Wage and hour class action settlements: A retired judge's insights

Why are some wage and hour class action settlements resolved quickly while others never seem to end or end badly?

During my tenure as a Los Angeles Superior Court judge, I was asked that question many times. Each case is unique and requires careful consideration, which each complex judge does in their own way. But after nearly 15 years as one of the 10 judges assigned to preside over wage and hour class action cases and a stint as assistant supervising judge of the complex courtroom judges, I've acquired insights on this question that now, as a retired judge, I can share with you.

Here are some of my observations:

• The vast majority of wage and hour class actions settle; they almost never go to trial. In my time presiding over class actions, I've handled thousands of cases. Not one has gone to trial. And only a handful have been tried in one of the other nine complex courts.

• A significant percentage have settled utilizing Rule 3.770 of the California Rules of Court, in which class allegations are dismissed without prejudice and the class representative settles their individual claims.

• Most settlements are delayed because of problems obtaining preliminary approval by the court. This is partially due to the overwhelming number of settlements that need to be reviewed and delays when checklists are issued.

All of this raises an additional question: Why can't class actions generally, and wage and hour class actions specifically, simply be mediated and resolved by agreement of the parties, as is generally done in contract and tort cases?

The answer to this question is found in the case of Luckey v. Superior Court (2014) 228 Cal.App.4th 81. This was an unusual case where the Los Angeles Superior Court was invited by the appellate court to file a brief supporting its position. This is discussed below.

The court's fiduciary responsibility to absent class members

The fundamental principle guiding a court in reviewing a class action settlement is its "fiduciary responsibility" to protect the interests of absent settlement class members. This duty requires the court to independently and objectively analyze the evidence to determine if the settlement serves the best interests of those whose claims are being resolved. The court cannot simply defer to the agreement reached by the parties. It must act as a neutral arbiter, ensuring the compromise is reasonable given the merits of the claims and balances the risks and costs of continued litigation.

This judicial guardianship is especially crucial when a settlement is negotiated before a class has been formally certified. In such cases, there is a heightened risk that class representatives and their counsel might breach their own fiduciary duties to the absent class members. As a result, a precertification settlement must withstand an even higher level of scrutiny for evidence of collusion or other conflicts of interest before a court can grant its approval.

Settlement releases

The fairness of a settlement is not determined by the gross settlement amount alone; it also depends on the practical ability of class members to receive their individual shares. The court must examine the entire settlement structure. The court reviews the procedures the administrator will use to process claims, prevent fraud and handle duplicate submissions.

Equally important is the scope of the settlement release. When class members participate in a settlement, they release, or give up, their right to sue the defendant for certain claims in the future. A crucial aspect of the court's fiduciary responsibility is ensuring this release is not overly broad. The claims being released should be reasonably related to the claims that were actually litigated. Defendants often seek the broadest release possible to achieve finality and limit future legal exposure. However, the court must protect absent class members from unknowingly forfeiting valid claims that are unrelated to the current lawsuit. The settlement agreement's language must be precise, and if the parties intend to release all claims pending as of a certain date, the agreement must clearly state that intent.

Class representative enhancement awards and conflicts of interest

Enhancement awards, also known as incentive awards, are payments made to the named class representatives for their role in prosecuting the case. These awards are intended to compensate representatives for the time, effort and risks they undertake on behalf of the class, such as being subject to discovery and potential reputational harm.

However, these payments can also create a significant conflict of interest between the class representative and the absent class members. The court must carefully examine the structure of any proposed enhancement award. A red flag arises when the enhancement award is tied directly to the total settlement amount.

This is part of the court's broader duty to police for conflicts of interest. The court must ensure that the class representative's claims are typical of the class overall and that they can adequately represent the interests of all members without any antagonistic goals.

Scrutiny of attorneys' fees

A significant portion of the court's analysis focuses on the attorneys' fees requested by class counsel. The court must ensure that the fees awarded are reasonable and proportional to the benefit provided to the class. An excessive fee award can suggest that the settlement primarily benefits the attorneys rather than the class members they represent.

Courts typically assess the reasonableness of fees using two primary methods: the percentage-of-recovery method and the lodestar method.

• Percentage-of-recovery method: This is the most common approach, where fees are calculated as a percentage of the total common fund settlement amount. This figure is often between 25% and 33.3%, though it can be higher in particularly complex cases. See LaFitte v. Robert Half International (2016) 1 Cal.5th 480.

• Lodestar method: This method involves multiplying the number of hours reasonably spent on the case by a reasonable hourly rate for the attorney involved.

Courts are increasingly being encouraged to use the lodestar method as a "cross-check" against the other to achieve a fair and reasonable final award.

As courts continue to refine their scrutiny of wage and hour class settlements, practitioners must remain diligent in crafting agreements that not only meet legal standards but also serve the genuine interests of the class. A fair, well-documented and transparently structured settlement stands the best chance of gaining court approval and standing the test of time.

Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.

Hon. Kenneth R. Freeman (Ret.) is an arbitrator, mediator and court-appointed neutral with JAMS. He joined JAMS after more than 35 years on the bench in Los Angeles County. He served on the Superior Court from 1994 to 2025, including 13 years as one of just 10 judges assigned to handle complex civil litigation. He can be reached at kfreeman@jamsadr.com.