The Ninth Circuit recently affirmed the United States District Court’s granting a motion for class certification holding where a complaint alleges a company violated the law in the same way as to each member of a large class of employees, finding class certification is proper. “[T]he need for individual damages calculations does not, alone, defeat class certification.” Vaquero v. Ashley Furniture Industries, No. 13-56606, 2016 U.S. App. LEXIS 10365 (9th Cir. June 8, 2016). On June 8, 2016, The Ninth U.S. Circuit Court of Appeals issued its decision for class certification largely based on a company policy violating wage and hour laws. The certified class was a group of California inside sales associates who were employed by the defendant company. The class alleged the Defendant requires sales associates to perform many tasks unrelated to sales, for example, cleaning the store, attending meetings, and carrying furniture. Id. at *4. However, despite requiring employees to perform these non-sales tasks, the defendant did not pay its sales associates for such work, a policy which violates California wage and hour laws. Id.
Inside sales positions are frequently misclassified as being exempt [i.e. not being required to pay] from overtime. Different criteria apply under federal and state law. Inside salespersons are those employees whose primary duty is to engage in “sales” (i.e. efforts to obtain orders from customers to buy any product or service) from an office or similar establishment. Even if all applicable tests are met, an inside salesperson is only exempt from being paid overtime in California. An employer still must provide one (or sometimes two) half-hour meal breaks and two (or sometimes three) ten-minute rest periods every day. Failing to provide meal and rest periods makes the employer liable for two additional hours of pay to the employee plus significant penalties. Given the applicable statutes of limitations, employees may recover tens of thousands of dollars just related to the employer’s failure to have a written, actively-enforced policy of providing meal and rest periods to the inside sales team.
To be exempt from overtime under either California law or the FLSA, an inside salesperson must receive more than half of her compensation from commissions. If an inside salesperson’s salary makes up more than half of his on-target earnings he is owed overtime if worked. If an inside salesperson is given unreasonable quotas such that, realistically, commissions will rarely exceed salary, then he is owed overtime. If an inside salesperson receives a draw against commissions for a very long period of time such that the “commissions” are really just salary in another name, he is owed overtime.
The requirement that commissions make up more than 50% of total compensation is not measured over the entire duration of one’s employment. Both the FLSA and California law require that this be measured in “representative periods” that the employer must designate. A representative period cannot be longer than a year or shorter than a month and it should generally track the earning cycle for a salesperson. Assuming an employee works 50 hours in a week and receives no commissions, his total weekly salary must exceed $544 to be exempt under the FLSA and $750 to be exempt under California law. If it does not, then overtime is owed for that week even though total commissions exceed total earnings over the duration of the representative period
Federal Rules of Civil Procedure (“FRCP”), Rule 23(a) provides: “One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” The class was certified by the district court under Federal Rule of Civil Procedure (FRCP) 23(b)(3) which states “A class action may be maintained if Rule 23(a) is satisfied and if . . . the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” The Defendant appealed the district courts certification of the class claiming that the class failed to prove the commonality element and the predominance of class claims. Id. at *6. In addition, the defense argued that class certification violated the Rules Enabling Act which allows them to cross-examine and challenge each class member’s claims. Id.
The Defendant relied heavily on Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011) which did not allow for class certification for a class of female employees who claimed that “the retailer’s delegation of promotion decisions to individual managers, in combination with its corporate culture, denied them equal pay and promotional opportunities.” Id. at 367. The Court denied the class certification due to the lack of commonality between the class members because there was not common injury across the class, thus class certification would have required individualized inquiries into why was each employee disfavored. Id. at 352.
In Vaquero the court determined the common injury was “far more objective and focused” than that in Dukes. Vaquero 2016 U.S. App. LEXIS 10365, at *6. The Defendant had a policy in which it required sales associates (who only were only paid commission on inside sales) to do work unrelated to sales (work they would not receive any wages for since no commissions were being earned) and did not compensate the sales associates for this work. Id. at *7. This policy was in violation of California’s minimum wage laws and applied to all sale associates, therefore there was a “common contention” of all the class members that could easily be handled in a class action lawsuit. Id. Citing Dukes, the court stated wage law violation “is one type of injury allegedly inflicted by one actor in violation of one legal norm against a relatively small number of class members who all generally performed the same work.” Id. Therefore, because one common factor led to the injuries of all of the Plaintiff class members, the Ninth Circuit affirmed the district court decision that the class met the commonality factor.
The Defendant next argued that predominance had not been met because the damage calculations could not be performed on a classwide basis. Id. at *8. “Rule 23(b)(3)’s predominance criterion is even more demanding than Rule 23(a).” Id. (quoting Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013)). “[P]laintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.” Id. (quoting Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 987–88 (9th Cir. 2015)). In wage and hour cases there is only one issue to be resolved to determine liability, whether the Defendants either paid or did not pay their employees for work performed. Id. at *9. In Vaquero, the Defendant implemented a compensation policy which violated California’s minimum wage laws by depriving the class member sales associations of earnings for non-sales work. Id. Predominance was met because no other factor could have contributed to the alleged injury. Id. The court affirmed previous decisions holding the need for individualized damage calculations does not defeat class certification. Id.
ThCourt observed that recently, in Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016), the United States Supreme Court ruled in favor of a class of employees in a wage and hour case where the employees claimed the employer failed to properly compensate for overtime. In Tyson Foods, the employer failed to keep records of such time, so employees were forced to rely on what they called “representative evidence” (i.e. employees’ testimony, video recordings, and an expert’s statistical analysis) to establish both liability and damages on a class-wide basis. Id. at 1043. The Defendant tried to get the court to ban the use of “representative evidence” because it still required individualized inquiries to determine liability, however the court held that “representative or statistical sample, like all evidence, is a means to establish or defend against liability. Its permissibility turns not on the form a proceeding takes—be it a class or individual action—but on the degree to which the evidence is reliable in proving or disproving the elements of the relevant cause of action.” Id. at 1046. “Representative” or statistical evidence is admissible to help prove the factual elements of a case and should not be used in determining a procedural aspect of the case. Its reliability and persuasiveness is a question for the jury. Id. at 1049. Using the Tyson Foods, Inc. decision as its precedent the Ninth Circuit held that the need for individual testimonies to prove damages does not itself defeat class certification. Id.
Finally, the Defendant tried to argue that the use of representative evidence violated the Rules Enabling Act by denying them their right to individually cross-examine and challenge each class member’s claim. Vaquero, 2016 U.S. App. LEXIS 10365, at *12. The Court in Tyson Foods, Inc. held “[i]n a case where representative evidence is relevant in proving a plaintiff’s individual claim, that evidence cannot be deemed improper merely because the claim is brought on behalf of a class.” Tyson Foods, Inc. 136 S. Ct. at 1046. The Defendant can still challenge the sufficiency and persuasiveness of the representative evidence, but that is relevant for the later stages of eh proceeding, not to determine class certification. Vaquero, 2016 U.S. App. LEXIS 10365, at *12. In conclusion, the district courts certification of the class was proper, individual inquiry into damages does not defeat class certification; if the Defendant has an issue with the “representative evidence” used to prove a common issue of the Plaintiffs’, it can challenge the reliability of the “representative evidence” at a later time during the proceedings. Id.
What does this mean for employees? That certification in the United States District Courts should be granted when the common policy is at issue for a larger group of employees. Court’s will need to adhere to, or distinguish, this decision. For employers, other than further limiting Dukes this really is not any different than the decision in Tyson Foods confirming the use of representative evidence to establish both liability and damages on a class-wide basis. This post was drafted with the assistance of Chapman University School of Law clerk Matthew C. Coulter, Esq.
If you have any questions about the Vaquero case or have similar claims for inside sales, outside sales issues, unpiad commissions, company charges to your wages, business expenses, off the clock work, or issues with your pay at your current employer, please feel free to contact: