That said, as the California Supreme Court is wont to do lately, the Court left a lot open to interpretation and further litigation. There are some guidelines, but no bright line rules. So, let's see what we have ....
Duran and the class were loan officers. USB classified them as outside sales, who are exempt if they spend more than 50% of their time outside the office making sales.
Per the Court:
After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.You don't hear about many class action trials. In fact, this was one of the only cases in California history to go to trial on an exemption case. The trial court, apparently believing 260 class members should not be testifying about their duties, selected 21 people, at random, to testify. Then, statisticians testified how much overtime the 260 people worked to calculate their damages.
So, about 240 employees did not testify about their duties or their time worked at all. US Bank had this notion that it should be able to prove employees are exempt by using any employee or manager's testimony, and that any employee who did not deserve overtime should not be paid based on a statistical extrapolation. The trial court would not allow any such testimony.
The Court of Appeal agreed with US Bank, holding that the plaintiff's statistical proof of liability violated USB's entitlement to due process of law. As such, the Court reversed the $15 million judgment.
The Supreme Court upheld the Court of Appeal in full, unanimously. So, this case will be sent back to the trial court for a new trial, and a new fight over class certification. The Supreme Court did not rule on the constitutional "due process" issue. The Court also did not draw any bright line rules about whether statistical evidence is appropriate at the liability phase. But the Court strongly criticized the superior court's methods, and there is very helpful language for employers. There is some helpful language for the plaintiff's bar too.
Here are the main takeaways with supporting quotes:
1. Courts must consider not just whether there are common questions, but also whether it is feasible to try those common questions in one proceeding:
In the misclassification context, as in other types of cases, trial courts deciding whether to certify a class must consider not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis. Class certification is appropriate only if these individual questions can be managed with an appropriate trial plan.
2. The issue of "manageability" is a co-equal and separate issue from whether common questions predominate. Manageability goes to whether the class action is "superior" to individual lawsuits:
Although predominance of common issues is often a major factor in a certification analysis, it is not the only consideration. In certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently. ... In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting. (Brinker, at p. 1033; Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 989.)* * *
Trial courts must pay careful attention to manageability when deciding whether to certify a class action. In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class.
3. Class certification in wage-hour cases alleging misclassification will depend on whether individual questions predominate as to the liability for overtime, not the amount of overtime pay due:
Defenses that raise individual questions about the calculation of damages generally do not defeat certification. (Sav-On, supra, 34 Cal.4th at p. 334.) However, a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability. This distinction is important. As we observed in City of San Jose v. Superior Court, supra, 12 Cal.3d at page 463: “Only in an extraordinary situation would a class action be justified where, subsequent to the class judgment, the members would be required to individually prove not only damages but also liability.”
4. Class certification is more likely to be appropriate in cases where the job is highly standardized, and if the corporate policy uniformly requires overtime work:
Where standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific individual inquiries.
5. Statistical proof cannot establish liability without additional "glue" binding a class together. Courts should consider whether statistical proof is a viable way of handling individual issues at the certification stage:
if sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and statistical sampling. Statistical methods cannot entirely substitute for common proof, however. There must be some glue that binds class members together apart from statistical evidence. . . .
If statistical evidence will comprise part of the proof on class action claims, the court should consider at the certification stage whether a trial plan has been developed to address its use. A trial plan describing the statistical proof a party anticipates will weigh in favor of granting class certification if it shows how individual issues can be managed at trial. Rather than accepting assurances that a statistical plan will eventually be developed, trial courts would be well advised to obtain such a plan before deciding to certify a class action. In any event, decertification must be ordered whenever a trial plan proves unworkable.
And
While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant’s right to present relevant evidence.
And, this language, which casts some doubt on how there can be statistical proof of liability in mis-classification cases that are fact intensive:
We need not reach a sweeping conclusion as to whether or when sampling should be available as a tool for proving liability in a class action. It suffices to note that any class action trial plan, including those involving statistical methods of proof, must allow the defendant to litigate its affirmative defenses. If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations. If statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims or the defendant’s defenses, resort to statistical proof may not be appropriate. Procedural innovation must conform to the substantive rights of the parties.
6. The employer's "blanket" classification of a group of employees as exempt is not sufficient to justify certification of a class based on common questions.
7. The way to defeat certification remains by demonstrating that individual issues will swamp the common ones.
. . . USB’s exemption defense raised a host of individual issues. While common issues among class members may have been sufficient to satisfy the predominance prong for certification, the trial court also had to determine that these individual issues could be effectively managed in the ensuing litigation. (See Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.); Sav-On, supra, 34 Cal.4th at p. 334.) Here, the certification order was necessarily provisional in that it was subject to development of a trial plan that would manage the individual issues surrounding the outside salesperson exemption.
In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. (See post, at p. 40.) If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable. No such assessment was done here. With no sensitivity to variability in the class, the court forced the case through trial with a flawed statistical plan that did not manage but instead ignored individual issues.
8. The trial of a class action must allow for litigation of affirmative defenses. Therefore, courts evaluating certification must weigh that litigation in deciding the manageability issue. If a court does not make this finding at the certification stage, the certification is reversed:
Although courts enjoy great latitude in structuring trials, and we have encouraged the use of innovative procedures, any trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues. As we will explain, the trial plan here unreasonably prevented USB from supporting its affirmative defense. Accordingly, the class judgment must be reversed. The trial court is of course free to entertain a new certification motion on remand, but if it decides to proceed with a class action it must apply the guidelines set out here.
* * *
the trial court could not abridge USB’s presentation of an exemption defense simply because that defense was cumbersome to litigate in a class action. Under Code of Civil Procedure section 382, just as under the federal rules, “a class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.” (Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. __, __ [131 S.Ct. 2541, 2561].) These principles derive from both class action rules and principles of due process. (See Lindsey v. Normet (1972) 405 U.S. 56, 66; Philip Morris USA v. Williams, (2007) 549 U.S. 346, 353.)
This is not to say that an employer’s liability for misclassification may never be decided on a classwide basis. A class action trial may determine that an employer is liable to an entire class for misclassification if it is shown that the employer had a consistently applied policy or uniform job requirements and expectations contrary to a Labor Code exemption, or if it knowingly encouraged a uniform de facto practice inconsistent with the exemption.10. Statistical proof may be allowed to prove damages. However, estimates of damages cannot be based on overtime that was worked by those employees found to be exempt. That alone creates a major impediment to class-wide trials in misclassification cases.
So, I'm sure others will have more to say. But this is a lot. Although the Supreme Court's unanimous opinion is not definitive about the use of sampling and statistics for liability, the Court has left only a narrow gap in the door.
This case is Duran v. U.S. Bank Nat. Assn. and the opinion is here.
