California Supreme Court (!) Issues Strong Pro-Defense Wage and Hour Class Action Decision

by BakerHostetler

“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.”

“[T]rial 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.”

“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.”

“[A] class action trial management plan may not foreclose the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.”

Quotes from a defendant’s brief? No. Surprisingly, these are all drawn directly from a surprising and defense-oriented decision the California Supreme Court issued yesterday. While, perhaps, the decision is not quite as defense friendly as the United States Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, it is a very strong decision on many important issues for defendants in employment litigation in one of the country’s most difficult, as least until now, jurisdictions.

In Duran v. U.S. Bank National Ass’n, Case No. S2000923 (May 29, 2014), the plaintiff loan officers contended that they were misclassified as outside salespersons under California state law. The trial court certified a class of 260 plaintiffs and then tried to manage the case by bifurcating trial between liability and damages, and then limiting the trial testimony to a sample group from the class. More about these decisions in a minute. The trial court ultimately found that the entire class had been misclassified and then, in the liability phase, rendered a verdict of about $15 million, or an average of $57,000 per class member.

The defendant appealed, and the court of appeals unanimously reversed. This was, incidentally, the same court that 10 years ago rendered the strongly pro-plaintiff decision in Bell v. Farmers Ins. Exchange 115 Cal. App. 4th 715 (2004), so it was not exactly a bastion of defense jurisprudence.

A virtually unanimous California Supreme Court (one judge concurred; no dissent) agreed that the trial verdict could not stand. We won’t try to summarize the court’s 51-page decision here, but the court made numerous significant rulings. Among them, with some additional pertinent quotes:

- While the court declined to say that misclassification cases were not suitable for class action treatment per se, as reflected in the quote above it noted that several aspects could render certification inappropriate.

- The court was critical, to say the very least, of the trial court’s case management plan, including the use of too small a statistical sample, poor selection criteria, poor control for plaintiffs who refused to cooperate, and faulty statistical methodology. The court’s analysis specifically rejected many of the arguments proposed by plaintiffs seeking certification about how a class could be managed at trial.

- Sampling, even where appropriate, likely requires expert testimony as to each of these issues.

- Sampling is a poor tool to determine liability, as opposed to damages.

- While distinction among class members as to damages will not defeat certification, those distinctions may do so when they also affect the question of liability. In this instance, because of variations in the amount devoted to non-exempt duties among the class members, variations in hours affected not only damages but also liability, rendering certification less likely.

- The court must consider manageability of the class when deciding whether to certify.

- The court’s trial plan must give the defendant the right to present its affirmative defenses, as well as to point out issues relating to class members, and a failure to do so implicates due process. Further a trial court cannot refuse to do so “simply because [a] defense was too cumbersome to litigate in a class action.” ”We have long observed that the class action procedural device may not be used to abridge a party‘s substantive rights.”

The court found that the trial court’s handling of the case was deeply flawed and reversed. Leaving a ray of hope for the plaintiffs, however, the court did not simply enter judgment in favor of the defendant (of course, the lead plaintiff still had an individual claim), but remanded to send the trial court back to the drawing board: “the trial court must start anew by assessing whether there is a trial plan that can properly address both common and individual issues if the case were to proceed as a class action.”

The Duran case will likely be the subject of much commentary in the months and years ahead, but it cannot be viewed as anything but a positive ruling for employers defending California class action claims, as well as those defending wage and hour claims elsewhere.

The Bottom Line: The California Supreme Court has issued a refreshing decision recognizing the inherent problems in certifying wage and hour misclassification litigation and rejecting many trial short-cuts often proposed by plaintiffs in class litigation.


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