Labor & Employment Law Daily IT employees gain preliminary approval of $5.7 million class action settlement
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Tuesday, June 9, 2020

IT employees gain preliminary approval of $5.7 million class action settlement

By Ronald Miller, J.D.

Subject to a final fairness hearing and certification of the settlement class, the court preliminarily and conditionally approved a national FLSA class and a California class under Rule 23.

Employees of an information technology company were granted preliminary approval of a proposed $5.7 million settlement of class and collective action claims for overtime pay. A federal district court in California found the proposed settlement was the product of serious, informed, non-collusive negotiations; it had no obvious deficiencies; it did not improperly grant preferential treatment to class representatives of segments of the class; and it fell within the range of possible approval. Moreover, the court was satisfied the settlement was a fair and reasonable resolution of a bona fide dispute and did not frustrate the purposes of the FLSA (Mishra v. Cognizant Technology Solutions U.S. Corp., June 1, 2020, Nunley, T.).

Overtime claim. Employees in the Quality Engineering & Assurance (QE&A) “testing” group for the information technology services company brought suit alleging it underpaid them by $12.21 every time they put in an hour of overtime. According to the named plaintiff, following a 2012 reclassification, the employer underpaid overtime by failing to include certain amounts when calculating the regular rate of pay. Specifically, the employee alleged that in August 2012, class members received a letter providing notice of changes in the terms and conditions of their employment.

The letter informed the employee that his “position has been classified as overtime eligible,” explained that his duties and responsibilities would essentially remain the same but that his pay would be based on “several components,” including base pay, a cost of living adjustment, and overtime, plus a bonus (a Tru-Up payment). The employee’s overtime would be paid at $32.27 per hour, according to the letter.

Bonus payments. The employee contended that his annual base income at 40 hours per week was set at $39,663.65 plus a cost of living adjustment of $5,500, amounting to an annual wage of $45,163.65. However, he alleged the letter indicated that he was guaranteed to earn “no less than $62,100″ and that the bonus would be added to keep his annual income at this level. Thus, the employee contended that if the total income were used to calculate the overtime rate, then the overtime rate should have been $44.78. The Tru-Up program ended in May 2016.

For its part, the employer contended that the class members rarely, if ever, worked overtime. It claimed overtime work was not necessary because the company had an off-shore team that worked through off hours. According to the employer, following the shift from salaried to nonexempt hourly wages plus Tru Up payments, the class members recorded overtime hours that they did not actually work in order to receive compensation sooner and more evenly across pay periods. It observed that after it ceased offering Tru Up payments, recorded overtime dropped. Moreover, the employer contended, class members fell within the FLSA’s computer exemption, and therefore were not entitled to overtime damages.

Additionally, the employer asserted that individualized issues as to both liability and damages would overwhelm common questions, precluding class certification. This was particularly true, argued the employer, given that class members worked exclusively offsite at more than 180 different clients and on more than 1,100 client projects.

Settlement agreement. After negotiations and a series of counteroffers, the parties reached a settlement agreement. Presently before the court was the amended settlement agreement for preliminary approval. Under the terms of the settlement, the employer agreed to a total maximum settlement amount of $5,726,000. There is no reversion of money back to the employer under any circumstances. The agreement provides for up to a 25 percent fee award for class counsel and up to $45,000 for expenses. The named plaintiff will receive an enhancement payment of $10,000 as approved by the court.

The net settlement amount is estimated at $4,209,500. This represents 73.5 percent of the gross recovery. The net settlement amount will be allocated 97.2 percent to the California fund and 2.8 percent to the FLSA fund. Each of these awards will be distributed to class members on a proportional basis based on the number of California and/or FLSA class member individual workweeks each class member worked. The settlement agreement includes a provision that if 10 percent or more of potential California class members opt out, the employer may opt to back out of the settlement prior to approval.

Provisional class certification. Subject to a final fairness hearing and certification of the settlement class, the court preliminarily and conditionally approved a national FLSA class and a California class under Rule 23. First, numerosity was met where the combined California class and FLSA class included approximately 714 employees.

Second, common questions of fact and law arose from the class members’ employment, such as the manner in which the named plaintiff and class members were compensated, whether Tru UP was lawful, what amounts were required in calculating the regular rate of pay for purposes of overtime, whether the employer properly calculated the regular rate of pay, whether class members worked overtime, whether they recorded all overtime, whether the employer paid all overtime due, and whether the employees were exempt from overtime. Therefore, the court found the commonality requirement was met.

Representative claims are “typical” if they are reasonably coextensive with those of absent class members. Here, the named plaintiff was a nonexempt employee whose overtime hours were allegedly paid at less than 1.5 times the regular rate of compensation. Moreover, the named plaintiff asserted the same claims on behalf of himself and the class members. Accordingly, the court found that his claims were typical of the class. Finally, it appeared that the named plaintiff and his counsel had no adverse interests to those of the class members. The named plaintiff sought the same relief as the class—recovery of alleged overtime pay. Counsel were experienced lawyers with trial and class experience. Therefore, the adequacy prerequisite was met.

Predominance and superiority. The court also found that Rule 23(b)(3) was satisfied because questions of law and fact common to the class predominated over individual determinations and a class action was a superior method to other forms of adjudicating the matter. Because all California class members allegedly were underpaid overtime under Tru Up, the proposed class was sufficiently cohesive, and a common nucleus of facts and potential legal remedies dominated the litigation. Further, a single adjudication provided a consistent result for all class members and for the employer for a single course of conduct. Because the central issues were similar and overlapping, resolving them at once was a far more efficient method of adjudicating the controversy.

FLSA class. As to the FLSA class, the court found it met the standard for approval of the FLSA collective action. Class members were denied overtime pay, they were similarly situated since it was alleged that the Tru Up program created a uniform and systemic method of underpayment of overtime, and the amended settlement provided for an appropriate opt-in process for FLSA class members.

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