Karl v. Zimmer Biomet Holdings, Inc.

Background

James Karl brought an employment-classification action against Zimmer Biomet Holdings, Inc. and its subsidiaries. In August 2015, Karl signed an agreement identifying him as an independent contractor and began selling orthopedic devices to physicians and hospitals as part of “Team Golden Gate” in the San Francisco Bay Area. He was paid through Edge Medical, LLC, which he established for tax purposes. Karl alleged primarily that Zimmer misclassified him as an independent contractor rather than an employee.

The court had previously certified a collective action under the Fair Labor Standards Act, but later summary judgment eliminated several claims, including claims for overtime wages and failure to provide meal and rest periods. The court found Karl to be an exempt outside salesperson. Karl later agreed to decertify the Fair Labor Standards Act collective action. The court then certified a class under Federal Rule of Civil Procedure 23(b)(3). While an appeal concerning that certification was pending, the parties negotiated with assistance from Magistrate Judge Donna Ryu.

Proposed Settlement

The parties’ revised settlement agreement would establish a non-revisionary gross settlement fund of $7,380,482.10 for approximately 246 class members. Payments would be distributed pro rata based on biweekly service pay periods. Karl represented that the settlement was approximately 15.31% of Zimmer’s estimated total exposure of $48,196,516.

Upon final approval, class members then contracting with Zimmer would also be offered full employment as IRS Form W-2 employees. The agreement would release Zimmer from claims arising from the facts alleged in the action. It also provided for class counsel to seek fees of no more than 28% of the settlement fund, costs not exceeding $25,465, an $83,030.42 payment to the LWDA for the portion attributed to the Private Attorneys General Act claim, and a $12,500 payment to the settlement administrator. The settlement did not provide Karl with an enhancement award.

The agreement allowed class members earning more than $300,000 per year to decline the employment offer and remain independent contractors. The court identified concerns about a provision conditioning reclassification on satisfactory job performance. The agreement appeared to give class counsel no ability to challenge Zimmer’s decision to retain a class member as an independent contractor, potentially leaving that person without a remedy. The court also noted that the agreement did not explicitly extend the reclassification policy to future hires.

Court’s Analysis

Under Federal Rule of Civil Procedure 23(e), a class settlement that binds absent class members must be fair, reasonable, and adequate. The court considered the risks, expense, and complexity of continued litigation; the settlement amount; the strength of Karl’s case; the stage of the proceedings; and other relevant factors. It found the proposed settlement adequate at the preliminary stage.

The court determined that the settlement addressed the case’s main monetary and nonmonetary goals. It also found the release sufficiently limited because it covered participating class members and generally tracked the certified claims, although it stated that the parties should consider clarifying some language. The extensive discovery, motion practice, appeals, and settlement conferences supported the court’s conclusion that the negotiations appeared serious and non-collusive.

The court found the proposed notice adequate only after requiring revisions. The notice had to explain that reclassification was limited to people with satisfactory job performance and that people who had not satisfactorily performed their jobs could be terminated. It also had to explain that sales representatives earning more than $300,000 could remain independent contractors. The revised notice would be sent primarily by email and first-class mail to approximately 246 class members.

Disposition

The court granted preliminary approval of the proposed settlement to the extent stated in the order, subject to final approval. It ordered revisions to the reclassification and notice provisions and set deadlines for notice, corrections, objections, exclusion requests, briefing, and attorney-fee and incentive-award motions. The final approval hearing was scheduled for January 6, 2022. This order was a preliminary settlement-approval ruling; it did not grant final approval of the settlement.