Zimmer Settles Employee Misclassification Class Action for $7.3M

The United States District Court for the Northern District of California has issued an order granting preliminary approval of a class settlement agreement between a class of independent contractors and Zimmer Biomet Holdings, Inc. and its subsidiaries.

The lawsuit originated when a California sales associate sued Zimmer U.S., Inc., Biomet U.S. Reconstruction, LLC, and Biomet Biologics, LLC. Per the plaintiff’s motion for preliminary approval of amended class action settlement agreement, the sales associate alleged that the companies “unlawfully misclassified California sales representatives as independent contractors.”

The plaintiff’s relationship with Zimmer began when he began selling orthopedic devices to physicians and hospitals in San Francisco, California. Per his sales associate agreement with Zimmer, the plaintiff was classified as an independent contractor. As an independent contractor, he was a member of a sales team in his region and his team was paid on a commission-only “pooled” arrangement.

In order to resolve the matter, the parties engaged in settlement conferences and were able to negotiate a settlement agreement. Per the order granting preliminary settlement approval, “the proposed settlement creates a $7,380,482.10 fund to compensate a class of approximately 246 members.”

The proposed settlement will be distributed to the class members on a “pro-rata basis based upon bi-weekly service pay periods.” The fund will provide “approximately $336 per bi-weekly pay period or $672 per month.” This amount may pale in comparison to Zimmer’s actual potential exposure if the lawsuit proceeded. The plaintiff asserts that the settlement “represents approximately 15.31% of Zimmer’s total exposure in this suit—estimated at $48,196,516.”

In addition to the settlement fund, “class members currently contracting with Zimmer will also be offered full employment as IRS form W-2 employees.” Reclassification will entitle the employees to rights and protections under California law that are not available to independent contractors.

While the court preliminarily approved the settlement agreement, the order granting preliminary settlement approval called for two revisions to the employee reclassification section. The first revision requires that the reclassification section “alert class members that reclassification is limited to those who have satisfactory job performance, and, if they have not satisfactorily performed their job, they will be terminated.” The second revision requires that “sales representatives that make above $300,000 have the option of retaining their status as independent contractors.”