Judge casts doubt on PAGA settlement: ‘an odor of mendacity’

For at least the second time this month, a San Francisco judge cast doubt on a PAGA settlement involving worker misclassification claims, expressing concerns the agreement was reached through a reverse auction.

Superior Court Judge Andrew Y.S. Cheng rejected a $4.98 million PAGA settlement agreement that e-scooter company Lime reached with one of its workers last week, writing in an order that the agreement "has an odor of mendacity about it" and represents less than 2% of the theoretical maximum recovery estimated by the worker's own attorneys.

Steven G. Tidrick and Joel B. Young, partners at the Tidrick Law Firm LLP who represent the worker, Rebeca Torres, valued "the theoretical maximum recovery as between $391,921,000 -- $749,698,117.50," Cheng wrote. "Based on Torres's maximum recovery calculations, the $4.98 million settlement is approximately .66 -- 1.27% of the maximum theoretical recovery of civil penalties."

Cheng added Torres' conduct in the months leading up to the agreement suggests the settlement figure was the product of a reverse auction. Neutron Holdings Wage and Hour Cases, CJC19005044 (S.F. Super. Ct., filed August 16, 2019).

In mid-February, Cheng heard arguments in another case involving reverse auction allegations.

Like Torres' case, which is coordinated with three other actions filed by Lime workers, Tabola v. Uber alleges a company misclassified the plaintiffs as independent contractors. Both Torres and Tabola reached settlement agreements with the companies they were suing, and were quickly challenged by other plaintiffs with similar claims, who said the settlement figures were too low. In both cases, the defendant companies are also represented by the same attorney: Andrew M. Spurchise, a shareholder at Littler Mendelson P.C. Tabola v. Uber, CGC16550992 (S.F. Super. Ct., filed March 16, 2016).

In his order, Cheng said reverse auctions take place when multiple plaintiffs' attorneys file overlapping representative actions, like PAGA claims, and the defendant employer "picks the most ineffectual class lawyers to negotiate a settlement with in the hope that the [trial] court will approve a weak settlement that will preclude other claims against the defendant."

Because the plaintiffs' counsel who secure the first judgment are entitled to the attorney fees, this gives them an incentive to broker a less-than-ideal settlement with the defendant employer -- even though the purpose of PAGA settlements is that they are large enough to deter companies from violating the Labor Code.

In December, Tidrick and Young said the $4.98 million settlement they reached with Lime on behalf of Torres would represent "one of the largest payments ever from a PAGA case" if approved by Cheng. The attorneys cited data provided by the state Department of Industrial Relations in November, which showed only six other PAGA cases yielded payments to the state Labor and Workforce Development Agency that exceeded $4 million.

In their own December filings, attorneys for Lime -- which include Spurchise, Littler shareholder Dennis Mont Brown, and Gibson, Dunn & Crutcher LLP partner Joshua S. Lipshutz -- also noted the settlement would be "the largest PAGA settlement in the history of the gig- economy on a per-worker basis" if approved. The attorneys added the settlement "far surpasses those baseline requirements" mandated by PAGA, the purpose of which is to ensure compliance with the Labor Code.

But Cheng said Torres had agreed to work with the three other plaintiffs in the coordinated action, but reached a settlement with Lime on her own last August. The three other plaintiffs moved to intervene in the action in September.

Cheng wrote, "Torres' conduct of negotiating individually while simultaneously representing to the court and the other plaintiffs that she would negotiate jointly, as well as representing to the court and other plaintiffs that the settlement was the product of a take-it-or-leave-it offer when in fact it was the product of separate side negotiation, evidences an 'odor of mendacity,' a lack of arm's-length bargaining, and a likely reverse auction."