Class action trials have long been the bogeyman no one talks about in California. Parties had to address whether a class action was “manageable” before it was certified, but because the vast majority of class actions never proceed to trial, no one really knew what the rules were to craft a trial plan for these types of representative actions.
On May 30, the California Supreme Court in Duran v. U.S. Bank National Association confirmed that not only must a trial plan be addressed before a case can be certified as a class action, but the trial plan, and specifically the use of representative testimony and sampling of data, cannot be used to deprive wage-and-hour defendants of their right to question the appropriateness of this methodology when there are individualized questions presented.
This case has far-reaching ramifications. It has the potential to dramatically shape the way employment class actions proceed in California and how employers evaluate these cases going forward.
The case at issue involved the alleged misclassification of loan officers as exempt outside salespeople. After substantial litigation, the case proceeded to trial utilizing the testimony of 20 individual loan officers, plus two named plaintiffs. This representative testimony was used to assess the liability for the entire class, despite the testimony of the plaintiff’s own expert that at least 13 percent of the class was classified correctly. U.S. Bank was unable to introduce the testimony of any additional individual loan officers through live or declaration testimony; despite these shortcomings, the court extended the liability findings based on this limited representative testimony to the class as a whole.
The case proceeded to the California Supreme Court, where it addressed two overall issues: (1) how does a trial plan interact with a class certification decision? and (2) at trial, how can representative testimony and statistical sampling be used to prove liability? The Supreme Court was very clear in its guidance on these points: a trial plan must be evaluated before a class is certified, and that trial plan must be developed with expert input and must afford the wage-and-hour defendant an opportunity to impeach the statistical model used or otherwise show its liability is reduced.
First, the Supreme Court was extraordinarily clear on when a trial plan should be addressed in a representative action. “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. . . . Class certification is appropriate only if those individual questions can be managed with an appropriate trial plan.” Further, even though it is determined that common issues predominate over individualized issues in the case, there must be a second analysis of how those common issues will be tried. “After a class has been certified, the court’s obligation to manage individual issues does not disappear. . . . [E]ach plaintiff must still be some means prove up his or her claim on any ground not resolved in the trial of common issues.” Further, courts can no longer rely on assurances that a statistical plan will eventually be developed to assess liability – there must be some proof of that plan before the certification decision is reached.
The California Supreme Court did allow that if sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and sampling. However, statistical methods cannot entirely substitute for common proof. Where there is no proof of an unlawful common policy or practice, statistical analysis cannot be used to “prove” liability. And, if a trial plan includes representative testimony or statistical sampling, a preliminary assessment should be done to determine the level of variability of the class. “If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable.”
This is not to say that a wage-and -hour defendant has an unfettered right to present individualized evidence, nor is it always a due process violation when a defendant is unable to exam every putative class member. But a wage-and-hour defendant has substantial rights here. As the court noted, “If liability is to be established on a classwide basis, defendants must have an opportunity to present proof of their affirmative defenses within whatever method the court and the parties fashion to try these issues. If trial proceeds with a statistical model of proof, a defendant accused of misclassification must be given a chance to impeach that model or otherwise show its liability is reduced because some plaintiffs were properly classified as exempt.”
Finally, the court gave some guideposts regarding the use of statistical sampling. First, the sample must be sufficiently large to provide reliable information about the larger group. Second, a sample must be randomly selected for its results to be fairly extrapolated to the entire class. And finally, there must be a sufficient indicia of reliability for the sample to be used.
While this case concerned a misclassification class action, the holdings of the California Supreme Court have implications for defendants facing all manner of wage-and-hour cases. From the defense perspective, this case should also impact analysis of California Private Attorney General Act cases. Any time a defendant has an affirmative defense regarding an individual employee (which is the case with most wage-and-hour cases, including misclassification, meal and rest periods, expense reimbursement and off-the-clock work), and liability is to be determined for a group of people using statistical sampling or representative testimony, a trial plan must be developed that allows the defendant to adequately raise those defenses. Further, such issues should not be addressed only on the eve of trial, but must be evaluated earlier in the case.
Gone are the days of assuming a representative action will never be tried, or that a sampling methodology can be established in the future. Now, plaintiffs must affirmatively develop trial plans, which will be a key phase in all representative actions in California. This case also highlights the need to have effective, lawful employment policies that can be presented to the court. Such lawful policies can prevent a plaintiff from simply using sample statistics to “prove” liability at the certification stage.