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The California Court of Appeal issued a rare decision in favor of employers last week, when it reversed a class action judgment of $15 million and decertified a class of 260 current and former bank employees who claimed they had been misclassified as exempt and were therefore entitled to meal and rest break premiums.&nbsp; News of the opinion caused many in the employment defense bar to double check their calendars that it wasn&rsquo;t April 1.
The class consisted of current and former business banking officers who claimed they were misclassified by USB as outside sales personnel exempt from California&rsquo;s overtime laws, and were thus unlawfully denied overtime pay.&nbsp; The central issue on appeal with whether the trial court had properly used statistical sample of class members to determine liability.&nbsp; Specifically, the trial court had limited the phase of the bench trial dedicated to determination of liability to testimony from and about only 20 members of the class.&nbsp; The employer was therefore not permitted to introduce significant evidence that several of the non-sample group class members were, in fact, properly classified as exempt.
At the end of this phase of the trial, the trial court found that 19 of the 20 sample class members had been misclassified.&nbsp; The trial court then used this initial finding to make a finding of liability on a class-wide basis, a determination which, statistically speaking, had a 43.3% margin of error.
The Court of Appeal rejected the trial court&rsquo;s broad reading of Bell v. Farmers Ins. Exchange, 115 Cal. App. 4th 715 (2004) (referred to by the Court as &ldquo;Bell III&rdquo;), which had held that statistical sampling could be used to determine class-wide damages.&nbsp; Stating that Bell III was &ldquo;manifestly inapposite&rdquo; to the question of class-wide liability, the Court of Appeal explained that:
[t]he procedures we approved in Bell III are only superficially similar to the procedures utilized in the present case.&nbsp; Again, in Bell III we did not have occasion to consider the use of a representative sample to determine class-wide liability, since liability was not an issue on appeal.&nbsp; Accordingly, the only issue we addressed was the damages calculation itself, and not whether the plaintiff employees had a right to recover damages in the first place.&nbsp; And our assessment was based on a record evidencing cooperation and agreement among the parties and their counsel.
Use of sampling to determine liability, the Court of Appeal held, was in this case a violation of state and federal due process guarantees, despite its efficacy as a method for liability analysis: &ldquo;[W]e have never advocated that the expediency afforded by class action litigation should take precedence over a defendant&rsquo;s right to substantive and procedural due process.&rdquo;&nbsp; In short, the court found that the time-consuming individual inquires could not be avoided by using random sampling of class members to determine whether the class, as a whole, qualified for any of the asserted exemptions.&nbsp;
Though the opinion did not go as far as to make a bright-line prohibition on statistical sampling in class-wide liability determinations, it clearly set a tone that such sampling would be subject to significant scrutiny.&nbsp; Indeed, the Court relied on the U.S. Supreme Court&rsquo;s recent decision in <a href="http://www.employmentclassactionreport.com/class-action/supreme-court-reverses-ninth-circuit-in-dukes-v-wal-mart/">Wal-Mart Stores, Inc. v. Dukes</a>, 131 S. Ct. 2541 (2011), in which the Supremes rejected wholesale the use of statistical sampling in the determination of Wal-Mart&rsquo;s liability to a 1.6 million-strong class.&nbsp; &ldquo;The same type of &lsquo;Trial by Formula&rsquo; that the U.S.&nbsp; Supreme Court disapproved of in Wal-Mart,&rdquo; the Court of Appeal noted, &ldquo;is essentially what occurred in this case . . . . we find this approach to be untenable.&rdquo;
The court found that the trial court also erred in denying USB&rsquo;s motion for decertification for many of the same reasons.&nbsp; The court first found that the trial court&rsquo;s denial of decertification was based on &ldquo;the erroneous legal assumption that a finding of liability due to misclassification could be determined by extrapolating the findings based on the [random witness group] to the entire class.&rdquo;&nbsp; The court also found that the trial court gave &ldquo;excessive weight&rdquo; to the fact that USB classified all of its business banking officers as exempt without inquiring as to the particular employees&rsquo; job duties, hours worked, or performance.&nbsp; Finally, the court noted that it was &ldquo;doubtful&rdquo; a trial plan could have been created that would have accounted for the all the necessary individual inquiries.&nbsp;
Though employers should, of course, remain diligent in their determination of employee exempt/non-exempt status and in their compliance with meal and rest break mandates, the Duran opinion will prove a useful spear in employer&rsquo;s defense of class actions where plaintiffs regularly attempt to prove their cases with the assistance of statistical sampling and analysis.
The Bottom Line:&nbsp; The decision in Dukes criticizing attempts at "Trial by Formula" in class actions seems to be taking hold, even in California state courts.
&nbsp;Authorship credit: <a href="http://www.bakerlaw.com/gilbertpbrosky/">Gilbert P. Brosky</a> and <a href="http://www.bakerlaw.com/alastairjgamble/">Alastair J.&nbsp;Gamble</a>

California Appeals Court Rejects Attempt to Try California Misclassification Case by Statistics