Duran v. U.S. National Bank Association Concurring Opinion

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CONCURRING OPINION BY LIU, J.

It is not difficult to understand why the trial court‘s sampling plan in this

case was ―profoundly flawed.‖ (Maj. opn., ante, at p. 2.) The representative

witness group was not selected at random but in a manner biased in plaintiffs‘

favor. The trial court used no known statistical rationale in picking a sample size

of 20, and there is no reason to think the sample was sufficiently large. The trial

court also tolerated a margin of error at the damages phase that was undoubtedly

too large. These errors require reversal of both the liability phase and restitution

phase judgments.

At the same time, today‘s opinion takes an appropriately cautious approach

to guiding the conduct of class action trials in employee misclassification cases

and, in particular, the use of statistical methods in such trials. The court disavows

any ―sweeping conclusion as to whether or when sampling should be available as

a tool for proving liability in a class action,‖ while emphasizing that any trial plan

involving statistical methods ―must allow the defendant to litigate its affirmative

defenses.‖ (Maj. opn., ante, at p. 38; see id. at pp. 31–32 [―While representative

testimony and sampling may sometimes be appropriate tools for managing

individual issues in a class action, these statistical methods cannot so completely

undermine a defendant‘s right to present relevant evidence.‖].) The court warns

that ―decisions about the fact of liability‖ should not be ―reframed as questions

about the extent of liability,‖ and then adds that ―[t]his is not to say that an
employer‘s liability for misclassification may never be decided on a classwide

basis.‖ (Id. at p. 34.)

Consistent with our settled precedent, today‘s opinion continues to

encourage trial courts to be ― ‗procedurally innovative‘ ‖ in managing class actions

and leaves open ―the appropriate use of representative testimony, sampling, or

other procedures employing statistical methodology.‖ (Maj. opn., ante, at p. 29;

see Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 339–340

(Sav-on); City of San Jose v. Superior Court (1974) 12 Cal.3d 445, 453.) Here I

offer a few comments to further elucidate the proper inquiry at the class

certification stage of an employee misclassification case and the duty of trial

courts to manage individual issues in a class action trial.

I. The threshold task for determining whether a class action is appropriate in a

particular case is to inquire whether the substantive law governing the plaintiffs‘

claims renders those claims amenable to class treatment. Because disputes over

the facts or methods of proof that bear on class certification are often, in reality,

disputes over ―the substantive law that governs the litigation,‖ it is important that

courts employ a proper understanding of the substantive governing law to inform

the class certification decision, and not the other way around. (Nagareda, Class

Certification in the Age of Aggregate Proof (2009) 84 N.Y.U. L.Rev. 97, 104; see

id. at pp. 105–106 [―This is not to suggest that class actions—any more or less

than conventional, individual lawsuits—cannot serve as vehicles for change in

legal doctrine. It is simply to say that the proposed class-wide nature of the

litigation should exert no independent weight in arguments for such change.‖ (Fn.

omitted.)].) The exposition of substantive law should be independent of the fact

that ―the case at hand happens to take a proposed aggregate form.‖ (Id. at p. 108.)

The question in this case is whether the employees in the proposed class are

―outside salespersons‖ exempt from the state‘s overtime laws. An ―[o]utside

salesperson‖ is one ―who customarily and regularly works more than half the

working time away from the employer‘s place of business selling tangible or

intangible items or obtaining orders or contracts for products, services or use of

facilities.‖ (Industrial Welfare Com., Wage Order No. 4-2001, subd. 2(M) (Jan. 1,

2001) Cal. Code Regs., tit. 8, § 11040, subd. 1(c) (Wage Order No. 4-2001, subd.

2(M)).) We set forth an authoritative construction of the term in Ramirez v.

Yosemite Water Co. (1999) 20 Cal.4th 785 (Ramirez), a case having nothing to do

with class actions. The central dispute in Ramirez was whether the outside

salesperson exemption should be construed in the same manner as an analogous

federal exemption, which ―focuses on defining the employee‘s ‗primary function,‘

not on how much work time is spent selling.‖ (Id. at p. 797.) Rejecting that view,

we concluded that the relevant wage order ―incorporates a quantitative method for

determining whether an employee is an outside salesperson that differs in some

respect from the qualitative method employed under federal law.‖ (Id. at p. 798.)

In elaborating ―California‘s distinctive quantitative approach to

determining which employees are outside salespersons,‖ Ramirez resolved a

question that had confused litigants and lower courts: ―Is the number of hours

worked in sales-related activities to be determined by the number of hours that the

employer, according to its job description or its estimate, claims the employee

should be working in sales, or should it be determined by the actual average hours

the employee spent on sales activity? The logic inherent in the [Industrial Welfare

Commission‘s] quantitative definition of outside salesperson dictates that neither

alternative would be wholly satisfactory. On the one hand, if hours worked on

sales were determined through an employer‘s job description, then the employer

could make an employee exempt from overtime laws solely by fashioning an
idealized job description that had little basis in reality. On the other hand, an

employee who is supposed to be engaged in sales activities during most of his

working hours and falls below the 50 percent mark due to his own substandard

performance should not thereby be able to evade a valid exemption. A trial court,

in determining whether the employee is an outside salesperson, must steer clear of

these two pitfalls by inquiring into the realistic requirements of the job. In so

doing, the court should consider, first and foremost, how the employee actually

spends his or her time. But the trial court should also consider whether the

employee‘s practice diverges from the employer‘s realistic expectations, whether

there was any concrete expression of employer displeasure over an employee‘s

substandard performance, and whether these expressions were themselves realistic

given the actual overall requirements of the job.‖ (Ramirez, supra, 20 Cal.4th at

pp. 801–802.)

Thus, in recognizing that California‘s definition of an outside salesperson is

quantitative in nature, Ramirez did not say that the test boils down to whether a

particular employee actually spends more than 50 percent of his or her working

hours on outside sales. Instead, the ultimate question is: what are ―the realistic

requirements of the job‖? (Ramirez, supra, 20 Cal.4th at p. 802.) The primary

consideration that informs this inquiry is ―how the employee actually spends his or

her time.‖ (Ibid.) But, as Ramirez made clear, this factor is not dispositive

because an employee who falls below the 50 percent threshold ―should not thereby

be able to evade a valid exemption‖ if the employee ―is supposed to be engaged in

sales activities during most of his working hours.‖ (Ibid.) By the same logic, an

employee who exceeds the 50 percent threshold should not be classified as exempt

if devoting that much time to outside sales is not a realistic requirement of the job.

Ramirez‘s focus on ―the realistic requirements of the job‖ parallels the wage

order‘s definition of an outside salesperson as one who not only ―regularly‖ but

also ―customarily‖ spends more than half the working time on outside sales

activity. (Wage Order No. 4-2001, subd. 2(M), italics added.) How an employee

actually spends his or her time is certainly probative of what is customary or

realistically required in the performance of a particular job. But so are ―whether

the employee‘s practice diverges from the employer‘s realistic expectations,

whether there was any concrete expression of employer displeasure over an

employee‘s substandard performance, and whether these expressions were

themselves realistic given the actual overall requirements of the job.‖ (Ramirez, at

p. 802.)

Once we have brought into focus the ultimate issue of ―the employer‘s

realistic expectations‖ or ―the realistic requirements of the job‖ (Ramirez, supra,

20 Cal.4th at p. 802), it is not difficult to contemplate that employees in a given

job classification will often be either wholly exempt or wholly nonexempt, since a

job classification often entails a common set of employer expectations or

requirements for performance of the job. That is not to say that trial courts should

simply rely on ―an employer‘s job description‖ in deciding whether employees are

outside salespersons; as Ramirez warned, ―the employer could make an employee

exempt from overtime laws solely by fashioning an idealized job description that

had little basis in reality.‖ (Ibid.) How employees actually spend their time

obviously matters. But Ramirez also warned that it ―would [not] be wholly

satisfactory‖ to rely solely on ―the actual average hours the employee spent on

sales activity.‖ (Ibid.) Variability in such hours does not necessarily prove that

the employer‘s realistic expectations or the realistic requirements of the job were

not the same for all employees in a given job classification.

We addressed the implications of Ramirez for class actions in Sav-on,

supra, 34 Cal.4th 319, which upheld certification of a class of drug store

employees who alleged they had been misclassified as managers exempt from

overtime laws. The defendant in Sav-on argued that the managerial exemption,

like the outside salesperson exemption in Ramirez, turns on ― ‗the actual tasks

performed by each class member, the amount of time each class member spent on

those tasks, and how the class member‘s practices compare to the employer‘s

reasonable expectations,‘ ‖ and that such individualized factors necessarily bar

class certification. (Id. at p. 335.) We rejected this argument: ―Presence in a

particular overtime class action of the considerations reviewed in Ramirez does

not necessarily preclude class certification. Any dispute over ‗how the employee

actually spends his or her time‘ (Ramirez, supra, 20 Cal.4th at p. 802), of course,

has the potential to generate individual issues. But considerations such as ‗the

employer‘s realistic expectations‘ (ibid.) and ‗the actual overall requirements of

the job‘ (ibid.) are likely to prove susceptible of common proof. Defendant‘s

‗realistic expectations, in particular, may become relevant in this case, and a

reasonable court could conclude these are susceptible of common proof.‖ (Sav-

On, at pp. 336–337; see maj. opn., ante, at p. 21 [―Job requirements and employer

expectations of how duties are to be performed may often be established by

evidence relating to a group as a whole.‖].) In the present case, defense witnesses

testified that all business banking officers (BBOs) were expected to spend the

majority of their time on outside sales activity. (Id. at p. 10.)

Sav-on went on to say that ―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, [20 Cal.4th] 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, supra, 34 Cal.4th at p. 337.) Such an approach,

we said, would ―require as a prerequisite to certification that plaintiffs demonstrate

defendant‘s classification policy was . . . either ‗right as to all members of the

6
class or wrong as to all members of the class,‘ ‖ thereby reversing the employer‘s

burden to prove the employee‘s exemption. (Id. at p. 338.) ―Ramirez is no

authority for such a requirement, nor does the logic of predominance require it.‖

(Ibid.)

Since Sav-On, a number of Courts of Appeal have upheld denials of class

certification in employee misclassification cases based on the conclusion they

were not amenable to common proof. In some cases, preliminary evidence

revealed that a common job classification and description did not actually reflect

common employer expectations or requirements. (See, e.g., Arenas v. El Torito

Restaurants, Inc. (2010) 23 Cal.App.4th 723, 734 [affirming denial of class

certification where trial court credited defense evidence that duties of a restaurant

manager varied significantly from restaurant to restaurant].) But Sav-On made

clear that variation in how employees spend their time does not, by itself, preclude

a finding that an employer‘s realistic expectations are susceptible to common

proof. Here, under the relevant wage order, the ultimate question is whether

BBOs ―customarily and regularly‖ spend more than half their working time on

exempt tasks. (Wage Order No. 4-2001, subd. 2(M), italics added.)

II.

As today‘s opinion explains, the predominance of common issues ―is not

the only consideration. In certifying a class action, the court must also conclude

that litigation of individual issues, including those arising from affirmative

defenses, can be managed fairly and efficiently.‖ (Maj. opn., ante, at p. 23; see

Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1054

(Brinker) (conc. opn. of Werdegar, J.) [―whether in a given case affirmative

defenses should lead a court to approve or reject certification will hinge on the

manageability of any individual issues‖].)

A principal error in this case was the trial court‘s refusal to consider

declarations from class members outside of the representative witness group

during the trial. I agree that ―[i]n rigidly adhering to its flawed trial plan and

excluding relevant evidence central to the defense, the court here did not manage

individual issues. It ignored them.‖ (Maj. opn., ante, at pp. 29–30.) What would

it mean to ―manage individual issues‖ in the context of an employee

misclassification case? To aid the trial court on remand, as well as future courts in

similar cases, I briefly address this question.

At the outset, it must be remembered that a declaration indicating that an

employee typically spent more than 50 percent of the workday engaged in outside

sales activity does not dispositively show that the employee was properly

classified as exempt. Rather, such a declaration is evidence bearing on the

ultimate issue of ―the employer‘s realistic expectations‖ or ―the realistic

requirements of the job.‖ (Ramirez, supra, 20 Cal.4th at p. 802.) In a trial, such

evidence must be assessed for its weight and credibility, and it must be considered

together with all other evidence bearing on the ultimate issue.

Further, although a representative sampling approach to proving class

liability is not appropriate for all statutory rights (see Wal-Mart Stores, Inc. v.

Dukes (2011) 564 U.S. __ [131 S.Ct. 2541]), the need to manage individual issues

does not foreclose the use of sampling, representative testimony, or other

statistical methods to obtain relevant evidence in a class action trial on employee

misclassification. However, because such methods are inherently designed to

reveal generalized characteristics of a population, they pose the risk that a

defendant‘s affirmative defenses as to individual employees will not be properly

adjudicated. There are two ways that a trial court should consider individual

issues in this context.

First, consideration of individual issues should inform the design of any

sampling or similar statistical approach. As today‘s opinion notes, ―[i]t is

impossible to determine an appropriate sample size without first learning about the

variability in the population.‖ (Maj. opn., ante, at p. 40.) In other words, a valid

sampling plan must take into account individual variation within the population,

and in that sense, consideration of individual issues is ―baked into‖ the plan‘s

design. Litigation over the degree or nature of variability in the population may

result in a determination that no valid sampling plan would be practical or

efficient, that multiple samples must be used in order to capture heterogeneity

within the class, or that a sampling plan is viable only for a certain subset of the

class.

Second, even when a trial court has settled on a valid sampling plan, the

defendant is entitled to raise individual issues that challenge the results of the plan

as implemented. The defendant may introduce evidence, such as individual

declarations, suggesting that the sample was not truly representative or that the

margin of error admits substantial variation around an average or generalized

finding. Faced with evidence from individual and aggregate methods of proof, the

trial court must reasonably resolve any conflicts. In so doing, the court may arrive

at many possible conclusions, depending on the evidence.

As noted, the court must assess the credibility of the individualized

evidence. Here, for example, the credibility of declarations as to how much time

an employee spent on outside sales activity may depend on whether the employer

or employee kept contemporaneous records of his or her time. Or the trial court

could call some of the declarants to testify and assess whether their testimony

confirmed or contradicted their declarations. The court might find that the

individualized evidence lacks credibility and that the sampling evidence is reliably

probative of the employer‘s realistic expectations. Or the court might find that the

individualized evidence is credible and casts doubt on the validity of the sampling

plan as executed. In the latter case, the court might conclude that variability

cannot be managed in a class proceeding and that the class should be decertified.

Or the court might notice patterns that suggest unmanageable variation in

particular subgroups, resulting in partial decertification. Or the court might

conclude that the individualized evidence shows only a few outliers that can be

handled through mini-trials without disrupting the class proceeding.

Alternatively, the court might find that the individualized evidence, while

credible, does not show variability in the class but rather provides strong,

consistent evidence of the employer‘s realistic expectations for the job at issue.

Such evidence, depending on what it showed, could support a finding of

exemption or nonexemption for the entire class, thereby corroborating or

undercutting the sampling evidence. Or such evidence could support a finding of

liability for a subset of the class, while tending to disprove liability for the

remainder.

The important point is that neither an aggregate method of proof (like

sampling or representative witness testimony) nor individualized evidence (like a

declaration) is necessarily dispositive when the ultimate issue at trial is to

determine ―the employer‘s realistic expectations‖ or ―the realistic requirements of

the job.‖ (Ramirez, supra, 20 Cal.4th at p. 802.) The two types of evidence must

be considered and weighed alongside each other, and more broadly, they must be

considered and weighed together with the full range of evidence bearing on the

ultimate issue, including the employer‘s job description, company policies,

industry customs, and testimony of supervisors or managers who monitored,

evaluated, or otherwise set expectations for employees in the class. We entrust

our trial courts with the task of weighing such multidimensional evidence, and

their judgments will be sustained if supported by substantial evidence. (Cf.

Brinker, supra, 53 Cal.4th at p. 1017 [class certification upheld when supported by

substantial evidence of employer‘s uniform unlawful policy].)

A class action trial plan, however well conceived, cannot anticipate every

possible development. The trial court must address individual issues when they

arise. In so doing, the court has a great deal of discretion — from determining the

weight to be given to individualized and aggregate evidence, to determining how

much variability such evidence suggests there is in the class, to determining what

implications such evidence has for continued certification of the class and for the

ultimate merits of the case. As we said in Sav-on: ―Courts seeking to preserve

efficiency and other benefits of class actions routinely fashion methods to manage

individual questions. For decades ‗[t]his court has urged trial courts to be

procedurally innovative‘ [citation] in managing class actions, and ‗the trial court

has an obligation to consider the use of . . . innovate procedural tools proposed by

a party to certify a manageable class‘ [citations]. Such devices permit defendants

to ‗present their opposition, and to raise certain affirmative defenses.‘ [Citation.]‖

(Sav-on, supra, 34 Cal.4th at pp. 339–340, fns. omitted; see id. at p. 339, fns. 11–

12 [providing numerous examples of methods to manage individual issues,

including bifurcation, subclasses, questionnaires, and individualized hearings].)

III.

Today‘s opinion properly identifies the shortcomings of the representative

witness group in this case and the trial court‘s failure to give due consideration to

the individualized evidence that U.S. Bank National Association (USB) sought to

introduce in its defense. But it is important to note that the trial court focused on

the right question on the merits: What were the realistic requirements of the BBO

position?

At trial, no party argued that USB lacked common expectations and

requirements for BBOs. According to USB‘s answer brief, USB presented

evidence, including testimony of BBO supervisors, that it ―expects BBOs to spend

80 per cent of their time on these ‗outside sales activities.‘ ‖ Plaintiffs, on the

other hand, presented evidence that the BBO position required employees to spend

most of their time on telemarketing and other in-office tasks. The trial court, after

hearing the evidence, made detailed findings in support of its conclusion that ―it is

not realistic for BBOs to spend more than half of their work time outside of bank

locations because the credit or loan transaction cannot be consummated, nor the

sales goal met, without substantial effort that does not or cannot be performed

outside of bank locations.‖

Such findings, if based on substantial evidence, ordinarily would be sufficient

to show the nonexempt status of employees under the relevant wage order. In this

case, however, we cannot have confidence in such findings because the trial court did

not use a valid representative witness group or consider individualized evidence that

might have presented a more complete picture of the class. On remand, the trial court

must start anew by assessing whether there is a trial plan that can properly address

both common and individual issues if the case were to proceed as a class action.

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