United States District Judge Lucy Koh, sitting in San Jose, refused to approve a $324.5 million settlement in a case pitting a class of engineers against high tech giants Adobe Systems, Apple, Google and Intel. The engineers’ claims in the case captioned, In re: High-Tech Employee Antitrust Litigation, stem from a 2010 U.S. Department of Justice investigation into allegations that the tech companies had agreements not to compete for each other’s software engineers. Last year, Lucasfilm, and Pixar paid a combined $9 million to settle, and Intuit settled for $11 million. This week, Judge Koh rejected the proposed settlement for the remaining defendants on the basis that the proportional payments to class members would be smaller than in last year’s settlement despite the fact that the case had only gotten stronger for the plaintiffs. The Court had granted class certification, denied motions for summary judgment and rejected motions to disqualify a key expert who opined that the engineers have suffered billions of dollars in damages from depressed wages. With trebling, Judge Koh noted, the defendants face $9 billion in liability to the class. In her decision, Judge Koh notes that to settle on the same basis as the earlier defendants, this group would need to settle for $380 million.

This decision is significant because it underscores the active role judges increasingly take to test the fairness of class action settlements. In this case, for example, plaintiffs’ counsel had also requested $81 million to cover their fees and an additional $1.2 million for costs. This case should also remind all employers to be cautious when entering into agreements that restrain the free movement of employees within the labor market, especially in states such as California which disfavor restrictive covenants.