Cal Court of Appeal Hands Sheppard Mullin a Victory - Affirms Denial of Class Certification in an Expense Reimbursement/Uniform Action

[author: Thomas Kaufman]                       

On November 7, 2012, the First District Court of Appeal published an order affirming the denial of class certification entered in favor of Sheppard Mullin’s client, Wet Seal, Inc, in a case alleging that Wet Seal forced its employees to purchase clothing as a condition of employment and denied them certain mileage reimbursements.  As explained below, the decision, Morgan v. Wet Seal, Inc., is noteworthy on multiple levels, including (1) that it rejects this plaintiff’s attempt to obtain class certification based on an alleged “unlawful policy”; (2) that it clarifies the scope of the requirement to reimburse under Labor Code Section 2802; and (3) that it provides a good framework for an employer to use to establish predominant individualized issues.

The Facts

Plaintiffs were three retail store employees from Wet Seal clothing stores.  They alleged that Wet Seal required all of its retail employees to purchase Wet Seal clothing to wear at work in order to look suitably stylish to fit the Wet Seal image.  Plaintiffs further alleged that Wet Seal refused to reimburse its employees when they drove their car between stores for work purposes (e.g., to work in another store for the day).  Plaintiffs asserted claims for violation of Labor Code Section 450 (preventing employers from requiring employees to purchase a product from a specific vendor) and Section 2802 (requiring employers to reimburse employees for necessary business expenses).   They further alleged that the clothing they were required to purchase and wear qualified as a “uniform” which, under the wage order, Wet Seal would be required to furnish its employees.

Plaintiffs asserted that Wet Seal had a company policy that mandated the purchase of clothing.  However, the actual policy did not expressly state that employees were required to buy or wear Wet Seal clothing.  Rather, it stated that Wet Seal employees were “encouraged to wear Wet Seal merchandise at all times” and instructed that they should dress to work “consistent with the current fashion attire that is reflected in the stores.”  In fact, Company policies from 2005 and after expressly notified employees that they were not required to wear Wet Seal clothing, although they were offered employee discounts on such purchases.  As for mileage, the company expense reimbursement policy on its face provided that the travel expenses at issue were reimbursable, although plaintiffs contended that nobody told them of the policy or actually reimbursed them for this mileage.

Plaintiffs contended that their managers expressly instructed them that they had to wear Wet Seal clothing at all times and that they were not provided reimbursement for these purchases.  They also submitted 51 declarations of other former employees who were told by management either that they had to wear Wet Seal clothing or that they had to wear clothing in current fashion in the stores.  They contended that this showed that the “policy” as carried out in practice was to force people to purchase clothing for special use in Wet Seal stores that was akin to a uniform. The declarations were more mixed on the mileage reimbursement issue, with some not addressing the topic, some saying that they were unaware of the mileage reimbursement policy, some saying they were expressly denied reimbursement requests, and some simply saying that they could not remember if they got reimbursed.

In addition to the declarations, Plaintiffs submitted some specific e-mails managers had written in which managers had complained that employees were not wearing suitable clothing to work.  None of these e-mails, however, included a statement that management was requiring employees to purchase or wear Wet Seal clothing (as opposed simply to dress fashionably to work).

Wet Seal countered these declarations with more than 110 declarations of employees and managers stating that they were never required to wear Wet Seal clothing, they did not interpret the dress code for the store as requiring they do so, and that they did not have any business expenses that Wet Seal failed to reimburse.  Wet Seal also submitted proof that hundreds of employees had been reimbursed for a wide variety of expenses.

The Trial Court Order Denying Class Certification

The trial court denied class certification, primarily on the ground that individualized issues predominated over common issues.  Although plaintiffs did point to company policies that addressed what employees should wear to work, those policies did not on their face require the purchase of clothing.  While a particular manager or employee may have interpreted the policy as requiring the purchase of clothing, that was an individualized issue depending on (1) how the particular manager explained the policy; (2) how the employee understood it; and (3) if the employee contends he believed the purchase was mandatory, whether that belief was reasonable given the information the employee had.  The trial court also noted that plaintiffs had failed to present a trial plan that explained how these individualized issues could reasonably be managed at trial.

The Important Holdings of the Appellate Decision

The Court of Appeal affirmed the trial court, finding its determination that individualized issues predominated to be supported by the record.  Beyond that generally helpful holding, however, the Court of Appeal made numerous pronouncements that should be useful to other employers facing class actions:

(1) The decision implicitly held that where an employer merely encourages the purchase of a product that may be useful at work, reimbursement is not mandatory.  Rather, reimbursement is required only where the employer requires the employee to purchase the product: “Evidence that putative class members purchased Wet Seal merchandise is not evidence that they were forced to purchase that merchandise.” (p. 27)

(2) While a class action may be proper where a company policy is being challenged as unlawful on its face, for that to work there has to be a way to establish liability collectively from the face of the policy.  The mere fact that the employer has a dress code policy is not grounds to certify a class where the policy does not appear to have been applied in a materially consistent way across the class: “the common written dress code policy did not lead to common dress code practices.”  (p. 16).  Plaintiffs cannot circumvent this issue merely by claiming that it is a “merits” question whether the company policy required the purchase of clothing.

(3) This is yet another case that endorses the view that trial courts may deny class certification where the plaintiff fails to present a trial plan that explains, with some specificity, what kind of collective proof the employee will use to manage individual issues likely to arise.  Although the plaintiffs contended generally that “representative testimony, surveys, and statistical analysis all are available as tools to render manageable determinations of the extent of liability,” the court of appeal noted that plaintiffs had failed to go the additional step of “explain[ing] how their list of procedural tools can be used to effectively manage a class action in this case.” (p. 31, emphasis added).

(4) The court again distinguished the notions of varying damages among class members (which should not preclude certification) and varying liability (which should): “In this case, we are not concerned with determinations regarding the ‘extent of liability,’ but more fundamentally with the fact of liability.”  (p. 31).

(5) The court implicitly accepted the notion that a relevant factor in deciding whether a dress code amounts to a “uniform” (which must be reimbursed) is whether the employee could wear the clothing at another job in the same industry: “courts must consider whether the dress code policy requires wardrobe items that are usual and generally usable in the occupation and whether those items have a distinctive design or color.”  (p. 19).  This has been the DLSE position, but this is the first case I am aware of that adopts that limited view of a "uniform."  It is consistent with the view the IWC has long held that hospital employees can be required to purchase their own scrubs for work so long as one option is that the scrubs be white, which would allow them to be worn in any other hospital.

Conclusion

Morgan continues the encouraging trend in California class action jurisprudence to actually consider how the class action can be tried using collective proof and to delve into whether individualized issues truly predominate.  This is contrasted with the way expense reimbursement cases have often been treated at the trial court level in the past, with judges certifying a class based on a showing that significant expenses were incurred but not reimbursed and justifying that ruling on the notion that determining which employees were denied reimbursement was simply an issue of varying damages.  Instead, this court actually considered the employer’s individualized defenses and whether they could apply different to each class member.  The court also put the onus on Plaintiff to produce a workable trial plan. 

If those standards continue to be applied, a lot fewer cases should be certified. If you have further questions, please reach out to your Sheppard Mullin lawyer who can provide you guidance for your specific situation.