Posts belonging to Category Settlements

Federal District Court Approves $40 Million Data-Throttling Settlement

On July 2, 2015, Judge Edward M. Chen of the Northern District of California granted final approval of a $40 million settlement reached between the Federal Trade Commission (“FTC”) and TracFone Wireless, Inc., d/b/a Straight Talk Wireless, Net10 Wireless, Simple Mobile, and TelCel America (“TracFone”). See In Re TracFone Unlimited Service Plan Litig., No. 13-3440 (N.D. Cal. July 2, 2015) (Order Granting Motion for Final Approval of Class Action Settlement and Granting for Award of Attorneys’ Fees, Costs, and Representative Service Awards) (available here). Class members alleged that TracFone advertised and sold “unlimited” data plans that, in reality, were quite the opposite. TracFone admitted to slowing down (aka “throttling”) or suspending its customers’ data service, and sometimes terminating customers’ cellular service entirely, when those customers exceeded a monthly data usage cap set by TracFone. TracFone did not disclose the data usage cap and subsequent data interference to class members prior to their purchase of “unlimited” data plans.

The settlement provides for the disbursement of $40 million paid by TracFone to the class members in varying amounts based on the timing and level of data interference. Additionally, the court granted injunctive relief to the class, whereby TracFone must disclose “throttle limits or caps, as well as the actual speeds to which customer data will be slowed” alongside any “unlimited data” advertisements and implement a system to notify customers by SMS text message when they reach the data usage cap. Order at 13.

Judge Chen approved the settlement after considering the factors set forth in In Re Bluetooth Headset Prods. Liab. Litig., including:

(1) the strength of the plaintiff’s case; (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of maintaining class action status throughout the trial; (4) the amount offered in settlement; (5) the extent of discovery completed and the stage of the proceedings; (6) the experience and views of counsel; (7) the presence of a governmental participant; and (8) the reaction of the class members of the proposed settlement. In Re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 943 (9th Cir. 2011) (citing Churchill Village, L.L.C. v. Gen. Elec., citations omitted).

The court concluded that the terms were fair to both class members and TracFone, noting that TracFone had strong defenses if the case went to trial. The FTC has propounded similar claims against AT&T. See Fed. Trade Commission v. AT&T Mobility LLC, No. C-14-4785 EMC (N.D. Cal. Oct. 28, 2014).

Authored by: 
Trisha Monesi, Associate

Disney Reaches Vacation Pay Settlement with Former Employees

A settlement was reached last week in Zorio v. Walt Disney Worldwide Services Inc., a case brought by former Disneyland employee Reykeel Zorio, who alleged on behalf of himself and other former employees at six Disney facilities that Disney failed to compensate departing employees for accrued vacation time. See Zorio v. Walt Disney Worldwide Services Inc., No. BC549292 (Los Angeles Cty. Sup. Ct. 2014, consolidated with No. BC540154). Originally filed in March 2014 as a representative action, the claims relating to vacation wages were filed again in June 2014 as a class action.  The cases were subsequently consolidated and alleged that the defendants in the action failed to provide earned and vested vacation wages within any permissible time period to employees upon termination or separation.

The proposed settlement will reportedly pay $500,000 to more than 4,000 hourly-paid, non-exempt workers. The decision helps to reinforce the principle that paid vacation is a form of wages, earned as labor is performed, and is therefore compensable upon termination of employment pursuant to California Labor Code section 227.3, as well as sections 201-204.

While an employer is not required to provide its employees with vacation time, California law imposes restrictions on any policy, practice, or agreement implemented to provide paid vacation, and accrued vacation time is considered wages. See Suastez v. Plastic Dress-up Co., 31 Cal. 3d 774 (1982). An employee has no entitlement to be paid for accrued but unused vacation until the employee quits or is discharged. However, all earned and unused vacation must be paid to the employee at his or her final rate of pay within three days of termination of employment. Cal. Lab. Code § 227.3. The Disney Corporation learned this rule the hard way in Zorio.

Authored by: 
Karen Wallace, Associate

Settlement Delivers $228M to FedEx Drivers

After over 10 years of litigation, a settlement has finally been proposed in a case alleging that FedEx misclassified more than 2,300 California truck drivers who worked for the company between 2000 and 2007. The drivers’ complaint alleged that they were classified as independent contractors, rather than employees; the latter would afford the drivers certain protections such as overtime pay, reimbursement for certain business expenses, and meal and rest periods.

The settlement follows a 2014 order from the Ninth Circuit overturning a lower court’s denial of the plaintiffs’ motion for partial summary judgment on the question of whether they were improperly classified as independent contractors. Alexander v. FedEx Ground Package Sys., 765 F.3d 981 (9th Cir. 2014) (available here) (previously covered by the ILJ here). In Alexander, the Ninth Circuit evaluated a number of different factors under California’s right-to-control test, which courts use to determine whether a company has the right to control the manner and means of its employees’ work. Id. at 988. The Alexander court found that FedEx mandated workers’ clothing “from their hats down to their shoes and socks,” and also required drivers to adhere to a specific work schedule, both of which exemplify a company’s control over the manner and means of the work performed. Id. at 990. As such, the Ninth Circuit determined that “FedEx [had] a broad right to control the manner in which its drivers perform their work,” and that the FedEx truck drivers were employees as a matter of law. Id. at 997.

The proposed settlement will require approval of a California federal judge. If approval is granted, it will finally resolve the claims of the 2,300 FedEx truck drivers misclassified as independent contractors.

Authored by: 
Bevin Allen Pike, Senior Counsel

Revamped Home Depot Settlement Passes Inspection

On May 20, 2015, the United States District Court for the Northern District of California granted final approval of a $1.5 million wage-and-hour class action settlement in Barrera v. Home Depot USA, Inc., No. 5:12-cv-5199 (N.D. Cal. May 20, 2015). See Order Granting Final Approval here, Amended Settlement Agreement here. Judge Lucy H. Koh gave her blessing to a revised settlement just over a year after denying preliminary approval of the parties’ original settlement agreement. See Order Denying Preliminary Approval here.

At the core of this case are penalties under California Labor Code § 203, which provides for the continuation of wages for terminated employees for up to 30 days when employers willfully fail to pay timely final wages. The Barrera plaintiffs contend that Home Depot delayed payments of final wages to fired workers between September 2009 and September 2014, in violation of Labor Code § 201. In her May 6, 2014 order denying preliminary approval, Judge Koh observed that, during the class period, Home Depot failed to pay 6,648 fired employees their final wages on the date of termination, as California law requires. Further, only 66% of those 6,648 employees were paid final wages within three days of their terminations, and only 75% of them were paid within seven days. The plaintiffs’ counsel calculated the average hourly wage at $10-13 per hour and the average daily wage rate at $100-$150. The plaintiffs also estimated, based on actual data provided by Home Depot, that Home Depot’s total exposure was $3,573,519. The initial settlement provided for a settlement fund of $1.4 million.

Judge Koh noted two problems with the initial settlement that prevented her from granting preliminary approval. First, although $945,000 of the settlement fund was made available to class members, the funds were to be distributed on a claims-made basis, with a provision obligating Home Depot to pay at least 50% of those funds. Judge Koh ruled that the provision was not fair and adequate to class members because it disincentivized parties from maximizing participation. In fact, because the plaintiffs’ counsel would request 25% of the total settlement fund regardless of the participation rate, the settlement’s structure set the stage for a potential conflict of interests, whereby the plaintiffs’ counsel could bargain with a defendant for a lowered minimum payment obligation in return for a higher settlement fund and—as a result—a higher potential fee award. Judge Koh pointedly ruled that “[s]uch settlement structures may artificially inflate the total settlement fund and render the total settlement fund illusory in order to justify a higher attorney’s fees award.” See Order Denying Preliminary Approval, at 3. Second, the settlement provided for a 60-day claim submission deadline that would not be extended, even if the initial class notice was returned as undeliverable. The court ruled that the provision was “not conducive to maximizing class members’ participation in the settlement.” Id.

On January 15, 2015, the parties moved for final approval of a revised settlement. The revised settlement contained four major changes: (1) it increased the gross settlement amount from $1.4 million to $1.5 million; (2) it eliminated both the claims process and the reversion provision for unclaimed funds (instead designating two cy pres recipients); (3) it extended the time frame to object or opt out from 60 to 90 days; and (4) it provided each class member with an estimate of damages and the formula used to calculate the pro rata payment with the class notice. With these adjustments, the court approved the revised settlement.

The takeaway from the case history is that judges typically look harder at claims-made settlements, and even more so when they contain a relatively low minimum payment provision coupled with a reversion to the defendant. Courts will always be concerned about whether class counsel is truly maximizing the benefit to the class or is merely settling to secure a fee award. To maximize the settlement benefits to the class members, and thereby avoid having preliminary approval denied, the optimal course of action is to negotiate a direct distribution (i.e., no claims process) to the class members with no reversion, as the parties did in their revised settlement. In the alternative, one might provide for a claims-made settlement that includes a high minimum payment amount either with or without a reversion, preferably without. In such cases, those class members who expend the time and effort to submit claim forms will be rewarded with significant benefits from the settlement.

Authored by: 
Andrew Sokolowski, Senior Counsel