LYONS v. GERHARD'S, INC. et al

Filing 23

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE GERALD J. PAPPERT ON 7/15/2015. 7/15/2015 ENTERED AND COPIES E-MAILED.(kp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
JEFFREY LYONS
Plaintiff

CIVIL ACTION
NO. 14-06693

v.
GERHARD’S INC., et al.
Defendants
PAPPERT, J.

JULY 15, 2015
MEMORANDUM

Plaintiff Jeffrey Lyons (“Lyons”) sued Gerhard’s Inc. and its principal owners
(collectively, “Gerhard’s”) pursuant to the Fair Labor Standards Act (“FLSA”), the Employee
Retirement Income Security Act (“ERISA”), the Pennsylvania Minimum Wage Act (“PMWA”),
and the Pennsylvania Wage Payment and Collection Law (“WPCL”). (See Compl., Doc. No. 1.)
The core of Lyons’ claims is that Gerhard’s misclassified him as an independent contractor,
thereby depriving him of overtime pay and other employee benefits. Lyons also alleges that
Gerhard’s terminated its work relationship with him in retaliation after he refused to sign a form
stating that he was a subcontractor rather than an employee. Lyons seeks back pay, front pay,
compensatory and punitive damages, attorneys’ fees, expert witness fees, interest, and costs.
The parties have resolved these claims. They jointly move the Court for approval of their
settlement agreement pursuant to the Court’s duty to ensure that FLSA wage-payment
settlements represent “a fair and reasonable resolution of a bona fide dispute.” Lynn’s Food
Stores, Inc. v. United States, 679 F.2d 1350, 1355 (11th Cir. 1982). The Court finds that the
parties’ proposed settlement agreement meets this standard. It therefore grants the motion and
approves the settlement.

I.
Gerhard’s operates a retail appliance business out of several locations in suburban
Philadelphia. (Compl. ¶ 9.) Gerhard’s offers its customers free home delivery for purchases
over $999.00 and home delivery for an additional fee for purchases under $999.00. (Id. ¶ 10.)
During the relevant period, Gerhard’s utilized approximately eight delivery crews consisting of a
lead delivery driver and a helper. (Id. ¶ 14.) Delivery drivers were expected to report to a
Gerhard’s warehouse, load their delivery trucks, and depart for customer deliveries by 8:30 a.m.
(Id. ¶ 25.) Gerhard’s would provide the drivers with delivery sheets showing the details of each
delivery and a delivery route showing the sequence in which they were to make the deliveries.
(Id. ¶ 26.) Gerhard’s did not allow delivery crews to perform any additional services that were
not listed on the delivery sheets. (Id. ¶ 18.) Gerhard’s trained the delivery crews and required
them to wear Gerhard’s branded shirts when making deliveries. (Id. ¶¶ 21, 22.)
Lyons worked as a lead delivery driver for Gerhard’s. (Id. ¶ 11.) From May 2005
through the end of 2011, Gerhard’s paid Lyons as a W-2 employee. (Id. ¶¶ 11, 12.) Beginning in
2012, Gerhard’s paid Lyons as a 1099 independent contractor even though he did the same work
he did as an employee. (Id. ¶ 13.) As an independent contractor, Gerhard’s paid Lyons a flat rate
of $40.00 for most deliveries, although the rate could vary depending on the assignment. (Id.
¶ 15.) Lyons did not record his hours and did not receive additional pay if he worked more than
40 hours in a week. (Id. ¶¶ 45, 47.) At the end of each day, Gerhard’s required Lyons and the
other delivery teams to return to Gerhard’s and unload any old appliances they had removed
from customers’ homes. (Id. ¶ 43.) Gerhard’s did not provide Lyons or the other delivery teams
with any additional compensation for this work. (Id.)

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In July 2014, Gerhard’s demanded that Lyons sign a form stating that he served as a
subcontractor to Gerhard’s rather than as an employee. (Id. ¶¶ 50, 53.) The form also stated that
Lyons was responsible for complying with all income tax laws and maintaining a commercial
general liability insurance policy. (Id. ¶ 53.) It further stated that Lyons was not entitled to any
worker’s compensation, pension, stock, bonus, profit sharing, health, or other benefits available
to Gerhard’s employees. (Id.)
Lyons refused to sign the form. (Id. ¶ 54.) In response, Gerhard’s withheld Lyons’ pay
for several days. (Id.). On July 28, 2014, Lyons advised Gerhard’s in writing that he would not
sign the form because he believed that Gerhard’s should classify him as an employee rather than
as an independent contractor. (Id. ¶ 55.) Gerhard’s terminated its work relationship with Lyons
upon receipt of this letter. (Id. ¶ 56.) Lyons was later able to collect unemployment
compensation when a Pennsylvania Unemployment Compensation Board of Review Referee
deemed Lyons had been a Gerhard’s employee under Pennsylvania law. (Id. ¶ 59.). Lyons then
filed this lawsuit.
After Gerhard’s produced “thousands of pages of documents” and the parties deposed
Lyons and one of Gerhard’s principals, the parties reached a settlement agreement. (Joint Mot. to
Approve Settlement ¶¶ 7, 8, Doc. No. 20.) Gerhard’s has agreed to pay $153,500 to settle Lyons’
claims. (Settlement Agreement & General Release ¶ 1, Doc. No. 20, Ex. A.) Of that amount,
$43,056.25 will go to Lyons as wages subject to tax withholding, $43,056.25 will go to Lyons as
non-wage compensatory damages, and $67,387.50 will go to Lyons’ attorney for fees and costs.
(Id.) Because the agreement involves the settlement of a wage-payment claim under the FLSA,
the Court examines the agreement to ensure that it represents “a fair and reasonable resolution of
a bona fide dispute.” Lynn’s Food Stores, Inc., 679 F.2d at 1355.

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II.
“[T]he FLSA was designed to give specific minimum protections to individual workers
and to ensure that each employee covered by the Act would receive a fair day’s pay for a fair
day’s work . . . .” Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981)
(quotation omitted). Its central purpose is “to protect all covered workers from substandard
wages and oppressive working hours, labor conditions that are detrimental to the maintenance of
the minimum standard of living necessary for health, efficiency and general well-being of
workers.” Id. (quotation omitted). An employee’s right to a minimum wage and overtime pay
under the FLSA “cannot be abridged by contract or otherwise waived because this would ‘nullify
the purposes’ of the statute and thwart the legislative policies it was designed to effectuate.” Id.
at 740 (quoting Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945)).
Courts play an important role in ensuring that plaintiffs in FLSA lawsuits do not
effectively waive their statutory rights. To that end, “[w]hen employees bring a private action for
back wages under the FLSA, and present to the district court a proposed settlement, the district
court may enter a stipulated judgment after scrutinizing the settlement for fairness.” 1 Lynn’s
Food Stores, Inc., 679 F.2d at 1353. The reviewing court must ensure that the proposed
settlement reflects “a reasonable compromise of disputed issues [rather] than a mere waiver of
statutory rights brought about by the employer’s overreaching.” Id. at 1354.
There is also “a strong presumption in favor of keeping settlement agreements in FLSA
wage-settlement cases unsealed and available for public view.” Cuttic v. Crozer-Chester Med.
Ctr., 868 F. Supp. 2d 464, 467 (E.D. Pa. 2012); see also Tran v. Thai, No. H-08-3650, 2009 WL

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Although the Third Circuit has not addressed whether parties can settle FLSA actions claiming unpaid
wages without court approval, district courts within the Circuit have followed the approach endorsed by a majority
of courts and assumed that judicial approval is necessary. See Bettger v. Crossmark, Inc., No. 13-cv-2030, 2015 WL
279754, at *3 (M.D. Pa. Jan. 22, 2015) (collecting cases).

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2477653, at *1 (S.D. Tex. Aug. 12, 2009) (“The presumption of public access to settlements of
FLSA actions is particularly strong.”). This openness furthers “Congress’s intent both to
advance employees’ awareness of their FLSA rights and to ensure pervasive implementation of
the FLSA in the workplace.” Dees v. Hydradry, Inc., 706 F. Supp. 2d 1227, 1245 (M.D. Fla.
2010). Therefore, courts should require that parties file proposed settlements on the public
docket unless there are very compelling reasons to override the strong presumption that FLSA
settlements should be available for public view. See Weismantle v. Jali, No. 13-cv-01087, 2015
WL 1866190, at *2 (W.D. Pa. Apr. 23, 2015) (“[A]bsent something very special in a very
specific case which generates a very good reason above and beyond the desire of the parties to
keep the terms of an FLSA settlement out of the public’s view, if the parties want the Court to
approve the substance of an FLSA settlement agreement, it cannot be filed under seal.”)
Here, the parties initially filed a joint petition to approve their settlement agreement, but
submitted the proposed agreement to the Court ostensibly under seal for in camera review. (See
Joint Pet. for Settlement Approval, Doc. No. 18.) The parties, however, articulated no reasons
why the Court should disregard the strong presumption of openness, let alone compelling reasons
for it to do so. (See id.) The Court accordingly declined to review the agreement in camera and
ordered the parties to file their agreement on the public docket if they wanted the Court to review
and potentially approve it. (See Order, Doc. No. 19.) The parties did so, filing another joint
motion for approval of their settlement agreement with the proposed agreement attached as an
exhibit. (Doc. No. 20.) The Court then held a hearing on the motion in open court. (Doc. No.
22.) The proposed settlement agreement is therefore properly before the Court for review.
Courts presented with a proposed settlement of an FLSA claim engage in a two-part
analysis. First, the Court must determine if the settlement is fair and reasonable to the employee

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or employees involved. See McGee v. Ann’s Choice, Inc., No. 12-cv-2664, 2014 WL 2514582, at
*2 (E.D. Pa. June 4, 2014). If it is, the Court next considers “whether the agreement furthers or
impermissibly frustrates the implementation of FLSA in the workplace.” Id.
When evaluating whether a proposed settlement is fair and reasonable, courts in the Third
Circuit often turn to the nine-factor test for evaluating proposed class action settlement
agreements. See Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975); see also, e.g., In re Chickie’s
& Pete’s Wage & Hour Litig., No. 12-cv-6820, 2014 WL 911718, at *3 (E.D. Pa. Mar. 7, 2014).
The nine factors are:
(1) the complexity, expense and likely duration of the litigation; (2) the reaction of
the class to the settlement; (3) stage of the proceedings and the amount of
discovery completed; (4) risks of establishing liability; (5) risk of establishing
damages; (6) risk of maintaining the class action through the trial; (7) ability of
the defendants to withstand a greater judgment; (8) the range of reasonableness of
the settlement fund in light of the best possible recovery; and (9) the range of
reasonableness of the settlement fund to a possible recovery in light of all the
attendant risks of litigation.
Girsh, 521 F.2d at 157 (quotation omitted). The Court reviews the fairness of the parties’
proposed settlement agreement under these factors, bearing in mind that Lyons asserts his claims
individually, not on behalf of a class.
III.
A.
The Court finds that the proposed settlement agreement is fair and reasonable in light of
the Girsh factors. Further litigation will be expensive and carries substantial risk for both sides.
Lyons, of course, faces the initial hurdle of establishing that Gerhard’s should have classified him
as an employee rather than as an independent contractor. If he clears that hurdle, he faces
substantial risk in establishing the amount of damages to which he is entitled. Lyons did not
record his hours. Therefore, establishing the amount of overtime wages due would involve
complex recreations of the delivery routes using map and traffic data. This data would have to
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be complied and analyzed for a 26-month period during which Lyons was allegedly
misclassified. This recreation would involve the retention of experts at considerable expense.2
Moreover, the parties sufficiently developed the factual record in the case to allow them
to assess the strengths and weaknesses of their respective cases and formulate a settlement offer
that reflected those strengths and weaknesses. Gerhard’s produced between 11,000 and 12,000
pages of documents and deposed Lyons. (Hr’g Tr. 13:21-22; 20:20-21.) Lyons deposed Charles
Gerhard, Gerhard’s president and operations manager. (Id. 20:21-22.) Although Lyons initially
anticipated deposing Gerhard’s other principals and several current or former employees, Lyons’
counsel believed that Charles Gerhard covered all of the key topics in his deposition, so that he
had “enough of a feel” for the case to formulate and assess a settlement offer. (Id. 26:15-18.)
Indeed, when counsel exchanged settlement offers at the conclusion of these depositions, they
were “within a stone’s throw of the same number as the appropriate number for settlement” for
their respective clients. (Id. 26:20-27:1.)
Based on the documents, depositions, and information he received from his client, Lyons’
counsel figured that Lyons would have made approximately $43,000 per year (without overtime)
had he been classified as a full-time employee. (Id. 30:24-31:4.) As an independent contractor,
he made about $27,000 after expenses. (Id. 28:17-19.) About half of the settlement amount
going to Lyons represents this difference extended over the 26-month period Lyons was allegedly
misclassified. The other half represents Lyons’ overtime claim, lost wages for his retaliation

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Both parties retained consulting experts to analyze subsets of the delivery data to get a general idea of the
amount of overtime wages due so that they could make an informed decision on a settlement amount. (Hr’g Tr.
11:1-12; 21:21-25.) Those subsets, however, were not necessarily representative of the entire period over which
Lyons was allegedly misclassified. (Id. 12:18-13:10.) As a result, Lyons would have to obtain additional and more
expensive expert analysis to establish his overtime wages with the certainty required at trial. (Id.) Gerhard’s would
have to obtain an expert witness to rebut that calculation. (Id. 21:21-25.)

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claim, and compensation for his ERISA claim. (Id. 31:21-25.) The Court finds this settlement
amount to be well informed and reasonable under the circumstances.
The settlement agreement includes $67,387.50 for attorneys’ fees and costs. This
represents approximately 44% of the total settlement amount of $153,500. As a percentage of
the total recovery, this fee is on the higher side, but it is not so high as to be unreasonable.
Courts approving attorneys’ fees in class action settlements have found slightly higher
percentages reasonable. See In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab.
Litig., 55 F.3d 768, 822 (3d Cir. 1995) (noting that “fee awards have ranged from nineteen
percent to forty-five percent of the settlement fund”). Furthermore, at the fairness hearing,
Lyons’ counsel attested that the amount due to him under the settlement agreement includes
nearly $6,000 in costs, leaving approximately $60,000 for fees. This represents 39% of the total
settlement for fees. (Hr’g Tr. 35:24-36:3.)
Lyons’ counsel further attested that he had devoted 92 hours to the case up to that point, a
reasonable amount of time given the complexity of the case, the number of documents produced,
and the number of depositions taken. (Id. 36:25-37:1.) This works out to a rate just over $650
per hour. Lyons’ counsel has been a practicing attorney for over 25 years and devotes
approximately 95% of his practice to employment law cases. (Id. 3:22-25.) The Philadelphia
Community Legal Services attorney fee schedule lists an hourly rate range of $600-$650 for an
attorney with this amount of experience, which is in line with what Lyons’ counsel will be
effectively receiving for his work in this case.3 The Court accordingly finds that the proposed

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“The fee schedule established by Community Legal Services, Inc. (‘CLS’) has been approvingly cited by
the Third Circuit as being well developed and has been found by the Eastern District of Pennsylvania to be a fair
reflection of the prevailing market rates in Philadelphia.” Maldonado v. Houstoun, 256 F.3d 181, 187 (3d Cir. 2001)
(quotation omitted). The CLS fee schedule is available at http://clsphila.org/about-cls/attorney-fees.

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settlement agreement, including the amount designated as attorneys’ fees and costs, is fair and
reasonable.
B.
The Court also finds that the agreement does not impermissibly frustrate the
implementation of the FLSA in the workplace. The agreement does not contain a confidentiality
provision that would prevent either party from publicly discussing its terms. The agreement does
contain a “nondisparagement” provision that prevents either party from making any “negative,
critical or adverse” remarks about the other unless testifying truthfully under oath. (Settlement
Agreement & General Release ¶ 12.) This provision, however, does not preclude Lyons from
discussing his claims against Gerhard’s or the terms of the settlement agreement. As such, it is
not so restrictive that it frustrates the purpose of the FLSA. See, e.g., In re Chickie’s & Pete’s,
2014 WL 911718, at *3 (approving settlement agreement with confidentiality clause that “only
prohibits Plaintiffs from disparaging Defendants or discussing the substance and negotiations of
this matter with the press and media.”).
V.
In conclusion, the Court finds that the proposed settlement agreement reflects a fair and
reasonable compromise of a bona fide dispute and does not impermissibly frustrate the
implementation of the FLSA in the workplace. The Court accordingly grants the parties’ joint
motion to approve settlement agreement.
An appropriate order follows.

/s/ Gerald J. Pappert
GERALD J. PAPPERT, J.
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