Friday, July 10, 2009

9th Circuit Court of Appeals Gets it Wrong: Wage-Hour Class Actions Endangered Species in Federal Court

This week, the Ninth Circuit Court of Appeals, one of the highest courts in the nation and generally considered one of the fairer United States Circuit Courts for employees, issued two momentous decisions which will drastically curtail employees' ability to certify wage/hour class actions in Federal court. These decisions were wrongly decided by three Ninth Circuit judges, but I hope the plaintiffs will seek en banc review from the entire Circuit. Otherwise, I fear, these precedents will become routine fodder for defendants opposing and courts denying class certification.

In Mevorah v. Wells Fargo Home Mortgage, No. 08-15355 (9th Circuit July 7, 2009), and Vinole v. Countrywide Home Loans, No. 08-55223 (9th Circuit July 7, 2009), the defendants had uniformly classified all of their loan officers as exempt from being paid overtime, saying they were all outside salespeople. Plaintiffs argued that, in fact, these loan officers were inside salespeople, who spent the majority of their time working from their desks at home or at defendants' facilities. The truth is, in today's workplace, there are few, true "outside salespeople," like the door-to-door vacuum or encyclopedia salesperson of old, whose office was his or her car and who worked wherever and whenever he or she pleased. Certainly, these mortgage loan officers were not of that ilk - the vast majority of their sales are typically completed on the phone and on the computer. The Northern District of California (Judge Patel) rightly concluded that it was "manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation." The Southern District of California (Judge Sabraw) concluded, on the contrary, that “no common scheme or policy that would diminish the need for individual inquiry.”

The corporations were able to scare the Circuit into siding with the Southern District decision, with the prospect of "several hundred mini-trials" for class members to determine whether each was properly classified as exempt from overtime. Defendants' reasoning was that individual issues would predominate, and hence, class certification was inappropriate, because the fact-finder would have to consider each class member separately to determine how many hours he/she spent at a desk and how many hours he/she spent doing outside sales. In the interest of justice and of vindicating the remedial purpose of the wage laws, the Circuit Court should have followed the model of the California Supreme Court on the same question.

In Ramirez v. Yosemite Water Co., Inc., 20 Cal. 4th 785, 802 (1999), California's Supreme Court noted the importance of considering "first and foremost, how the employee actually spends his or her time" in determining whether an employee is an outside salesperson. Though employers seized upon this language to say that no class could be certified because of the need for hundreds of mini-trials, i.e, that common issues would not predominate and that class certification was not the superior method for handling such wage claims, the California Supreme Court followed up Ramirez with Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319, 335-336 (2004). There, California's Supreme Court explained, "Defendant mistakenly suggests that our decision in Ramirez, supra, 20 Cal.4th 785…, bars class certification in this matter…. Ramirez is no authority for constraining trial courts' ‘great discretion in granting or denying certification.’” Id. The Sav-On court observed that defendants wanted courts to extend Ramirez to shield employers from an action challenging a type of illegality that Ramirez was actually designed to prevent. Sav-On, 34 Cal.4th at 337. Unfortunately, the Ninth Circuit has now accepted the employers' invitation.

The Sav-On decision explained that the need for individualized proof of damages is not per se an obstacle to class treatment,” and held that, “neither variation in the mix of actual work activities undertaken during the class period by individual [putative class members], nor differences in the total unpaid overtime compensation owed each class member, bars class certification as a matter of law.” Id. at 334-335. The Supreme Court explained, “Contrary to defendant's implication, our observation in Ramirez that whether the employee is an outside salesperson depends ‘first and foremost, [on] how the employee actually spends his or her time’ (Ramirez, supra, at p. 802…) did not create or imply a requirement that courts assess an employer's affirmative exemption defense against every class member's claim before certifying an overtime class action.” Sav-On, 34 Cal.4th at 337.

The Ninth Circuit should have decided - and should still decide, after a re-hearing en banc - that issues regarding defendants' policies and practices and operational standardization are likely to predominate in a class proceeding over any individualized calculations of actual overtime hours that might ultimately prove necessary. Id. at 331.

The Sav-On court ultimately upheld the trial court, which held, like in the Mevorah v. Wells Fargo case, that certification was warranted because “defendant classified its [putative class members] ‘exempt without any exception, and rel[ied] exclusively on these titles alone in redefining who is exempt and who is not exempt. The predominance of the defendant's class-wide exemption is evidenced by the fact that there is no compliance program that's ever existed, and no single class member has ever received overtime compensation. The class-wide policy does not vary from store to store, or employee to employee.’” Sav-On, 34 Cal.4th at 332.

As in Sav-On, the Ninth Circuit should also have considered that decisions whether certain tasks performed universally by class members - and whether those are really outside sales activities, or whether, in the Sav-On context, the tasks are managerial or non-managerial for the purpose of applying the executive exemption - lend themselves to class treatment. Id. at 330-331. In the loan officer context, if promotional activities at trade shows, at realtor open houses, and networking at organizational meetings are determined to be outside sales activities, rather than activities generally directed toward marketing the company, then this would impact all class members' classification. As in Sav-On, regardless of who is correct, the issues which must be determined for liability (irrespective of individual differences in damages) “comprise a reasonably definite and finite list.” Id. at pp. 330-331.

In Sav-On, 34 Cal.4th at 331, 337 – as in Ramirez, 20 Cal.4th at 802 – at issue was, in part, the employer’s communicated expectations of their employees as a whole. Plaintiffs in outside sales exemption cases should be able to argue – applicable to the entire class – that, because defendants have communicated to the employees no finite expectations regarding outside sales activities, and the actual requirements of the job can and are generally accomplished from behind a desk in a company facility or the employees' homes, their classification as exempt outside salespeople is improper as a matter of law.

The Ninth Circuit's decisions of July 7, 2009 are disturbing, too, because they are dismissive of the ability to use pattern and practice evidence, statistical evidence, sampling evidence, expert testimony, and other indicators of a defendant's centralized practices, which Sav-On and many federal courts have embraced. Without allowing plaintiff classes to rely upon such evidence to prove class liability, the net result will be a massive windfall for employers cheating their employees of wages. Only those few who personally step forward to seek relief of even small wage claims, and risk retaliation and blackballing in the industry, and who have the wherewithal to endure lengthy litigation, will find any relief under federal and state wage laws.

On the contrary - as the California Supreme Court has recognized, and as the entire Ninth Circuit should recognize, the wage protections are intended to be broadly enforced, which can only be accomplished by class litigation.

1 comment:

  1. The Plaintiffs filed their rehearing petition on July 21, 2009.