Ninth Circuit Court Of Appeal Reiterates That The Need To Calculate Damages Individually Does Not Defeat Class Certification: A Cautionary Tale About The Domino Effect Of Certain Wage And Hour Violations

In Jesus Leyva v. Medline Industries, Inc., plaintiff that alleged he and other purported class members were not paid for all hours worked because the employer rounded employee’s start times in 29 minute increments such that an employee clocking in at 7:31 a.m., would be paid only from 8:00 a.m., onward; that the employer excluded non-discretionary bonuses from the calculation of employees’ overtime rates and thereby improperly depressing the employees’ overtime wages; that the employer willfully failed to pay to employees at the time of termination all wages due and owing and is therefore subject to “waiting time” penalties; and that the wage statements the employer issued to the employees did not accurately state all hours worked and all applicable rates of pay and is therefore subject to wage statement penalties.

In its order denying class certification of the plaintiff’s claims, the United States District Court found common questions of law and fact predominated over individualized questions of law and fact as to the employer’s alleged liability, but denied class certification on two grounds: (1) calculating each class member’s damages would be highly individualized, and (2) class treatment of the claims would not be a superior method of resolving the claims or potential claims of the class members.

On appeal, the Ninth Circuit Court of Appeals reversed the District Court and remanded the case back to the District Court with directions to enter an order granting the plaintiff’s motion for class certification.

First, the court held the District Court abused its discretion when it denied class certification because the need to determine class members’ damages on an individual basis is, standing alone, insufficient to defeat class certification.  The court further noted that trial court record included documents submitted by the employer showing that the employer’s “computerized payroll and timekeeping database would enable the court to accurately calculate damages and related penalties for each claim” as shown by the employer’s own petition to remove the action from the state court where it was filed to the federal court under the Class Action Fairness Act, which permits removal to federal court even in the absence of complete diversity between the parties when the amount in controversy exceeds $5 Million.  The employer had calculated its potential damages exposure (i.e., the amount in controversy”) and in support of its removal petition “listed the amount in controversy for each individual claim and totaled the exposure on all the claims, calculating a total amount in controversy of $5,934,761.”  Thus, the court concluded, the employer’s “removal notice thus demonstrates that damages could feasibly and efficiently be calculated once the common liability questions are adjudicated.”

Second, the court held the District Court also abused its discretion when the District Court concluded that a class action would not be a superior method of resolving the class member’s claims.  Here, the court held the District Court erred when it based its class action manageability concerns on the need to calculate each class member’s damages individually.  In a troubling part of the decision, the court stated its view that “[i]n light of the small size of the putative class member’s potential individual monetary recovery, class certification may be the only feasible means for them to adjudicate their claims.  Thus, class certification is also the superior method of adjudication.”  We would respond to this point by noting, for example, there exists in California a well-established and cost-free alternative to class action litigation of wage and hour claims.  California employees can submit the California Department of Labor Standards Enforcement (“DLSE”) a claim for any amount of allegedly unpaid wages, which the DLSE will pursue at no cost to the employee.  It is not clear from the court’s decision whether the court considered such alternatives when it opined that “class certification may be the only feasible means for [the class members] to adjudicate their claims.”

Although the case does not break much, if any, new ground and would not bind a California court in any event, it nevertheless serves as a cautionary tale for California employers about the domino effect of certain wage and hour violations.  Based on what was reported in the decision, it appears the employer’s reported policy of rounding clock-in times up in increments of 29 minutes gave rise to the following additional claims:

1.  Plaintiff’s claim that the employer issued wage statements (i.e., check stubs) that did not accurately state all hours worked and the applicable rate(s) of pay for all hours worked.  For example, if because of the employer’s rounding policy employees were not paid for all hours worked, the wage statements issued necessarily did not accurately state all hours worked.  Such wage statement violations are subject to penalties of up to $4,000 per employee under Labor Code section 226.

2. Plaintiff’s claim the employer willfully failed to pay all wages due and owing to plaintiff and to other members of the class at the time of termination based on the employer’s alleged failure to pay for all hours worked was willful.  Under Labor Code section 203, if any employer fails to pay to an employee at the time the employment terminates all wages due and owing, the wages of the employee are deemed to continue until the wages are paid or the employee files suit up to a total of 30 work days.  In most cases where the alleged failure to pay all wages due and owing is determined to be “willful,” this equates to 6 weeks of full-time work at the employee(s) regular rate of pay, which can, and often does, exceed the amount of the underlying claim for allegedly unpaid wages.

The recorded decision does not address whether the plaintiff also pursued penalties under the California Labor Code Private Attorneys General Act of 2004 (“PAGA”), which permits recovery of substantial penalties for violation of numerous provisions of the Labor Code, but exposure to such penalties would be another domino effect of the alleged failure to pay wages for all hours worked.

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