In Mora, et al., v. Big Lots Stores, Court affirms denial of certification in manager misclassification case

I've comment previously that misclassification cases (especially in the retail and restaurant sectors) appear to be an increasingly difficult sell.  See post regarding Arenas v. El Torito Restaurants, Inc., 183 Cal. App. 4th 723 (2010).  Since then, I haven't seen anything to change my opinion that the tide has shifted from the Sav-on high water mark.  Yesterday, in Mora, et al. v. Big Lots Stores (April 18, 2011), the Court of Appeal (Second Appellate District, Division Seven) affirmed a trial court order denying certification of a class of Big Lots store managers alleged to have been misclassified as exempt from overtime pay and other labor code obligations.

The Court summarized the two ends of the legal spectrum defining the legal criteria applied to certification:

As the Supreme Court held in Sav-On, supra, 34 Cal.4th at page 326, the central issue in a class certification motion is whether the questions that will arise in the action are common or individual, not the plaintiffs' likelihood of success on the merits of their claims. (Accord, Ghazaryan v. Diva Limousine, Ltd. (2008) 169 Cal.App.4th 1524, 1531 ["trial court must evaluate whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment"].) The putative class representatives contend the trial court disregarded this standard, improperly focusing on the potential conflicting issues of fact that may arise on an individual basis rather than the common questions presented by their theory of recovery. To the contrary, the court employed the correct analysis and concluded the theory of recovery advanced—operational standardization imposed by Big Lots—was not supported by substantial evidence and thus not amenable to class treatment. No legal error was committed: "[A] class action will not be permitted if each member is required to 'litigate substantial and numerous factually unique questions' before a recovery may be allowed. . . . '[I]f a class action "will splinter into individual trials," common questions do not predominate and litigation of the action in the class format is inappropriate.'" (Arenas v. El Torito Restaurants, Inc. (2010) 183 Cal.App.4th 723, 732 [affirming order denying certification on misclassification allegations where trial court found tasks performed by restaurant managers and time devoted to each task varied widely from restaurant to restaurant].)

Slip op., at 12.  The Court noted that the outcome was much like Arenas and Dunbar v. Albertson’s, Inc., 141 Cal. App. 4th 1422 (2006).

The outcome was driven by the standard of review.  The Court emphasized on several occasions that it couldn't second guess the trial court's decision to credit Big Lots' evidence over the plaintiffs' evidence:

In essentially rejecting the putative class representatives' evidentiary submission, the court observed that for more than half of the declarants the percentage of time estimated to have been spent on non-managerial, non-exempt duties was different from the estimates given in deposition testimony or statements to third party prospective employers.

Slip op., at 14, n. 10.  The trial court also credited the very individualized manager declarations submitted by Big Lots over the declarations from the plaintiffs.  The Court of Appeal found that that trial court did not abuse its discretion because substantial evidence supported the trial court's conclusion.  This is the anti-Sav-on.

District Court narrows but does not entirely decertify class alleging misclassification as exempt from overtime

United States District Court Judge Samuel Conti (Northern District of California) granted in part and denied in part Defendant Dollar Tree Stores, Inc.'s Motion to Decertify a class of store managers contending that they were misclassified as exempt from overtime.  Cruz v. Dollar Tree Stores, Inc., 2010 WL 3619800 (N.D. Cal. Sept. 9, 2010).  The facts and result here are interesting.

Dollar Tree requires its store managers to certify that they spend more than fifty percent of their actual work time each week performing tasks on a list of 17 items that are all arguably managerial-type duties. Dollar Tree's expert, Robert Crandall, MBA, analyzed employee task certifications comprising 29,431 workweeks during the class period.  The analysis shows that approximately 62 percent of store managers "always certified that they spent the majority of their workweeks on the seventeen managerial tasks, 2.5 percent reported that they never spent most of their time performing these tasks, and about 35 percent of SMs fall somewhere in between."  Slip op., at 2.

The Court then offered this interesting analysis:

In this case, unlike in Wells Fargo II, Whiteway, and Weigele, Plaintiffs have common proof of how SMs were actually spending their time. Plaintiffs can rely on the certification forms that SMs signed every week to, in the words of the Ninth Circuit, transform what would otherwise be an individual issue into a common one. See Wells Fargo I, 571 F.3d at 959. However, the Ninth Circuit's reasoning in Vinole and Wells Fargo I persuades the Court of the need to narrow the class definition to include only SMs who responded “no” on their certification forms during the class period. Narrowing the class in this way ensures that common issues will predominate over individual ones, and significantly lessens the risk that the class consists of both injured and uninjured parties.

In this case, Plaintiffs “must show that it is more likely than not that [Dollar Tree's] exemption as applied to [SMs] was a policy or practice of misclassification.” Marlo, 251 F.R.D. at 483. In order to make this showing, Plaintiffs can point to common evidence including Dollar Tree's decision to uniformly classify SMs as exempt, Dollar Tree's employment hierarchy and structure, its standardized policies and training procedures for SMs, the common tools it requires SMs to utilize, and, most importantly of all, the fact that SMs often certified on a weekly basis that they were not spending most of their time on managerial tasks. Dollar Tree's common policy of having SMs fill out weekly certifications obviates the need for much individual testimony from SMs concerning how they spent their time.

The Court is persuaded that common issues will predominate over individual ones only if it narrows the class to SMs who responded “no” at least once on the weekly payroll certification forms. According to Dollar Tree's analysis of certification forms comprising 29,431 workweeks, approximately 62 percent of SMs always certified that they spent a majority of their time performing managerial tasks. Crandall Decl. ¶¶ 15, 22-23. If the class were to continue to include SMs who always certified “yes,” then Plaintiffs would be required to show that these SMs were not always being truthful, and this issue could not be resolved without resorting to individualized inquiries that would quickly overwhelm the common issues in this case.

No such individualized inquiries are necessary if the Court focuses its attention on SMs who certified “no.” Dollar Tree classified this group of employees as exempt, yet they certified at least once that they were spending most of their time during particular workweeks performing non-managerial tasks. With regard to this group of employees, Plaintiffs can use the weekly payroll certifications and the other evidence of Dollar Tree's standardized practices and procedures in their attempt to convince the jury that “misclassification was the rule rather than the exception” at Dollar Tree. See Sav-On Drugs Stores, Inc. v.Super. Ct., 34 Cal.4th 319, 330, 17 Cal.Rptr.3d 906, 96 P.3d 194 (2004).

Slip op., at 6-7.  The Court then addressed what is, perhaps, the most obvious challenge to this approach:

Nonetheless, the Court recognizes that some SMs may have always certified “yes” even though they were not spending most of their time on managerial tasks. The Court does not want to preclude these SMs from pursuing their misclassification claims on an individual basis. The Court is willing to entertain a motion to equitably toll the statute of limitations on their misclassification claims so as to preserve their right to pursue individual claims against Dollar Tree. See Marlo, 251 F.R.D. at 476, 488 (after decertification of case, inviting parties to brief question of whether statute of limitations on plaintiff's individual claims should be tolled).

Slip op., at 8.  The balance of the opinion consists mostly of a discussion about the positions of the respective experts used by the parties.  While that is also an educational read, the Court's solution regarding the class definition (only those persons that certified at least once that they did not meet the 50% level) is worth taking the time to evaluate carefully.

Class certification denied to El Torito managers in misclassification suit

In other news, early reports now indicate that the Pope is Catholic.  Another day, another order denying certification in a misclassification suit is upheld.  More specifically, in Arenas, et al. v. El Torito Restaurants, Inc. (ord. pub. April 6, 2010), the Court of Appeal (Second Appellate District, Division Five) affirmed a trial court order denying certification to three subclasses of managerial employees at El Torrito restaurants.  At this point, misclassification suits have the feeling of an arms race where the defendant companies hold a significant technological lead.  Six years after all the excitement occasioned by Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal. 4th 319 (2004), the upshot appears to be that, once a trial court picks a side, a Court of Appeal is unlikely to get involved.

In this particular decision, the Court relied heavily on a mix of California Supreme Court decisions and, somewhat disturbingly, a number of federal decisions.  For example, citing Marlo v. United Parcel Service, 251 F.R.D. 476 (C.D. Cal 2008), the Court said: 

The Marlo court identified the exact problem that this Court faces. Individual declarations submitted by the parties have anecdotal value but cannot be considered representative or common evidence. Specifically, the Marlo court stated the following:[¶] ‘Plaintiffs evidence is essentially individual testimony and an exemption policy. Under the circumstances in this case, where Plaintiff alleges that 1200 [class members] have been misclassified as exempt employees, Plaintiff had to provide common evidence to support extrapolation from individual experiences to a class-wide judgment that is not merely speculative. Plaintiff has not come forward with common proof sufficient to allow a fact-finder to make a class-wide judgment as to the class members. . . . Because Plaintiff lacks common experience, the Court has no confidence that the jury will be able to do anything but speculate as to a class-wide determination.’

Slip op., at 7.  The Court emphasized that it was not permitted to substitute its view of the evidence for the trial court's view:  "As the Supreme Court made clear in Sav-On Drug Stores, Inc., this court cannot now substitute its own judgment."  Slip op., at 12.

Plaintiffs appear to have argued that it is unfair to accept a uniform classification by defendant but require individualized proof of misclassification, an argument that has not been well received at the appellate level as of late.  The argument fared no better here: 

Plaintiffs argue defendants cannot on one hand assert they have determined, based on job activities, that all managers are exempt but on the other hand argue a court must examine each individual’s tasks to determine whether that person is exempt. This argument was answered in Campbell v. PricewaterhouseCoopers, LLP (E.D.Cal. 2008) 253 F.R.D. 586, 603-604, as follows: “Some courts . . . have determined that it is unfair for an employer to ‘on the one hand, argue that all [class members] are exempt from overtime wages and, on the other hand, argue that the Court must inquire into the job duties of each [class member] in order to determine whether that individual is “exempt.”’ [Citation.] But, under Walsh [v. IKON Office Solutions, Inc. (2007) 148 Cal.App.4th 1440, 1461,] there is no estoppel effect given to an employer’s decision to classify a particular class of employees as exempt—whether right or wrong, or even issued in bad faith; instead, the only legally relevant issue to alleged misclassification is whether the exemption in fact applies. 

Slip op., at 13.  Continuing with the extensive quotations from Campbell, the Court of Appeal wrote: 

“It may be intuitively unfair to permit an employer, who has historically classified a particular group of employees as exempt based on a uniform rule, to argue in the context of litigation that the exemption inquiry will require an individualized analysis. But the assumption behind such an intuitively appealing argument is that an employer should somehow be bound by its prior position—which is foreclosed by Walsh. ‘[I]n resolving questions of California law, this court is bound by the pronouncement of the California Supreme Court . . . and the opinions of the California Courts of Appeal are merely data for determining how the highest California court would rule . . . [but] the opinion of the Court of Appeals on questions of California law cannot simply be ignored.’ [Citation.]” 

Slip op., at 14.  After Ramirez in particular, misclassification suits were in no small supply.  But the arms race was equalizing by the time Sav-On was decided, and it looks like the defense bar has pulled ahead in this area.  To make misclassification suits a legitimate mechanism for correcting classification errors on a class-wide basis, plaintiffs will need to find news ways to show trial courts that systemic misclassification errors are really correctable on a class-wide basis.