The United States District Court for the Eastern District of California recently ordered the preliminary certification of a conditional class action settlement involving various California wage and hours laws.

In the case, the plaintiff was a non-high volume installer of alarm systems who contended that the defendant violated California wage and hour laws by paying class members pursuant to a wage policy that failed to compensate them for off-the-clock work, such as traveling between customer sites and picking up supplies from warehouses. The plaintiff alleged that the defendant also under-calculated their overtime rate, which must be “at least one and one-half times their regular rate of pay under California law.” The plaintiff also alleged that the defendant failed to “reimburse class members for necessary business expenses and provide compliant itemized wage statements.” 

The plaintiff attempted to certify a class of “non-exempt” individuals employed by the defendant in California with high volume installers who were paid for services performed during a period of time. The plaintiff and defendant litigated the case for over a year before reaching a settlement agreement. This was a class action where the plaintiff required preliminary approval of the settlement agreement pursuant to Federal Rule of Civil Procedure 23(e), which provided that claims, issues or defenses of a certified class may be settled only with the court’s approval.

The court pointed out that 9th Circuit has declared a strong judicial policy favoring settlement of class actions. However, where the parties reach a settlement agreement prior to class certification, the court must peruse the proposed compromise to ratify both (1) the propriety of the certification and (2) the fairness of the settlement. The court pointed out that the second part of the inquiry obliges the court to carefully consider whether a proposed settlement is fundamentally fair, adequate and reasonable. 

There have been many instances involving security alarm companies, i.e., guard and patrol and security alarm companies, who are responding to alarms or “on call” to respond to alarms. The question becomes when the employee is on call, is the time included in the 40 hour work week or is the employer required to pay time and a half for overtime?

The issues in this case were plaintiff claims that they were not compensated for traveling between customer sites and picking up supplies from warehouses. It is incumbent upon the company to know and understand the wage and hour laws in the jurisdiction where they are doing business as the penalty can be severe. As indicated in the case at hand, if the plaintiff can establish that they worked beyond the 40 hours, then the company would be required to pay at least “one and one-half times the regular hourly rate of pay” plus any penalties which could apply.

This case did not determine whether there was a failure to properly pay the employee, as the case was settled. The lesson, however, is to understand the wage and hour law, as failure to understand and pay proper wages and hours can be very expensive. The court pointed out that the process required the court to balance a number of factors, including: the strength of the plaintiff’s case; the risk, expense, complexity and likely duration of further litigation; the risk of maintaining class action status throughout the 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.

The court pointed out that the parties reached settlement agreement after engaging in voluminous discovery, diligent investigation, motion practice, assessment of the risk for further litigation, and two lengthy mediation sessions. In light of these uncertainties, the court granted the approval to the settlement agreement because the settlement amount was within the range of  possible approval.


Readers Ask

One of our salesmen just brought back a potential agreement for installation of a security system for a school district. When presented with our contract, the representative of the school district said that they are not allowed to sign a private contract, but that we are required to sign their agreement. This is a very sizeable opportunity. What should we do?

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If you check the agreement that you are being presented with by the school district, I am sure you will find there is an indemnity provision under the terms of which you will hold the school district harmless for anything that goes wrong. This is totally contrary to your agreement, which I am certain contains provisions limiting your liability and contains an indemnity from your subscriber for any problems that may arise. It is tempting to sign their contract, particularly since as you said it is a sizeable opportunity. On the other hand, is the exposure you are undertaking really worth it? Further, will your insurance company protect you in the event there is a claim by the school district against you? You may wish to check with your insurance carrier to determine if you will be covered in the event the school district has not signed your contract but in fact you have signed the school district’s contract. If your insurance carrier will cover you, you may be willing to risk it; however, your insurance carrier can cancel your coverage and the contract with the school district continues. I would proceed under the old adage that sometimes the best agreement you make is the one that you do not make.