In a significant victory for California employers, the California Supreme Court threw out a $15 million judgment in favor of allegedly misclassified employees. In Duran v. U.S. Bank National Association, a putative class of business banking officers sued U.S. Bank for unpaid overtime, claiming they had been improperly classified as outside salespersons. That exemption applies to employees who spend at least 50% of their time on offsite sales activities. Over U.S. Bank’s objection, the trial court certified the class and proceeded to trial using statistical evidence based on 21 employees — 19 randomly selected employees and the 2 class representatives. On appeal, a unanimous supreme court rejected the established approach and reversed the $15 million judgment for the class. Employers can take away several key lessons from the decision:
Statistical sampling is not an easy shortcut to determine liability and damages for a group. The trial plan aimed to extrapolate liability and damages for 260 current and former employees using a “random” sampling of twenty employees plus the two class representatives. The selection, however, was not truly random where it included both class representatives, two class members initially in the random sample bowed out at plaintiffs’ counsel encouragement, and a third randomly-selected class member did not show for trial. Further, the ultimate award relied on plaintiffs’ expert’s determination that class members worked an average of 11.87 hours of overtime per week, subject to a 43% margin of error. The Court found the approach “profoundly flawed” as the sample was biased in plaintiffs’ favor, was too small to produce reliable information, and had too large an error margin.
Employers have due process rights to defend their cases, and statistical sampling cannot be used to bypass individualized issues. Under the trial plan, U.S. Bank was not permitted to present evidence that plaintiffs outside the sample group were properly classified as exempt — a key defense to liability. The Court held that class certification is improper when the trial plan cannot “fairly and efficiently” allow employers to pursue their affirmative defenses. Trial management plans cannot deny a party its substantive rights.
Courts must consider use of statistical evidence and trial plans before certifying a class. The parties must evaluate — early on — case manageability and the role of statistical evidence in the trial management plan. Such issues must be addressed prior to class certification, and a court must be prepared to deny certification if a trial plan cannot be crafted in a way that preserves a defendant’s due process rights and to de-certify a class if the issues prove unmanageable on a class basis.
The Duran decision did not abandon use of statistical evidence in managing class action lawsuits, but recognized that certain limitations exist on its usefulness. The court’s emphasis on due process restrictions on use of statistical evidence in class actions is welcome news for California employers, and represents a significant tool in defending against and managing such actions.