United States District Court, N.D. California, San Jose Division
ORDER GRANTING MOTION TO APPROVE SETTLEMENT OF ACTION
UNDER FAIR LABOR STANDARDS ACT RE: DKT. NO. 43
H. KOH, United States District Judge
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.
FACTUAL & PROCEDURAL BACKGROUND
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.
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.
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.
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.
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.
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.
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.
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
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
Bona Fide Dispute
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.
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.
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.
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.
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.
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.
the Court finds the bona fide dispute requirement to be
Fair and Reasonable Resolution
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
(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