On June 7, 2011, the California Court of Appeal affirmed a trial court's prior denial of class certification in Soderstedt v. CBIZ Southern California, LLC. The court affirmed the denial of certification on several bases, including a failure to establish a predominance of common issues and the superiority of a class action. The court, however, also affirmed the denial based on the plaintiffs' failure to establish both numerosity and adequacy of representation.

Factual Background

The two plaintiffs in this case sought to certify a class of, what they alleged to be at least, 146 current and former Associate and Senior Associate employees. These positions are the most junior accountants that CBIZ employed in three California offices. Both plaintiffs, who worked in the same office, alleged that the Associates and Senior Associates in CBIZ's three California offices had been misclassified as exempt from California's overtime laws.

The Trial Court Denies Certification

On April 27, 2010, the trial court denied the plaintiffs' motion for class certification. The trial court denied the motion for a number of reasons: (1) it found that, though common issues existed, they did not predominate, as Associates and Senior Associates "engage[d] in varying duties depending on their personal level of aptitude and experience as well as the types of clients that they serve and the supervisors that they work for; (2) it concluded that class treatment would not be superior; (3) the plaintiffs failed to establish numerosity by failing to provide any competent evidence regarding the putative class size; and (4) the plaintiffs failed to acknowledge that they understood the obligations of being a class representative, thereby rendering themselves inadequate.

The Court of Appeal Affirms the Denial of Certification

The appellate court examined each of the trial court's four bases for denying certification. In reviewing the trial court's finding that predominance of common issues had not been established, the court explained that the trial court's consideration of CBIZ's affirmative administrative exemption defenses was proper. The appellate court detailed elements of the exemption before concluding that the three offices' different clients, the differing client responsibilities, and different assignments and tasks supported the denial of certification.

The plaintiffs argued that accounting standards requiring "control and supervision" of unlicensed employees were incompatible with the administrative exemption's "general supervision" requirement. The court, however, concluded that no such incompatibility exists as "[v]irtually every employee?no matter how high ranking?is subject to some degree of supervision by a superior." The court then concluded that the degree of supervision was paramount and that the degree of supervision among class members could not be determined on common proof.

The plaintiffs also argued that the trial court failed to consider their theory of recovery, which was that the misclassification issue could be determined based on CBIZ's policies and procedures. The court, however, noted that both the employer's realistic expectations and how each employee actually spends his or her time must be considered. As a result, even though the employer's expectations were predominantly uniform in nature, the court concluded that CBIZ's declarations outlined "significant differences in the work performed between divisions and between lines of service." Thus, although CBIZ maintained uniform internal policies and was subject to professional standards, CBIZ's evidence demonstrated that the manner in which those policies and standards were implemented varied.

Next, the appellate court addressed the trial court's numerosity decision. The plaintiffs argued that CBIZ's notice of removal identified 147 current and former employees who met the putative class definition, but the court explained that "pleadings are allegations, not evidence, and do not satisfy a party's evidentiary burden." The court then found that the plaintiffs' declaration that 119 accountants were employed in CBIZ's three offices was insufficient evidence as there was no specification as to how many of those accountants were Associates or Senior Associates.

With regard to the plaintiffs' adequacy as class representatives, the appellate court concluded that the trial court's decision that the plaintiffs had not established adequacy was not unreasonable. Though the plaintiffs averred that they "understand that as a Class Representative, [they] must assist counsel in prosecuting the action on behalf of the Class," the declarations fell short of establishing that the plaintiffs were willing to act as fiduciaries for absent class members.

Finally, with respect to the trial court's conclusion that superiority was not established, the appellate court again reiterated that the plaintiffs bore the burden of establishing superiority. The plaintiffs, however, relied only upon generalized principles relating to wage and hour claims. The appellate court noted that the plaintiffs were well-paid employees who would have sufficient incentive to pursue individual claims, and affirmed the trial court's conclusion that the applicability of the administrative exemption could result in mini-trials.

What Soderstedt Means for Employers

The Soderstedt decision reaffirms several principles regarding the applicability of exemptions in misclassification class actions. First, affirmative defenses must be considered in determining the propriety of class certification. Second, generalized policies cannot preclude individualized issues relating to the applicability of an exemption to putative class members because both the employer's realistic expectations and how an employee actually performs the job must be considered.

More interestingly, the Soderstedt decision clarifies what a plaintiff must do to satisfy the burden of demonstrating numerosity and adequacy of representation. Numerosity may not be established by pleadings but must be established through competent evidence. And, Soderstedt seems to suggest that the absence of an affirmative statement from class representatives that they understand that they have fiduciary duties to absent class members is a reasonable basis to deny class certification. Although opponents of class certification have traditionally been required to establish that class representatives' interests are antagonistic to those of the putative class or that class counsel lacks the ability to litigate the class action, Soderstedt reaffirms that it is the putative class representative's burden to establish adequacy of representation.