, while the sample records demonstrated
that Defendant did not reimburse any expenses, they also did not establish that
Aggrieved Employees actually incurred reimbursable business expenses, and thus,
the Court was likely to discretionarily decrease a maximum penalty award.
11. PAGA Counsel and
their expert first determined Defendant’s maximum potential exposure was
$3,116,400.00, based on the foregoing, Defendant’s pre-mediation production,
and PAGA Counsel’s extrapolation that there were 5,194 total pay periods. PAGA
Counsel and their expert then discounted Defendant’s maximum potential
exposure, first by eighty percent (80%), to account for Defendant’s defenses,
and then by eighty percent (80%), to account for several relevant extenuating
considerations.
12. The first
discount is justified because of the strength of Defendant’s defenses. For
example:
(a) Defendant
contended it never provided any form of non-discretionary bonuses. Defendant
also contended that, while it occasionally paid discretionary bonuses,
including occasional holiday bonuses, it only paid hourly wages, and
Plaintiff never received a non-discretionary bonus throughout his employment
with Defendant, calling into question Plaintiff’s standing to bring a
representative claim based on improperly calculated overtime and meal period
premium wages.
(b) Defendant
argued that it had various mechanisms in place to prevent meal period
violations, including a timekeeping system that (a) notified Aggrieved
Employees that they had time left on their meal breaks and could not clock back
in yet, and (b) prevented Aggrieved Employees from clocking in before a full
thirty minutes had passed. Defendant also argued that the vast majority of
Aggrieved Employees, including Plaintiff, signed valid meal period waivers.
(c) Defendant
contended that, while it required Aggrieved Employees to wear a uniform, it
provided all uniform items except jeans and non-slip shoes, and that such items
are not reimbursable under controlling precedent, including Luna v.
Universal Studio City Productions LLLP (C.D. Cal., Aug. 27, 2013, No. CV
12-9286 PSG (SSX)) 2013 WL 12308198. Defendant also denied ever requiring
Aggrieved Employees to use their personal cellphones, apart from the occasional
call, as all work tasks involved the requisite use of Defendant’s equipment,
and Defendant maintained a strictly enforced nocellphone-during-work policy.
(d) Defendant
argued that all Aggrieved Employees, including Plaintiff, signed arbitration
agreements with valid class action waivers, necessitating separate arbitrations
of their individual PAGA claims and rendering optional a representative action
settlement.
13. The second
discount is justified because of several relevant extenuating considerations,
including:
(a) Defendant has
not been profitable for a protracted time, reporting $2,000,000.00 of loss in
the last seven years, $1,000,000.00 of which occurred in the last three years,
indicating loss trends are increasing exponentially. Though financial losses do
not justify non-compliance with the Labor Code, PAGA penalties are not intended
to, and should not be imposed to, effectuate bankruptcy or dire financial
conditions on a defendant-employer. The stated purpose of PAGA is to remediate
and deter future Labor Code violations, implying the legislature intended such
penalties to be imposed only to the extent needed to accomplish these goals,
and certainly not to an extent which would eliminate the possibility of any
future Labor Code violations, i.e., by way of the business shutting down. (Kim
v. Reins International California, Inc. (2020) 9 Cal.5th 73, 86, quoting Williams,
supra, 3 Cal.5th at 546.)
(b) The formal
discovery expenses saved by participating in early mediation; the risk that the
Supreme Court decision Viking River Cruises, Inc. v. Moriana (2022) 596
U.S. 287 could eliminate Plaintiff’s standing to represent other Aggrieved
Employees in this Action, given his individual claims are subject to
individual arbitration; Due Process concerns related to penalizing
Defendant disproportionately to the amount of damages at issue; and the fact
that all PAGA awards are discretionary and can be reduced by the Court pursuant
to Labor Code section 2699(e).
14. Based on the
foregoing, PAGA Counsel, their expert, Defense Counsel, and the Parties’
experienced wage-and-hour class and representative action mediator, Lisa
Klerman, determined Defendant’s maximum risk-adjusted exposure was no more than
$124,656.00. The Gross Settlement Amount of $100,000.00, therefore, represents
roughly 80.22% of the Plaintiff’s assumed realistic recovery. (Villalobos v.
Calandri Sonrise Farm LP (C.D. Cal., July 22, 2015, No. CV 12-2615 PSG
(JEMx)) 2015 WL 12732709, at *5; see also O’Connor v. Uber Technologies,
Inc. (N.D. Cal. 2016) 201 F.Supp.3d 1110, 1135).)
15. The amount
estimated as PAGA Penalties for the Aggrieved Employees and State of California
will be $45,303.41. The LWDA PAGA Payment makes up seventy-five percent (75%)
of the PAGA Penalties, or $33,977.56, and will be allocated to the LWDA for the
education of employees and employers about their rights and responsibilities
under the Labor Code. (See Labor Code section 2699(v)(2).) The Individual PAGA
Payments make up twenty-five percent (25%) of the PAGA Penalties, or
$11,325.85, and will be allocated to all Aggrieved Employees on a pro-rata
basis for the alleged Labor Code violations they suffered from during the PAGA
Period. (Settlement, ¶ 1.13.) Thus, the estimated 325 Aggrieved Employees will
get an average payment of $34.85. (Id., ¶ 7.)
16. The Settlement
contains an Escalator Clause under which Defendant may owe more than
$100,000.00. (Settlement, ¶ 7.) Under the Escalator Clause, the Parties agree
that, “[i]f the number of pay periods during the PAGA Period is more than 10%
greater than [6,000] (i.e., if there are approximately 6,601 or more pay
periods worked by Aggrieved Employees), Defendant agrees to increase the Gross
Settlement Amount proportionately by one percent (1%) (i.e., if there is an 11%
increase in the number of pay periods during the PAGA Period, Defendant agrees
to increase the Gross Settlement Amount proportionately by 1%); or in the
alternative, elect to end the PAGA Period at an earlier date to limit the PAGA
Pay Periods to 6,600 or less.” (Id.) Therefore, the Individual PAGA Payments
will increase or the PAGA Period will be shortened if the total number of pay
periods increases by more than ten percent (10%). (Id.)
(Moon Supp. Decl., ¶¶ 6-16, emphasis in
original, footnotes omitted.)
Defense counsel’s declaration provides:
2. I
submit this declaration in support of Plaintiff’s Motion for Approval of
Private Attorneys General Act Settlement Agreement (“Settlement”). Although
Defendant vigorously disputes liability and continues to deny each of the
allegations asserted in this action, Defendant joins in Plaintiff’s request
that the Court grant approval of the Settlement because it is the product of
adversarial, arm’s-length negotiations and represents a fair, adequate, and
reasonable resolution of the disputed Private Attorneys General Act (“PAGA”)
claims.
3. At
mediation, the parties exchanged additional information regarding Defendant’s
financial condition. Defendant’s verified profit-and-loss statements
demonstrate cumulative losses of approximately $2 million over the past seven
years, with $1 million of those losses incurred in the most recent three-year
period. These losses have placed significant strain on Defendant’s finances,
and Defendant has not been profitable over any stretch of time. While Defendant
possesses sufficient liquidity to satisfy the negotiated Gross Settlement
Amount of $100,000, it cannot afford to pay any more than this amount. Any
substantially larger judgment or penalty award would jeopardize its ability to
continue operations and would threaten the jobs of its employees. Defendant’s
financial situation is such that payment of a greater sum is simply not
feasible.
4. After
a full day of mediation, extensive risk-adjusted analysis by both sides, and
exchanges of counteroffers, the parties accepted Mediator Klerman’s proposal to
resolve the disputed PAGA claims for a Gross Settlement Amount of $100,000,
subject to the Escalator Clause described in Paragraph 7 of the Settlement. The
negotiations were adversarial, non-collusive, and conducted in good faith.
5. In
developing the settlement structure and allocation, Defendant relied on its
evaluation of: (i) the low dollar value of alleged underpayments identified in
the sampled data; (ii) Defendant’s strong documentary and testimonial evidence
in support of its affirmative defenses; (iii) the prospect that the Court, in
the exercise of its discretion under Labor Code Section 2699(e)(2), could
substantially reduce any award of civil penalties; (iv) the Supreme Court’s
ruling in Viking River Cruises, Inc. v. Moriana and its potential impact
on representative standing; and (v) Defendant’s ongoing financial
constraints.
(Johnson Decl., ¶¶ 2-5.)
The Court finds that these declarations, read
together, address the Court’s concerns and suffice to show that the gross
settlement amount is fair, reasonable, and adequate. The parties agreed to the . . . amount
($100,000.00) via arm’s-length mediation after investigation and
discovery.” (4/2/25 Ruling Re: Motion to Approve PAGA
Settlement, p. 3.) Considering the
defenses Defendant raised, Defendant’s financial condition, and other risk
factors, the discounts appear justified.
Net Settlement Amount
The sufficiency of the net settlement amount
($41,916.67) depends on the sufficiency of the gross settlement amount. (See id. at p. 4.)
In light of the preceding analysis, and the
fact that the Court already approved the attorney fees, attorney costs,
administration costs, and incentive award, the net settlement amount is fair,
reasonable, and adequate.
Incentive Award
The Court believes the April 2nd
ruling reducing the incentive award to $5,000.00 should stand.
Releases
The scope of the releases will be discussed at
the June 12th hearing.