Employees who work as business banking officers (BBOs) for U.S. Bank National Association (USB) brought a class action against USB in 2001 alleging that it improperly classified them as exempt and denied them overtime pay in violation of the California Labor Code. The primary job of BBOs is to cultivate new business by selling bank products, including loans and lines of credit, to small business customers. USB classified the BBO position as exempt, primarily based on the outside salesperson exemption. This exemption applies to employees who spend more than 50 percent of the workday engaged in sales activities outside the office.
The trial court certified a class of current and former BBOs. After the parties submitted competing trial management plans, the trial court proposed an alternative trial plan whereby 20 class members would be randomly selected to testify at trial, and any findings on liability and damages for this sample would be extrapolated to the remainder of the class. USB objected as there was no precedent for using random sampling to establish liability in a class action involving the outside salesperson exemption. The court proceeded with its plan and directed the clerk to randomly select 20 class members (the representative witness group or RWG) plus five alternates.
The plaintiffs then moved to dismiss their Labor Code action and proceed solely on a claim for equitable relief under the unfair competition law (UCL). The court allowed the amendment, but ordered that all class members be notified and given a second opportunity to opt out. Four members of the RWG opted out, as did five members of the remaining 250 people in the class. USB objected that the removal of the RWG members created a biased sample, and asked that the four RWG members be readmitted. It produced declarations from two RWG members stating that they opted out at their counsel's urging. The court denied the motion.
USB filed pretrial motions seeking to offer testimony from class members outside the RWG. The court substantially denied the motion, and refused to hear any testimony during the 40-day trial about the work habits of any BBO not included in the RWG. The RWG witnesses all testified that they generally spent more than half of their workday inside bank offices. Some of the witnesses were impeached with contrary declarations they had previously signed. For example, one witness had previously executed two declarations stating that he spent from 75 to 100 percent of his time making outside sales calls. Some USB managers, called by USB as witnesses, testified that they routinely counseled BBOs to spend the majority of their time meeting with customers outside bank locations.
At the close of the liability phase of trial, USB filed post-trial motions seeking to introduce testimony of class members outside the RWG. The court denied the motion. USB also sought to decertify the class on the basis that individual issues predominated as to both liability and restitution. The court denied the motion. It issued a statement of decision, in which it concluded that USB failed to carry its burden of proof as to the outside salesperson exemption, and that the entire class had been misclassified as exempt and was owed overtime in amounts to be determined in the second phase of trial.
At the second phase of trial, USB's expert witness identified several problems with the trial court's sampling plan, for instance, that the sample size was too small, and that the sample was seriously marred by selection bias. At the close of trial, the court issued a statement of decision, finding that the class worked 11.86 hours of overtime each week, with a margin of error of 5.14 hours, or approximately 43 percent. It calculated that USB owed nearly $9 million in restitution, plus approximately $6 million in prejudgment interest.
On appeal, the Court of Appeal unanimously reversed the judgment, holding that USB was denied its due process right to litigate its affirmative defenses, that due process concerns were implicated by the high rate of error, and that the trial court abused its discretion by denying USB's second motion to decertify the class. The plaintiffs appealed, and the California Supreme Court affirmed.
When determining whether the outside salesperson exemption applies, the trial court must inquire how the employee actually spends his or her time, as well as whether the employee's practice diverges from the employer's realistic expectations, whether there was concrete expression of employer displeasure over an employee's substandard performance, and whether these expressions were themselves realistic given the requirements of the job. The Court noted that some proof about how individuals use their time is often necessary to accurately determine an employer's overtime liability.
Class certification requires a determination that group, rather than individual, issues predominate. That does not mean, however, that individual issues cannot be considered at trial when they legitimately touch upon relevant aspects of the case. Further, even after a class has been certified, the court retains an obligation to manage individual issues, and a defendant must be given the opportunity to contest claims on any grounds not resolved in the trial of common issues.
Here, the trial court received no evidence establishing uniformity in how BBOs spent their time, and USB's exemption raised a host of individual issues. Even if common issues predominated, the trial court still had to determine that the individual issues could be effectively managed during the ensuing litigation. Instead, the court used a trial plan that ignored individual issues. Thus, the Supreme Court reversed the class judgment. It called the trial plan "seriously flawed," and noted that the court's evidentiary rulings deprived USB of the ability to litigate its exemption defense. It also stated that while statistical proof can be useful to illuminate a defendant's wrongdoing, it has no application in wage and hour litigation alleging misclassification. While common proof can be used if there are uniform job requirements or policies, an employer's liability for misclassification under most Labor Code exemptions will depend on individual circumstances.
The Court declined to decide whether sampling should be available as a tool for proving liability in a class action. It stated, however, that any trial plan must allow a defendant to litigate its affirmative defenses. The Court detailed the flaws in the trial court's sampling plan, and held that it abused its discretion by excluding evidence about the work habits of BBOs outside the sample group and implementing a biased sampling plan. The Court thus affirmed the Court of Appeal's judgment and remanded for a new trial as to both liability and damages.
The California Supreme Court referred to this case, a wage and hour class action that proceeded through trial to verdict, as an "exceedingly rare beast." Indeed, the Court cited a study finding that 89 percent of cases certified as a class action end in settlement, as compared to 15 percent of cases in which certification was denied. LCW has substantial experience litigating class and collective action litigation, and it has used representative sampling in numerous class cases, including on motions to decertify the class or collective action.
Duran v. U.S. Bank National Association (2014) 59 Cal.4th 1.