United States: California Supreme Court Stabilizes The Law In California Misclassification Class Action Cases

In a long-awaited decision, the California Supreme Court in Duran v. U.S. Bank National Association, S200923 (May 29, 2014), clarified California's standard for certifying class actions in employee misclassification cases. In doing so, the Court issued badly needed guidance to trial courts deciding whether employee wage class actions may be certified (or remain certified) as class actions. While the Court's standard is not identical to that set forth in the U.S. Supreme Court's recent decisions, Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct 2541 (2011) and Comcast v. Behrend, 133 S. Ct. 1426 (2013), Duran is a major step in bringing California's law on class certification in line with the standards prevailing at the federal courts and in other states. 

Duran's effect will be far-reaching. The Court's rigorous and sensible analysis requires trial courts to conduct a far more thorough analysis at the time of class certification concerning the practical means by which individual defenses to class claims can be resolved, including a realistic trial plan that permits employers to litigate individual liability defenses. Although the decision did not expressly overrule any prior authority, its reasoning suggests that many cases in recent years applying vague and soft standards for certification of employee wage class actions may no longer be good law. The result will likely be a fairer playing field for employers in litigation over certification of employee class actions.

Background

Duran arose from a complaint alleging that loan officers working for USB were misclassified as exempt outside salespersons under California Labor Code § 1171. Relying heavily on the California Supreme Court's 2004 decision in Sav-On Drug Stores v. Superior Court, the trial court certified the case as a class action based on evidence that the loan officer position was "standardized," that the company had classified all loan officers as exempt without examining each employee's duties or work habits, and that the company allegedly failed to train or monitor employees to ensure that the exemption requirements were satisfied.

Duran is particularly significant because, as the Court put it, it was "an exceedingly rare beast:  a wage and hour class action that proceeded through trial to verdict." Because of this, the trial court in Duran was actually required to implement a trial plan. 

Hence, the problem. From the time of certification onward, the company had shown with declarations and other testimony that many loan officers met the exemption standard. The trial court, however, not only rejected this evidence, it excluded it entirely, relying instead upon testimony from 20 randomly selected class members in addition to the two named plaintiffs (called the representative witness group, or "RWG"). Trial was held in two phases, leading to a verdict against the company as to all loan officers based upon testimony from members of the RWG only.

On appeal, the court in California's First Appellate District reversed, severely criticizing the trial plan's reliance on representative sampling, holding that this denied the company its due process right to litigate affirmative defenses.

The Court's Decision

The California Supreme Court's decision did not reverse the certification order outright, but rather remanded the case to the trial court. However, its extensive affirmation of an employer's right to litigate individual affirmative defenses, and emphatic rejection of the trial court's flawed trial plan, left little doubt that the plaintiffs will have a difficult time crafting a plan that will pass muster under the Court's new standard.  Key features of the Court's decision include the following:

  • The Court forthrightly confronted the assumption implicit in much class action litigation that most cases will settle. Instead, the Court required an actual workable trial plan: "Settlement should never be treated as a forgone conclusion."
  • For the first time, the California Supreme Court explicitly required that courts, at the class certification stage, consider a plan for how individualized issues will be managed at trial:  "Trial courts must pay careful attention to manageability when deciding whether to certify a class action."
  • The Court discussed the use of sampling and statistical evidence, rejecting as flawed the approach adopted by the trial court because the sample was insufficiently large, biased, and had too large a margin of error. In the future, we can expect much more time and effort being expended on both sides with experts arguing the validity of trial plans based on surveys, sampling, and statistics.
  • The decision reaffirmed the principle, similar to the one written in the federal Rules Enabling Act, that "the class action procedural device may not be used to abridge a party's substantive rights." This principle would appear to disapprove a trial plan in which parties who could not recover in a single action could nevertheless recover as part of a class.
  • Although it rejected the notion that an employer had the unlimited right to present individual evidence on every plaintiff in a class, the court nevertheless reinforced the right to present individualized evidence to impeach and challenge "common evidence" in a class action case.
  • The Court fleshed out its previous decision on the outside sales exemption in Ramirez v. Yosemite Water Co., 20 Cal. 4th 785 (1999). Specifically, it discussed when and how that standard might be applied in a class action. Thus, although reliance upon the average hours spent by an employee on an exempt task might not be dispositive in every case, failure to show that employees performed their jobs in uniform fashion presented individualized issues that must be addressed by the court in a motion for class certification. This reaffirmed the trend, first seen in the Court of Appeals' 2006 decision in Dunbar v. Albertson's, Inc., 141 Cal. App. 4th 1422 (2006), in which courts increasingly have denied certification of misclassification class actions because the time spent on various tasks varied within the putative class.
  • Without explicitly saying so, the Court appeared to clarify its 2004 decision in Sav-On, noting that in Sav-On, there was evidence that class members performed essentially the same tasks, most of which were non-exempt.
  • In an intriguing subplot, the Court finessed the question of the extent to which differences in damages can prevent certification. It noted and affirmed the principle that different calculations of damages should not prevent certification. However, it noted that some questions phrased as damages questions might actually inherently require decisions on liability. "In other words, decisions about the fact of liability are reframed as questions about the extent of liability." This boundary will doubtless require further clarification in the future.

Many questions remain. The Court specifically declined to decide whether the standard for adjudication of class certification is different under California's Unfair Competition Law (Cal. B&P Code § 17200), or whether the absence of a uniform policy supports certification if such a policy is required by law. 

In all, however, the Court's Duran decision introduces a welcome clarification to the California law of aggregate litigation. Its definitive affirmation of a defendant's right, grounded in due process, to present individual defenses, and the directive to evaluate those rights at the time a class action is certified, should make the law more practical and less unpredictable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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