A Win for California Employers Defending Class Actions: California Court of Appeal Upholds Trial Court’s Rejection of Representative Sampling and Denial of Class Certification of Store Managers

In Dailey v. Sears, Roebuck and Co., the California Court of Appeal held the trial court did not abuse its discretion when it denied class certification in a case alleging Sears misclassified as exempt auto center managers and assistant managers.

Plaintiff alleged Sears misclassified as exempt auto center managers and store managers when they should have been classified as non-exempt because, according to plaintiff, policies and practices common to all of them effectively required them to regularly spend more than 50 percent of their time performing nonexempt work, and because they did not regularly exercise discretion and independent judgment at Sears.  Based on that theory, plaintiff alleged that Sears was required to pay its auto center managers and assistant managers overtime wages and to provide to them the same rest periods and meal periods to which non-exempt employees are entitled.

The trial court denied plaintiff’s motion for class certification and granted Sears’ motion to preclude class certification on the following grounds: (1) individual issues predominate over issues common to the proposed class, (2) it would not be impracticable for each manager or assistant manager to litigate his or her claim(s) individually, and (3) the plaintiff class representative would not be an adequate class representative on account of alleged resume fraud on his part.

On Appeal, the court held the trial court did not abuse its discretion by crediting Sears’ evidence over plaintiff’s evidence.  Sears successfully argued to the trial court and on appeal that wide variations existed between how each manager and assistant manager allocated their working time and that each managerial employee had substantial discretion in how they managed each store.  The trial court held that this variation from manager to manager and from store to store made it impractical to try the case as a class action and denied certification finding that individual issues predominated over common issues.  Notably, the Court of Appeal reiterated that a trial court determining whether to certify a class “must determine ‘whether the elements necessary to establish liability are susceptible to common proof,’” and held the trial court did not abuse its discretion when it ruled the plaintiff failed to meet his burden of showing that the alleged misclassification could be established by common proof.

Additionally, the court of appeal rejected plaintiff’s contention that the trial court failed to sufficiently consider the proposed statistical sampling methodology proposed by plaintiff’s expert witness to prove both liability and damages.  The court explained plaintiff failed to identify any legal authority that a court has “deemed a mere proposal for statistical sampling to be an adequate evidentiary substitute for demonstrating the requisite commonality, or suggested that statistical sampling may be used to manufacture predominate common issues where the factual record indicates that none exist.”  In other words, plaintiff “asked the trial court to certify the class based on little more than abstract statements about what statistical sampling might be able to establish,” which the court held is not sufficient.

The Court of Appeal affirmed the trial court’s denial of class certification of the plaintiff’s rest period and meal period claims.  The court held the plaintiff failed to present substantial evidence “that Sears employed any policy or routine practice to deprive proposed class members of ‘off-duty’ meal and rest breaks and, accordingly, [plaintiff] failed to show that this allegation could be proved on a classwide basis” by common proof.  We note that the court could have held that by failing to show his claim that managers and assistant managers were misclassified as exempt would be susceptible to common proof, plaintiff necessarily failed to show his rest and meal period claims are susceptible to common proof because an employer is not required to pay overtime wages to or provide rest periods or meal periods to exempt employees.

This decision by the court of appeal shows a growing reluctance by California courts to certify for class treatment cases alleging employees have been misclassified as exempt and/or alleging rest and meal period violations in cases where common proof of the alleged violations is lacking.

Nevertheless, the case does serve as a reminder for all California employers to ensure employees are not improperly classified as exempt by, among other things, ensuring that employees classified as exempt spend a majority of their workday performing exempt tasks.  Misclassifying non-exempt employees can give rise to substantial liability, including, for example, liability for unpaid overtime, rest period violations, meal period violations, wage statement violations, record keeping violations, waiting time penalties, and attorney’s fees.

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