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California Supreme Court Clarifies Employers’ Right to Litigate Affirmative Defenses in Class Actions

June 3 2014

By: Labor & Employment

On May 29, 2014, the California Supreme Court in Duran v. U.S. Bank National Association clarified employers’ rights in defending against employee misclassification class action cases. The Court held that in defending against such claims, employers must be permitted to present relevant defenses, even if such defenses involve individual issues. The Court’s analysis should have a sweeping effect on trial courts by requiring a more thorough analysis at the time of class certification. Trial courts can no longer leave the issue of a trial plan in the queue and wait to see if the case proceeds to trial, which is exceedingly rare in class actions. Rather, trial courts will need to consider and define a manageable and fair trial plan at the outset that will permit employers to litigate individual liability defenses.

Duran arose from a class action brought by 260 current and former loan officers of U.S. Bank. The employees claimed they had been misclassified as exempt employees under the outside salesperson exemption and, therefore, had been denied overtime pay.

The class was certified and a trial management plan was created that allowed a random sampling of 21 employees to testify at trial. Although the Bank tried to introduce numerous declarations from absent class members who claimed they met the exemption standard, the court refused to admit the declarations. The employer was only permitted to present evidence related to the 21 class members in the sample.

In the court’s words, Duran was “an exceeding rare beast, a wage and hour class action that proceeded through trial to verdict.” Based on the testimony of the random sampling of class members, the trial court awarded $15 million in restitution and $18 million in attorneys’ fees to all of the class members.

The Bank appealed. The California Court of Appeal reversed the trial court, decertified the class, and held that the trial plan was “fatally flawed” because it deprived the employer of its due process right to litigate affirmative defenses – the trial plan prevented the employer from defending against the individual claims of 90% of the class members. The employees appealed to the California Supreme Court.

In a decision that can be called a “win” for employers, the Supreme Court affirmed the appellate court’s decision that the trial plan was flawed and prevented the Bank from presenting evidence that some of the class members were not misclassified. Although the court rejected the idea that an employer can present individual evidence for every class member, the court confirmed the right of an employer to present individualized evidence to challenge “common evidence” in a class action.

The court did not wholly reject the use of sampling, but emphasized that, at the class certification state, the litigation of individual issues, including those arising from affirmative defenses, must be managed fairly and efficiently. In the court’s words, “Trial courts must pay careful attention to manageability when deciding whether to certify a class action.” The court clarified that such statistical methods must not undermined a defendant’s right to present relevant evidence.

The court remanded the case to the lower court for a new trial and held that the trial court may hear a new motion for class certification.

Duran should be useful guidance for trial courts in determining whether employee wage class actions can be certified, and, if so, how individual issues must be managed through a trial plan. Much more time will likely be expended by both sides to argue the feasibility of any trial plan based on sampling and statistics. Trial courts may also be asked to review class certification decisions to determine if, in light of this recent clarification, a certified class action should, in fact, remain certified.