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Court Rejects $1.75 Million Hertz Wage Lawsuit Settlement for the Third Time

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If the parties agree, why can’t they settle? Insights for outsiders

Los Angeles, CAThe Central District of California has refused to approve a $1.75 million settlement designed to end a class action California labor lawsuit brought by more than 2,000 Hertz Transportation Inc. workers. The workers claim that their paystubs were inaccurate, in violation of California labor employment law.

Hertz Transportation has offered $1.75 million. The workers appear to be ready to accept the deal. If the parties are willing to settle, why can’t they go ahead? The answer lies in the complicated rules for class action lawsuits.

Lawsuits are public business

At a very fundamental level, lawsuits, even civil lawsuits, are public business. They involve the court system, which is a public resource. Decisions are a matter of public record; and published decisions create precedent, adding to the body of law on the basis of which later cases may be decided.

This is why lawsuits are different than arbitration, which is generally private, often governed by confidentiality agreements, and which does not create precedent. Arbitration does not shape the law for future litigants.

A settlement that ends a lawsuit similarly does not create precedent, except in an approximate way. It may affect the size of settlement offers in similar cases, particularly those in class action lawsuits involving the same defendant and similar sets of facts. Courts retain a supervisory role over settlements of lawsuits to ensure, in a very general way, that justice is done. Ideally, public resources should not be misused to allow one party to gain unjust or unfair advantage over another.

Periodically, but not often, courts reject settlement agreements because they appear to violate these general rules. That appears to be what happened in the latest iteration of Dawson v. Hertz Transporting Inc..

Guidelines for approval of class action settlements

The Northern District of California has recently adopted very detailed procedural guidance for the approval of class action settlements. The rules focus on several kinds of issues, including notice to participants, attorneys’ fees and whether the lawsuit is likely to be certified as a class action. The guidance is not necessarily binding on the Central District of California, but it may provide a window into the court’s decision to reject the settlement offer.

Why the court rejected the settlement

Judge George H. Wu denied the motion because at least a portion of the lawsuit is unlikely to be certifiable as a class action. He noted that the subclass based on improper pay stubs does not demonstrate predominance in the significance of the common legal and factual issues. Without class action status, Dawson is unlikely to succeed.

A deep dive into the Federal Rules of Civil Procedure

The FRCP requires that, to be treated as a class action, a lawsuit must satisfy four criteria:

• the class is so numerous that joinder of class members is impracticable (sometimes abbreviated as “numerosity”);
• there are questions of law or fact common to the class (commonality);
• the claims or defenses of the class representatives are typical of those of the class (typicality); and
• the class representatives will fairly and adequately protect the interests of the class (adequacy).

The District Court seems to have gotten stuck on the element of commonality. If the lawsuit were not certified as a class action lawsuit, the individual claims might still have legal merit, but the plaintiffs would be unlikely to pursue them. There are many reasons for this, but the cost of individual litigation looms large.

If the lawsuit would otherwise be unlikely to succeed, then it becomes questionable whether the settlement is just. Many find this a troubling result, perhaps because it substitutes procedural requirements for substantive merit.

Workers might find it easier to understand a situation where an employer with a shaky defense offered a settlement that seemed to shortchange workers. This time, however, the shoe is on the other foot. It is the employees’ case that seems to have issues.

What happens next?

Plaintiffs’ attorneys have another chance to re-formulate the lawsuit in a way that will satisfy the federal requirements for class action certification. This may ultimately involve trimming certain individuals from the class based on their personal circumstances.

Their chances to revise the lawsuit in ways that will justify the settlement will eventually run out. This may be just a reminder to litigants that they must satisfy the needs of very procedurally-driven courts in trying to do justice for workers.


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