Wage Law notes a recent California trend of disapproving of "claims made" settlements in wage & hour class actions

Although it sounds a little bit like hearsay (or maybe just protection of confidential sources), Wage Law is reporting that some Superior Court judges, particularly in the Bay Area, believe that a "claims made" class action settlement should never be approved in a wage & hour case.  (The Emerging Trend Against Claims Made Wage & Hour Settlements (June 6, 2008) wagelaw.typepad.com.)  One opinion that may be swaying the hearts and minds of judges is the 2007 Order of Judge William Alsup denying preliminary approval of a class action settlement in Kakani v. Oracle Corp.  In his initial opinion, Judge Alsup said:

“Under the settlement, all wage-and-hour rights (not just overtime) of putative class members would be completely extinguished and replaced by an exclusive claims procedure. By expressly obligating itself only on a "claims-made" approach, Oracle would pay only those who submit claims up to a total of nine million dollars less all fees and expenses. Counsel wants $2.25 million in attorney's fees and $75,000 in expenses. In addition to their own shares of the settlement, $45,000 total would be paid to the three named plaintiffs as "incentive payments." Costs of administration would also be deducted. Because it will be a "claims-made" settlement, there will be no residue. All unclaimed amounts will revert to Oracle. Counsel now desire preliminary approval under Rule 23(e) and recommend notice be sent by mail to last known addresses of 1500 or so workers granting them a brief period for filing claims -- after which all of their claims and rights would be forever barred, even as to those who never receive actual notice or submit a claim.

The description of the terms is enough to telegraph where that one was going.  But this should come as no surprise.  Judge Alsup has made the news with his high-profile policing of class action settlements, particularly in options backdating suits.  (See this blog's posts of April 27 and June 17.)

As to the substance of Wage Law's observation, that "claims made" settlements in wage & hour matters are falling into disfavor, my own observations tend to confirm that view.  A primary argument for why "claims made" settlements in wage & hour matters are undesirable stems from the policies embodied by wage & hour laws generally.  If wages were earned but not paid to each class member, then each class member should get those wages, not just those that file a claim.  A core policy of labor laws is to ensure the full payment of all wages owed for work actually performed.

However, there are circumstances (probably not present in the Oracle suit) that weigh in favor of the "claims made" approach.  For example, small classes with relatively modest individual recoveries provide the majority of their benefit in the correction of violations, not in the sums paid to class members.  In those cases, it is cost efficient to reserve a modest class fund for those individuals willing to take the small step of submitting a claim.  In cases where records do not allow for an exact calculation of monies owed to each employee, such as meal break cases where records are absent, a "claims made" approach can be described as a proxy for a declaration of damages.

California in particular faces another issue in wage & hour class actions: the population of unlawfully present aliens (they are not exactly "illegal" aliens, because if they are not citizens, then they are, by definition, aliens - and it isn't illegal to be an alien, it's just illegal to be present in the U.S. without legal permission).  Employers whose workforce consists (allegedly) of unlawfully present aliens present a problem in wage & hour class actions - the workforce, if very transitory, may be hard to locate or unwilling to come forward to participate in any settlement.  So you can easily face a situation where the wage & hour violations are pandemic but the class is hard to locate.  In that instance, a "claims made" settlement is particularly suited to resolution.  Given the usually low hourly wages of this particular employee demographic, such classes often also include the problem of a low recovery level that provides its own justification for a "claims made" settlement.

See the balance of Wage Law's post for more choice words from Judge Alsup and commentary about settlement structure.