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Judge Rejects Settlement Agreement in California Employment Class Action

Colorful journalsClass actions allow large groups of individuals with substantially similar claims against one defendant, or a small group of defendants, to pool their claims in a single lawsuit. Federal and state rules impose standards for certifying a case as a class action, and they also regulate the conduct of the case. The Federal Rules of Civil Procedure (FRCP) require the parties to present any proposed settlement to the court for approval. A California federal judge recently denied a joint motion to approve a class action settlement, finding it not to be “fair, adequate, and reasonable” to the interests of all class members. O’Connor et al. v. Uber Technologies, Inc. et al., No. 4:13-cv-03826, order at 2 (N.D. Cal., Aug. 18, 2016).

A class action begins as a lawsuit filed by one or more plaintiffs on behalf of a proposed class of people. The plaintiffs typically propose themselves as representatives of this class for the purpose of the litigation. FRCP 23 establishes four criteria for a class action:  numerosity of class members, commonality of legal and factual questions among all class members, typicality of the class representatives’ claims, and the ability of the class representatives to represent the class “fairly and adequately.” Fed. R. Civ. P. 23(a). Once the court certifies a class, it must notify class members of the pending action. Most class actions are “opt out,” meaning class members are plaintiffs unless they request to be excluded.

The parties to a class action must present any proposed settlement to the court for approval. If the settlement would bind class members, such as by preventing them from asserting further claims under the doctrine of res judicata, the court must conduct a hearing to determine whether the settlement is “fair, reasonable, and adequate.” Id. at 23(e)(2). Individual class members must receive notice of the proposed settlement and must have an opportunity to object.

The plaintiffs in O’Connor worked as drivers for the transportation network company (TNC) Uber, the defendant in the lawsuit. They claimed that the defendant misclassified them as independent contractors instead of employees. The plaintiffs asserted causes of action for violations of the California Labor Code, all premised on their status as employees. This case is one of many around the country alleging misclassification against Uber and other TNCs.

The court certified a class for some of the plaintiffs’ claims in September 2015. It denied the defendant’s motion for summary judgment in March 2016. The parties reached a settlement agreement soon afterward, which included up to $100 million in payments to the plaintiffs. It did not, however, resolve the question of whether they were independent contractors or employees.

In denying the motion to approve the settlement, the court found that the amount of damages was too low. It cited information supplied by the California Labor & Workforce Development Agency (LWDA), which stated that the plaintiffs’ claim under the state’s Private Attorney General Act (PAGA) was potentially worth $1 billion. The amount of the settlement allocated for the PAGA claim, the court found, was only “0.1% of its estimated full worth.” O’Connor, order at 31. Because of this and similar reasons, the court rejected the settlement.

Business litigation attorney James G. Schwartz has represented Bay Area businesses and business owners in litigation and transactional matters for the past 40 years. Contact us online or at (925) 463-1073 today to schedule a free and confidential consultation with an experienced and knowledgeable business advocate.

More Blog Posts:

“Independent Contractors” Versus “Employees” Under California Labor Law, Pleasanton Business & Commercial Law Blog, September 15, 2016

Shareholders Claim Misrepresentations in Connection with Company’s IPO after Stock Price Collapses, Pleasanton Business & Commercial Law Blog, April 30, 2015

Class Action Lawsuit Against California Company Uber Alleges Fraudulent Fees, Pleasanton Business & Commercial Law Blog, March 16, 2015

Photo credit: Selena N. B. H. [CC BY 2.0], via Flickr.