Cole v. Lane Bryant, Inc.

Background

Shania Cole worked as a stylist for Lane Bryant from approximately June 2021 through June 2022. She alleged that Lane Bryant violated several California labor laws by failing to pay minimum and overtime wages, provide compliant meal and rest breaks, provide accurate wage statements, timely pay wages at termination, and comply with other wage requirements. She also alleged unlawful and unfair business practices.

After discovery and one round of mediation, the parties signed a memorandum of understanding. They later sought to add a PAGA claim and an overtime claim and jointly moved for preliminary approval of a class action and PAGA settlement, conditional certification of settlement classes, appointment of class representatives and counsel, and approval of class notices.

The proposed settlement required Lane Bryant to pay a gross amount of $1,150,000. The proposed allocations included $10,000 for Cole as an incentive payment, $646,666.67 for class members, $15,000 for aggrieved employees under PAGA, $45,000 to the California Labor and Workforce Development Agency, $383,333.33 in attorneys’ fees, $25,000 in attorneys’ expenses, and $25,000 in settlement administration costs.

The proposed class included non-exempt, hourly Lane Bryant employees who worked in California during the stated class period and did not opt out. The proposed PAGA group included California non-exempt, hourly employees who worked during the stated PAGA period. The opinion states that there were approximately 1,435 class members and approximately 850 PAGA members, with all PAGA members also included in the class.

Legal standard

A court may preliminarily approve a class-action settlement only after examining whether the proposal is fair, reasonable, and adequate. The court must also review and approve a PAGA settlement under a standard asking whether it is fundamentally fair, adequate, and reasonable in light of PAGA’s policies and purposes. The court explained that settlements reached before class certification require careful scrutiny because of the risk that the defendant and class counsel could settle without substantial litigation effort.

Analysis

The parties allocated $60,000 of the settlement to resolve the PAGA claim. They estimated Lane Bryant’s potential PAGA exposure at approximately $3,500,000, based on 35,000 allegedly violative pay periods multiplied by the $100 penalty for an initial violation.

The court found that this calculation improperly omitted the $200 penalty for subsequent violations. Under the authorities discussed in the opinion, a good-faith dispute about whether an employer had to comply with a particular law can prevent imposition of the higher penalty. But the court found that no such dispute existed here because Lane Bryant disputed whether it had violated the identified Labor Code provisions, not whether those provisions applied to its employees. The court therefore concluded that the parties’ estimate of Lane Bryant’s total potential PAGA exposure was incorrect.

After including the subsequent-violation penalties, the proposed PAGA settlement represented less than 1% of the claim’s potential value. The court noted that settlements below 1% can sometimes be approved based on factors such as the Labor and Workforce Development Agency’s views, whether the court might reduce the penalties if the claims were litigated, additional non-monetary relief, and the size of the related class settlement. The parties had not addressed these factors sufficiently, likely because they had used the incorrect potential-value calculation.

Disposition

The court concluded that it could not determine whether the proposed PAGA settlement deserved preliminary approval. It also explained that it could not delete, modify, or replace settlement provisions; the settlement had to stand or fall as a whole. Because the court could not evaluate the PAGA settlement, it could not approve the other parts of the proposed settlement. Judge P. Casey Pitts therefore denied the motion for preliminary approval without prejudice.