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Slezak v. City of Palo Alto

United States District Court, N.D. California, San Jose Division

June 22, 2017

DOUG SLEZAK, Plaintiff,
v.
CITY OF PALO ALTO, Defendant.

          ORDER GRANTING MOTION TO APPROVE SETTLEMENT OF ACTION UNDER FAIR LABOR STANDARDS ACT RE: DKT. NO. 43

          LUCY H. KOH, United States District Judge

         Before the Court is the parties' Revised Joint Motion to Approve Settlement of Action Under Fair Labor Standards Act. ECF No. 53. Having considered the parties' briefing, the relevant law, the record in this case, and the June 22, 2017 hearing, the Court GRANTS the parties' joint motion.

         I. FACTUAL & PROCEDURAL BACKGROUND

         The instant suit is a collective action brought by employees of Defendant for the recovery of overtime payments allegedly owed under the Fair Labor Standards Act (the “FLSA”). ECF No. 1 (“Compl.”) ¶ 1. Plaintiffs allege that Defendant failed to properly calculate overtime payments for its employees who elected to receive cash in lieu of health insurance benefits. Id. ¶ 2. Under FLSA, “an employer must pay its employees premium overtime compensation of one and one-half times the regular rate of payment for any hours worked in excess of forty in a seven-day work week.” Flores v. City of San Gabriel, 824 F.3d 890, 895 (9th Cir. 2016) (citing Cleveland v. City of L.A., 420 F.3d 981, 984-85 (9th Cir. 2005)). Defendant allegedly did not include the cash received in lieu of health insurance benefits as part of the “regular rate of payment” that is used to calculate overtime payments. Compl. ¶ 31. The Ninth Circuit's decision in Flores clarified that Defendant was required to include such cash in lieu of health insurance benefit payments in the regular rate of pay overtime calculations. Flores, 824 F.3d at 895. On May 15, 2017, the United States Supreme Court denied the defendant's petition for certiorari in Flores. See City of San Gabriel v. Flores, U.S. Sup. Ct. Case No. 16-911.

         On June 13, 2016, the instant suit was filed. ECF No. 1. On August, 22, 2016, Defendant answered. ECF No. 18. On November 18, 2016, the Court granted the parties' joint stipulation for conditional certification of the FLSA collective action. ECF No. 33.

         On February 3, 2017, the parties filed a status report informing the Court that the case had settled. ECF No. 39. On February 10, 2017, the parties filed a motion for approval of settlement of action. ECF No. 43. On April 10, 2017, the Court denied without prejudice the parties' motion for approval of settlement of action. ECF No. 50.

         On June 1, 2017, the parties filed the instant motion. See Mot. On June 19, 2017, the Court ordered additional briefing, ECF No. 57, which the parties provided, ECF No. 58 (“Supplemental Briefing”). A hearing was held on June 22, 2017.

         II.LEGAL STANDARD

         The Eleventh Circuit has explained that a FLSA claim can be settled in two ways. Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350, 1353 (11th Cir. 1982).[1] First, an employee may settle and waive claims under the FLSA under the supervision of the Secretary of Labor. Id. Second, an employee may settle and waive claims under the FLSA if a district court approves the settlement. Id.

         Before approving a FLSA settlement, the court must scrutinize the settlement agreement to determine if it is “a fair and reasonable resolution of a bona fide dispute.” Id. at 1354-1355. If the settlement reflects a reasonable compromise over issues that are actually in dispute, the Court may approve the settlement “in order to promote the policy of encouraging settlement of litigation.” Id. at 1354.

         III. DISCUSSION

         The settlement in this case includes the following terms. First, Defendant will pay up to $117, 500 in unpaid overtime wages and liquidated damages to Plaintiffs, distributed in proportion to the amount of overtime each Plaintiff worked and the amount of cash in lieu of health insurance benefits each Plaintiff received. The parties assert that this amount represents their best estimate of Defendant's full potential liability in this case. Second, Defendant will pay $47, 501.77 in attorney's fees to Plaintiffs counsel. Third, Defendant will pay $4, 567.23 in costs to Plaintiffs counsel.

         In order to approve the settlement in the instant case, the Court must find that (1) the case involves a bona fide dispute, (2) the proposed settlement agreement is fair and reasonable, and (3) the award of attorney's fees is reasonable, and (4) the award of costs is reasonable. The Court addresses each issue in turn, and then discusses the proposed notice.

         A. Bona Fide Dispute

         “If a settlement in an employee FLSA suit does reflect a reasonable compromise over issues, such as FLSA coverage or computation of back wages, that are actually in dispute[, ] . . . the district court [may] approve the settlement in order to promote the policy of encouraging settlement of litigation.” Nen Thio v. Genji, LLC, 14 F.Supp.3d 1324, 1333 (N.D. Cal. 2014) (quoting Yue Zhou v. Wang's Restaurant, 2007 WL 2298046, *1 (N.D.Cal. Aug. 8, 2007)); Lynn's Food Stores, 679 F.2d at 1353 n.8 (requiring “settlement of a bona fide dispute between the parties with respect to coverage or amount due under the [FLSA]”). The purpose of this analysis is to ensure that an employee does not waive claims for wages, overtime compensation, or liquidated damages when no actual dispute exists between the parties. Lynn's Food Stores, 679 F.2d at 1353 n.8.

         Here, there does not seem to be a dispute as to whether the City of Palo Alto is liable for overtime payments because Flores v. City of San Gabriel, 824 F.3d 890, 895 (9th Cir. 2016), established that cash in lieu of health insurance benefits must be calculated as part of the regular rate of pay for overtime payments under FLSA. However, at the time of settlement, a petition for certiorari was pending before the United States Supreme Court in Flores. See City of San Gabriel v. Flores, U.S. Sup. Ct. Case No. 16-911. Although the United States Supreme Court denied the defendant's petition for certiorari in Flores on May 15, 2017, at the time of settlement it was unclear whether certiorari would be granted in Flores and whether Flores would eventually be overturned.

         Moreover, the parties dispute the full extent of damages that would need to be paid under FLSA. Under FLSA, 29 U.S.C. § 216(b) provides that “an employer who violates the Act shall be liable for unpaid overtime compensation plus an additional equal amount as liquidated damages.” Local 246 Util. Workers Union of Am. v. S California Edison Co., 83 F.3d 292, 297 (9th Cir. 1996). However, such liquidated damages may be avoided if the employer can establish “subjective and objective good faith in its violation of the FLSA.” Id. Here, it was not settled law before Flores that cash in lieu of health insurance benefits should be part of the regular rate of pay under FLSA. Therefore, there is a non-frivolous defense as to whether Defendant would owe liquidated damages in this case.

         Additionally, FLSA usually has a two-year statute of limitations. 29 U.S.C. § 255(a). If the violation of FLSA was willful, however, there is a three-year statute of limitations. Id. The burden is on the employee to show a willful violation of FLSA. As with the subjective and objective good faith inquiry for liquidated damages above, the employer likely has a good defense on the charge of willfulness in this case.

         Finally, in Plaintiffs' supplemental briefing, Plaintiffs discuss the fact that, as to each individual Plaintiff, Defendant would have been able to claim credits and offsets with respect to the overtime hours worked by certain employees to the extent those hours are not governed by FLSA. While it is unclear as to which Plaintiffs this dispute would arise, it shows that the amount of award under FLSA would be subject to dispute on a case-by-case basis.

         Based on the above disputed aspects of the case, the court finds there to be a bona fide dispute under FLSA. Moreover, the Court notes that the purpose of the bona fide dispute requirement has been satisfied here. See Lynn's Food Stores, 679 F.2d at 1353 n.8 (noting that the bona fide dispute requirement exists to prevent an employee's waiver of payments such as overtime payments or liquidated damages if it is clear that the employer owes such payments). As discussed further below, the settlement amount involves full compensation for overtime payments, double damages for liquidated damages, a three-year statute of limitations, and no credits or offsets for non-FLSA overtime. Thus, there is not a concern here that employees are waiving their rights to liquidated damages or benefits to which they are entitled.

         Accordingly, the Court finds the bona fide dispute requirement to be satisfied.

         B. Fair and Reasonable Resolution

         To determine whether the settlement is fair and reasonable, the Court looks to the “totality of the circumstances” and the “purposes of FLSA.” Selk v. Pioneers Mem 'l Healthcare Dist., 159 F.Supp.3d 1164, 1173 (S.D. Cal. 2016). The Selk court identified the following factors to be considered:

(1) the plaintiffs range of possible recovery; (2) the stage of proceedings and amount of discovery completed; (3) the seriousness of the litigation risks faced by the parties; (4) the scope of any release provision in the settlement agreement; (5) the experience and views of counsel and the opinion ...

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