Employment Matters Blog

California Employers Catch One of Those Rare Wage and Hour Class Action Breaks From the California Supreme Court

Posted in California, class action, FLSA, misclassification, Wage and Hour

Written by Brandon Willenberg

Sometimes California employers do get a win when battling in the minefield of California’s wage and hour laws. So California employers, please pause to rejoice in this moment because you know you may not get another one for a while. In a case that has been going on for more than a decade, the California Supreme Court issued an employer-favorable opinion in Duran v. U.S. Bank National Association – a case the California Supreme Court called a “rare beast: a wage and hour class action that proceeded through trial to verdict.”

The California Supreme Court affirmed the Court of Appeal’s overturning of a $15 million judgment in favor of a class of U.S. Bank’s Business Banking Officers (Officers) regarding their alleged misclassification as exempt outside salespersons and unpaid overtime claims. The Court found that the “trial plan,” which involved the use of a 21-person (class members) representative sampling of testimony to determine class-wide liability and restitution for the entire 260 Officer class, was significantly flawed and violated U.S. Bank’s due process rights.

Under the trial plan, U.S. Bank could not present evidence regarding liability or damages outside of the 21-person sample, despite having evidence that at least one third of the class members spent the majority of their time on sales duties away from the Bank, including the four prior named plaintiffs in the case. U.S. Bank’s hands were tied as it watched the trial court find that the entire class was misclassified based only the limited evidence from the 21-person sample. This in turn led to a $15 million verdict against U.S. Bank. Nothing feels better as a defendant employer than being denied your affirmative defenses — that was sarcasm by the way.

Thankfully, and rightfully, U.S. Bank appealed, and the Court of Appeal stepped in as the voice of reason. It reversed the $15 million judgment, holding that the trial plan denied U.S. Bank its right to present its affirmative defenses and was thus denied its due process rights. The Court of Appeal went on to also hold that the class should have been decertified because the individual issues could not be properly managed at trial.

Enter the California Supreme Court. It echoed the Court of Appeal’s voice of reason by also finding that the 21-person sampling “prevented USB from showing that some class members were exempt and entitled to no recovery.” It noted that outside salesperson misclassification cases usually generate individual issues regarding “how and where the employee actually spends his or her workday,” and therefore manageability of the class action becomes a greater challenge. While trial courts can use various methods to address and manage individual issues for trial, they must be ones that allow the defendant to present and litigate its affirmative defenses even if they go to individual issues. That’s a novel thought – allowing a defendant to actually present and litigate its affirmative defenses (again, sarcasm).

The California Supreme Court was extremely critical of the trial court’s arbitrary decision to use the 21-person sample finding it a “flawed statistical plan that did not manage but instead ignored individual issues.” The trial plan ignored the key individual issue of how much time class members spent working away from the Bank. Instead, and without any justifiable basis or expert opinion, the trial court limited the plan to a “representative” sample of 21 class members. But, as it turned out, this 21-person sample was not really representative of anything other than an improper statistical approach to assess liability and damages for the 260 member class, and other than a tool for the trial court to wholly deny U.S. Bank the ability to present sworn declarations from 75 class members, and live testimony, that evidenced these employees worked a majority of their time outside of the bank, i.e. U.S. Bank could not present a full defense to the misclassification and overtime claims.

In addition to the due process issue, the California Supreme Court found that because the individual issues regarding U.S. Bank’s defense could not be properly managed at trial, class decertification was proper. It reemphasized that class certification is not appropriate where, as here, the individual issues could not be properly managed at trial, regardless of whether common issues exist. Assessment of the manageability of individual issues is just as important as the common questions that unite the potential class. And waiting until trial to assess and determine manageability issues is too late. It needs to be done at the class certification stage.

So, what do we make of all this? We know that in wage and hour class actions, statistical sampling is not dead when it comes to establishing liability, but it will be closely scrutinized. Employers now have a good roadmap to successfully challenge any imposed sampling that would undermine or deny a defense regarding liability and damages. Are you asking the right questions? Has the sampling method been endorsed by experts? Is it scientifically sound? Does it ignore individual issues that go to heart of the defendant employer’s affirmative defenses? Does it deny the defendant employer the opportunity to present evidence that justifies the exempt classification? When was the trial plan or sampling implemented – at trial or at class certification? So employer, make sure you are checking all of these boxes. And just maybe, if you are in the unfortunate position of having to defend a wage and hour class action, you, like U.S. Bank, may be the subject of one of those rare California employer wins.