SEXUAL HARASSMENT TRAINING LEGISLATION SIGNED INTO LAW

In the last several years, California employers have been besieged with class action attacks in the wage-hour field. These lawsuits have raised numerous theories, such as claims that employers violated the law by misclassifying employees as exempt and by failing to pay overtime, to provide meal and rest periods, to provide required uniforms, to reimburse employees for expenses or to comply with California's unique vacation pay requirements. Incredibly, more than 1,500 class actions were filed after Governor Davis took office in 1999. This was not a mere coincidence. Many of the bills he signed into law created new bases for litigation and simplified the ways in which employees and former employees could sue their employers on either an individual or class-wide basis. The last anti-business bill he signed before leaving office, nicknamed the "Sue Your Boss Law," is symbolic of the Davis legacy.

With so many wage-hour class action lawsuits in the pipeline, it was inevitable that one would reach the California Supreme Court. The first case to do so, Sav-on Drug Stores, Inc. v. Superior Court, 2004 D.J. 10627 (2004), was decided on August 26, 2004. The Supreme Court's decision had been eagerly anticipated by businesses and plaintiffs' attorneys alike. Advocates from both sides urged the Supreme Court to issue broad rulings regarding the propriety or impropriety of class actions in the wage and hour field, such as in exemption cases. The Supreme Court brushed aside the invitations from both sides in a manner that can be expected to lead to a continued flood of litigation. As usual, employers will be forced to foot the bill.

1. The Supreme Court Recognized The Broad Discretion Of Trial Courts To Allow Or Disallow Class Actions
In its unanimous decision, the Supreme Court declined to lay down broad statements as to the appropriateness of class actions in wage-hour cases, either in general or in exemption cases in particular. Instead, it emphasized that trial courts have broad discretion to determine whether class actions are appropriate on a case-by-case basis.

In doing so, the Supreme Court reiterated several basic principles. First, public policy supports the enforcement of California's minimum wage and overtime laws. Courts will do nothing to impede that policy. Second, public policy encourages the use of class actions in appropriate cases.

Significantly, the Supreme Court emphasized that trial courts do not decide who should prevail on the ultimate issues in a case (e.g., whether employees are exempt or not exempt) at the phase of litigation when they evaluate whether the case should proceed on a class-wide basis. Therefore, the trial court in Sav-on determined that a class action was appropriate, but did not decide the merits of the plaintiffs' case. Further, because the trial court did not do so, it was not necessary for the Supreme Court to decide whether the plaintiffs were or were not exempt. It simply concluded that the trial court did not abuse its discretion when it certified the class.

By declining to offer broad statements about the appropriateness of class actions or new insights as to exemption standards, the Supreme Court's decision left advocates on both sides disappointed. The net effects of the decision will be sorted out over the next few years. However, both sides generally agree that, once a trial court decides whether or not to certify a class, it will be far more difficult to successfully appeal that decision. Another fact is clear. The case certainly does not discourage plaintiffs from bringing class-wide claims.

2. Background
The lawsuit was filed by two managers on behalf of themselves and other managers and assistant managers in California. They alleged that Sav-on Drug Stores had misclassified them as exempt and failed to pay them overtime. The trial court determined that they could pursue their claims on a class-wide basis. The court of appeal disagreed.

The issue addressed by the Supreme Court was whether the trial court's decision to grant the plaintiffs' motion for class certification should be overturned due to an abuse of discretion. The plaintiffs argued that the company had uniformly misclassified managers as exempt on the basis of their title and job descriptions without reference to their actual work, and that the company's store operations were "standardized." They asserted that they routinely worked overtime and performed nonexempt work in excess of 50% of the time. They thus claimed they were entitled to overtime.

In opposing class certification, the company argued that whether any individual member of the class was exempt or nonexempt depends on which tasks that person actually performed and the amount of time spent on each task. Because the amount of time spent by each employee on exempt activities varied significantly from store to store and individual to individual, based on multiple factors, the company argued that meaningful generalizations could not be made. It followed that the exemption issue could not be resolved on a class basis.
The trial court granted the plaintiffs' motion and certified a class of all current and former salaried managers who worked for the company during the relevant time period. The class was estimated to include 600 to 1,400 members. After the company appealed, the court of appeal issued a writ of mandate commanding the trial court to vacate its order granting class certification. The Supreme Court reversed the judgment of the court of appeal, concluding that it did not give the proper level of deference to the trial court. It determined that the trial court's ruling should not have been disturbed in the absence of an abuse of discretion.

3. Class Action Standards
The Supreme Court began its discussion by reviewing the standards for class certification that apply under Section 382 of the Code of Civil Procedure. It noted that the party seeking class certification has the burden to establish the existence of both an ascertainable class and a well-defined community of interest among class members. The "community of interest" requirement, in turn, embodies three factors:
(a) Predominate common questions of law or fact;
(b) Class representatives with claims or defenses typical of the class; and
(c) Class representatives who can adequately represent the class.

The Supreme Court emphasized that the class certification question is "essentially a procedural one that does not ask whether an action is legally or factually meritorious."

a. The Role of Trial Courts
The Supreme Court used these basic principles as a launching off point to address the broad discretion given trial courts to make the ultimate decisions as to when and whether to grant class certification motions. Ordinarily, the plaintiffs seeking to represent a large group of current and former employees want the case to proceed as a class action. When a motion for class certification is filed, the trial court must decide whether the issues that may be jointly tried, "when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants."

b. A Class Action Was Found Appropriate
The trial court in Sav-on determined that the plaintiffs had established that common issues predominated. It thus ruled that a class action was "superior to alternate means for a fair and efficient adjudication of the litigation." After identifying the three-factor test, the Supreme Court did not find it necessary to evaluate items (b) or (c) (i.e., whether the plaintiffs had claims typical of the class or were adequate representatives) because the employer did not challenge those issues. The central issue in dispute was thus whether the trial court abused its discretion in concluding that common issues predominated.

4. A Class Action Was Justified Because Common Issues Predominated
It should be emphasized that the Supreme Court did not state that class actions are appropriate in all wage-hour cases or in all exemption cases. It simply concluded that the trial court did not abuse its discretion by determining that a class action was justified in the case before it because common issues predominated over individual issues.
In the context of its analysis, the Supreme Court offered a fascinating observation regarding the magnitude of the trial court's discretion. It suggested that the trial court's decision should have been upheld on appeal whether it had granted or denied the motion to certify the class. In other words, it did not matter whether it certified the class by crediting the plaintiffs' evidence (as it did) or refused to do so based on the defendant's evidence. As long as a trial court has substantial evidence to support its conclusion, its decision is proper and entitled to deference by an appellate court.

Because trial courts are likely to differ in their assessment of the evidence presented (as the trial court and appellate court did in Sav on) the outcome of cases may be difficult to predict. One fact is clear. The standard announced by the Supreme Court will make it extremely difficult to appeal class certification decisions in future cases, whether they grant or deny class certification.

5. Class Action Fights
Employers who are forced to defend class action lawsuits cannot persuasively contend that class actions are always inappropriate in wage-hour cases. They must instead attempt to convince the trial court that class certification is simply inappropriate based on the facts of the case in dispute. Some of the issues that will be raised in future cases are described below.

a. Do Common Issues Of Law Or Fact Predominate Over Individual Issues?
The ability to convince a court may be influenced, at least in part, by the nature of the underlying claims involved in a case. Employers will try to convince courts that individual issues of law and fact predominate and make a class action inappropriate.
For example, significant factual variations are likely to be involved in a typical case involving meal and rest period claims where numerous factors govern eligibility for meal and rest periods, exemptions, timing, length of meal and rest periods, waivers, whether rest periods were "authorized" and "permitted" for each employee, and other standards.
Such material factual variations were not found in Sav-on, which involved an exemption question where company-wide standardization, and uniform classification policies, job titles, and job descriptions were alleged to exist. Under the specific facts involved, the trial court found that common issues predominated and could be resolved based on common proof.

b. Do Other Bases Exist To Oppose Class Certification?
It should be remembered that the trial court determined that common issues predominated over the individual issues in the case. The court was therefore not required to resolve other issues that may form a critical part of the "community of interest" and class certification analysis in other cases. Consequently questions whether the class representatives' claims or defenses are typical of the class and whether they can adequately represent the class may become battleground issues in other cases. For example, if a named class member sues for wrongful discharge and overtime pay while other class members have only overtime claims, the named member's claims arguably are not "typical."

c. Is There A Basis To Challenge The Trial Court's Decision?
Because the Sav-on decision makes it clear that a trial court has broad discretion to evaluate the efficiencies and practicalities of permitting class actions, the trial court's assessment of the issues in each case will control. It can be expected that courts will differ in the manner in which they resolve these questions. Once a decision is made to grant or deny a class certification motion, the trial court's ruling on class certification will not be disturbed unless (i) the ruling is not supported by substantial evidence; (ii) improper criteria were used; or (iii) erroneous legal assumptions were made.

6. Additional Lessons From Sav-on
Individuals interested in the employment law field may learn many lessons from the Supreme Court's decision. They include the following:

(a) Sav-on involved a challenge to the executive exemption from California's overtime rules. The Supreme Court did not decide the merits of the case or whether the employees were exempt or nonexempt.

(b) The Supreme Court determined that the trial court did not abuse its discretion in granting class certification. However, the decision does not suggest that class actions are appropriate in every wage-hour case. Conversely, it does not suggest that they are usually inappropriate.

(c) The decision does not articulate principles that offer helpful insights about the standards that will be used in future cases to determine when individuals qualify as exempt executive, administrative, professional, or outside sales employees.

(d) Nothing in the decision is likely to discourage attorneys from continuing to file class action cases. It is predictable that such cases will continue to be filed in large numbers in the future.

(e) Employers who use standardized operations and procedures, uniform job descriptions, and uniform job titles that do not reflect an individualized analysis of each person may find themselves more susceptible to class action lawsuits on exemption claims. In contrast, those who make individualized determinations that reject a cookie cutter approach may be less susceptible to class claims.

(f) Due to the tremendous deference given to trial courts, employers should devote significant energy to opposing class certification motions when they are filed or, if such a motion is granted, seeking decertification. Factors that may play a role in such decisions include (i) judicial economy; (ii) manageability of the case as a class action; (iii) the relative costs and benefits of proceeding in a class action or in numerous separate actions; (iv) whether common issues predominate and common evidence and proof can be presented; (v) standardization of operations, titles, and job duties in exemption cases; (vi) the presence of uniform policies and practices; (vii) whether there is an ascertainable class; (viii) whether the named plaintiffs and their legal counsel can adequately represent the class; and (ix) whether their claims or defenses are typical of those of the class.

(g) The Supreme Court did not consider every basis to challenge class certification. The battleground issues in future cases may center on whether the plaintiff's claims are typical and whether they are adequate representatives, as well as whether common issues of fact and law predominate over individual issues.

(h) Employers may encounter problems if they reclassify employees from salaried exempt to nonexempt status without changing their duties or job descriptions, or if they change other policies without a plausible explanation that is unrelated to prior wrongdoing. They may be confronted with arguments that their actions constitute admissions of prior wrongdoing. They can argue that the doctrine of subsequent remedial measures should prevent such actions from being admitted into evidence. Nevertheless, their interests may be best served where they can articulate legitimate reasons for the changes they adopt.

(i) Employers should evaluate practices that are most likely to affect large numbers of employees and are therefore the most obvious targets of class actions. Examples include policies relating to exemptions, meal and rest periods, vacation pay, benefits, paystubs, leave policies, and expense reimbursement practices.

(j) Employers should not assume that employees are exempt based solely on industry practice or their job titles, job descriptions, policies, agreements, or the employee's personal preference to be "exempt" and receive a salary. Audits and proactive strategies should be evaluated, including the possibility of time and motion studies, self-evaluations and appraisals, and the use of employee declarations and attestations with respect to issues that are likely to be targeted in class action lawsuits.

7. Practical Considerations
The Sav-on decision did not make broad statements regarding the appropriateness of class actions in wage-hour cases or provide an in depth analysis of when employees will qualify as exempt. The decision does not provide a road map for employers or a menu of responsibilities that employers can inventory to review their day-to-day business practices. However, the deference given to trial court decisions and the refusal of the Supreme Court to identify serious impediments to class action litigation will not discourage such lawsuits. Indeed, it can be predicted that class actions will continue to be filed in large numbers.

Furthermore, with the enormous changes to California employment laws that took effect under Governor Davis, employers have an enormous task in identifying and complying with their varied legal obligations. The Private Attorneys General Act of 2004 ("PAGA") (aka the "Sue Your Boss Law"), was recently amended in some respects, but presents even greater challenges for employers than previously existed. It offers employees and their attorneys enormous financial incentives to sue employers over hundreds of statutory infractions, including violations that do not result in any economic harm to employees.

In light of the Sav-on decision, the devices available to attorneys to file class actions and representative actions under California law, and the sweeping changes in the wage-hour field during the Davis Administration, California employers in all industries are strongly advised to conduct internal compliance audits as quickly as possible. Employers should consult with their employment counsel to discuss the scope, targets, and parameters of such audits.