The California Supreme Court this morning issued its decision in the much anticipated Duran v. US Bank, N.A. The decision reverses the judgment for the plaintiffs. The Court’s introduction reads as follows:
We encounter here an exceedingly rare beast [in the Quintilone & Associates tried a class action last year is also rare]: a wage and hour class action that proceeded through trial to verdict. Loan officers for U.S. Bank National Association (USB) sued for unpaid overtime, claiming they had been misclassified as exempt employees under the outside salesperson exemption. (Lab. Code, § 1171.) This exemption applies to employees who spend more than 50 percent of the workday engaged in sales activities outside the office. (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785 (Ramirez).)
After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB‘s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, 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.
The court held that as even the plaintiffs recognize, this result cannot stand. The judgment must be reversed because the trial court‘s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery. A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced. Statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions. The Court essentially held:
(1) The trial court was required to admit evidence of employer’s affirmative defenses as to employees outside sample group, and (2) the trial court’s statistical sample of members of the plaintiff class was invalid.
Though the decision overturns the trial court’s judgment for the workers, it appears the win will be short lived, though reduced. On page 35 the Majority Opinion reads:
“However, any procedure to determine the defendant’s liability to the class must still permit the defendant to introduce its own evidence, both to challenge the plaintiffs’ showing and to reduce overall damages. No case, to our knowledge, holds that a defendant has a due process right to litigate an affirmative defense as to each individual class member. However, if liability is to be established on a classwide basis, defendants must have an opportunity to present proof of their affirmative defenses within whatever method the court and the parties fashion to try these issues. If trial proceeds with a statistical model of proof, a defendant accused of misclassification must be given a chance to impeach that model or otherwise show that its liability is reduced because some plaintiffs were properly classified as exempt.”
One reasonable conclusions is that the trial court, on appeal, will have to allow defendant companies to address the Plaintiff employee evidence, but at the same time the Court clearly stated that defendant cannot ask to call every class member to testify at trial. Though the Supreme Court notes:
“After the first phase of trial, the court said it would entertain argument on three alternatives for phase two: (1) proceed with expert testimony alone based on the phase one findings; (2) require non-RWG class members to prove up their overtime amounts in some form of streamlined procedure; or (3) consider additional survey evidence bearing on the restitution calculation. The court stressed that these alternatives were limited to the issue of restitution and could not be used to reexamine the phase one finding that all class members had been misclassified. USB objected to this limitation, noting that the issues of liability and restitution were linked because any plaintiff properly classified as exempt would not be entitled to restitution. Instead, USB urged the court to conduct focused trials for each class member to determine both liability and restitution. The court rejected this proposal and proceeded with option (1), the course favored by plaintiffs.” However, the decision offers little instruction on what to do when a Defendant refuses to participate in the process, just that the parties must somehow allow the defendants “to present proof of affirmative defenses within whatever method the court and parties fashion to try these issues.”
As stated in this section found on page 28:
“When liability is to be established on a classwide basis, the defendant must have an opportunity to present proof of affirmative defenses within whatever method the court and parties fashion to try these issues. If the trial proceeds with a statistical model of proof, a defendant accused of misclassification must be given a chance to impeach that model or otherwise show that its liability is reduced because some plaintiffs were properly classified as exempt.” What happens when the defendant argues the “only” way we can “present proof of affirmative defenses” is through “examination of every class member.” Surely the Court is not endorsing that approach as it expressly rejected it (See page 20) and it seems when the trial Court here offered the defendant an opportunity under options (2) and (3) they refused, but still achieved their ultimate goal, a reversal, and more years of grinding litigation.
It appears there was also a dispute about the defense lawyers obtaining biased and unreliable declarations from the employees as well. The Court notes in footnote 10 – “Plaintiffs disputed the authenticity of these declarations and asserted defense counsel had coerced some class members into signing them. When the trial court later ruled on in limine motions, it did not exclude USB’s declarations but cautioned that their weight would be “adjusted because of their authorship, the circumstances of preparation [,] and internal inconsistencies and ambiguities.” It seems the Court could have expressly considered the Declarations at the restitution phase, given them little weight [if any] but still included them in its discussion of its findings of fact.
Judge Lui also filed a concurrence which seems to suggest that he believes the Duran plaintiffs (the employees) should win and that the trial judge understood the issues but due to the problems with the statistical sampling the case had to be reversed.
The decision demonstrates the difficulty in trying a misclassification case as well as offers insight to the “relaxed standard of proof” for statistical analysis in damage phases of trial.
One reasonable conclusion is that the trial court, on appeal, will have to allow defendant companies to address the Plaintiff employee evidence, but at the same time the Court clearly stated that defendant cannot ask to call every class member to testify at trial.
If you think you have been misclassified as exempt or denied overtime pay in California, please contact Quintilone & Associates at [email protected] for any employment law questions.
Update on Employment Laws for 2014
California State Minimum Wage Change is Effective July 1, 2014