On May 29, 2014, the California Supreme Court issued its long-awaited opinion in Duran v. U.S. Bank National Assn, 59 Cal. 4th 1 (2014), a watershed decision addressing not just the use of statistical sampling to prove class-wide liability for misclassification of exempt employees (a hot button issue for years) but also the management of individual issues in complex wage-hour class actions.
In Duran - which the Supreme Court noted was only the secondmisclassification case in California certified as a class action to be tried to verdict - the plaintiffs alleged US Bank (“USB”) loan officers were misclassified as exempt from overtime wages under California’s “outside sales” exemption. Under that exemption, an employee who “customarily and regularly” spends more than half of his or her working time on sales activities away from the employer’s place of business is exempt from overtime.
The trial court certified a class of 260 loan officers and devised a plan to determine the extent of USB’s liability class-wide by extrapolating from a random sample. The random sample boiled down to just 21 plaintiffs. During the trial’s liability phase, the court heard testimony about the work habits of these 21 plaintiffs and prohibited USB from introducing evidence regarding any plaintiff outside of this sample.
Based on testimony about the small sample group, the trial court found that the entire class had been misclassified. During the trial’s damages phase, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.
A California appeals court reversed the trial court’s decision and the California Supreme Court agreed, holding the trial court’s approach to sampling was “profoundly flawed” and violated USB’s due process rights. In particular, the Supreme Court held that a “class action trial management plan must permit the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.” Duran, 59 Cal. 4th at *25.
If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations. If statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims or the defendant’s defenses, resort to statistical proof may not be appropriate. Procedural innovation must conform to the substantive rights of parties. Id. at *40.
The Supreme Court also noted that misclassification cases pose especially sticky manageability issues since liability itself is predicated on individual fact questions, such as the mix and degree of job duties performed. “Only in an extraordinary situation would a class action be justified where, subsequent to the class judgment, the members would be required to individually prove not only damages but also liability.” Id. at *30 (internal quotations omitted). Accordingly, Duran reinforces the proposition that a class should not be certified absent credible evidence that an employer’s uniform policy or consistent practice violates wage-hour laws.
This decision is welcome news for California employers, who have continued to be plagued with misclassification challenges, as it underscores the individuality of the cases and provides strengthened defenses against class certification.
This is also a reminder to California employers to review their written wage-hour policies, including meal and rest break policies, to ensure they are up-to-date and legally compliant. As Duranmakes clear, lawful uniform policies throw a wrench into a plaintiff’s class certification plans.