Wage and Hour Settlement Needs Court Approval

  • Oct 13 2016

By: Kathleen Smith, Esq.

When the volleys of accusations and defenses have played out in litigation, parties usually agree to settle their lawsuit. Typically, litigants are free to negotiate a mutually agreeable—and mutually disagreeable—settlement without involving the court other than to file a Request for Dismissal. But in a PAGA case, the parties must obtain a court order approving settlement of Plaintiff’s penalty claims. [Labor Code §2699(l)(2)]

The Labor Code “Private Attorney Generals Act” (“PAGA” Labor Code section 2698 et seq.) enables an individual “aggrieved employee” to enforce Labor Code penalties for wage and hour violations against the employer if the Labor and Workforce Development Agency (LWDA) does not do so. The Plaintiff is empowered to settle the entire penalty assessment, for all employees whom Plaintiff represents in the PAGA representative action.

New rules in 2016 require the parties to notify the LWDA within 10 days after entry of the judgment or order approving settlement. Upon resolution of the dispute, either at trial or by settlement, if penalties are assessed against the employer, 75% of the recovered penalties is paid to the LWDA and 25% of the recovered penalties is paid to the Plaintiff. Additionally, Plaintiff is entitled to recover attorney’s fees.

An employer will probably defend the PAGA case on the grounds that it is extremely unrealistic that PAGA penalties should be assessed because there is a good faith dispute as to whether and when the wages were due. The PAGA law allows the court to award a lesser amount than the maximum civil penalty. The lesser amount is possible where, based on the facts and circumstances of the particular case, the maximum penalty would result in an award that is unjust, arbitrary and oppressive, or confiscatory. [Labor Code §2699(e)(2)]

So, in settlement, the parties will typically reach a compromise of the penalty amounts that are set forth in the Labor Code. For the settlement to be valid, the parties must show the court why the settlement is a fair and reasonable compromise of the PAGA penalties.

In a wage and hour context–where PAGA penalties typically represent a large portion of the claimed recovery–the court has the power to approve a settlement that allocates settlement recovery to the PAGA claims.  Nordstrom Commission Cases (2010) 186 Cal.App.4th 576, 589 (approving wage and hour class settlement of PAGA claims, even though no funds allocated to PAGA claims and no portion of settlement paid to LWDA).

Since we know that the vast majority of litigation results in settlement rather than judgment by verdict or motion, we should know how to properly conclude the settlement under the PAGA. Since we know that a good settlement is one where neither party is happy, at least we can make the client happy with a properly prepared settlement that concludes the litigation completely.

If your legal dispute has risen to the level of civil litigation, contact the attorneys at Schneiders & Associates, L.L.P.  We will be pleased to meet with you for a consultation so that you can explain your case, ask your questions and make sure you are comfortable with our law firm.  For more information, please call our Oxnard or Westlake Village office at (805) 764-6370.

Posted in: Litigation


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