Attacking Class Certification in the Retail Industry: California Court of Appeal and Federal District Court reject Wage Hour Class Actions Against Large Discount Retailers
Retailers are all too familiar with the continued onslaught of wage and hour class action litigation. Such litigation has the bane of retailers both in California as well as increasingly throughout the Nation. The California Supreme Court’s decision in Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319 (2004) greatly facilitated the certification of class actions by ceding tremendous latitude to the trial courts in deciding certification issues. Although Sav-On said that such determinations are fact specific, because the opinion affirmed the trial court’s certification of a wage and hour class, the result has been the continued and unabated deluge of these cases.
But now recent decisions emphasize that a retailer can defeat certification of a wage and hour class if it can demonstrate key operational differences between its various locations, requiring a fact-intensive inquiry that makes the class action device inappropriate.
Affirming the decertification of a class action by store managers who alleged that they were misclassified as exempt and were owed overtime, the California Court of Appeal held that individual issues of liability and damages predominated over class issues. Keller v. Tuesday Morning, Inc., No. B210787 (Cal. Ct. App. Dec. 4, 2009). Specifically, the court found that the evidence established a wide disparity in store location, size, and configuration, as well as differences in the managers’ duties. The evidence also showed that the managers routinely exercise independent judgment. Because the managers’ claims primarily involved individual questions of fact, the trial court correctly decertified the class.
The plaintiff, Edythe Keller (“Keller”), worked as a manager for Tuesday Morning, a discount retailer. Tuesday Morning operates its stores during periodic “sales events” lasting from three to eight weeks and closes for the remainder of the year. However, its employees work year-round preparing for the sales. Tuesday Morning has 80 stores in California that vary in size and are located in diverse communities. Keller, as class representative, sued Tuesday Morning alleging that it violated California wage and hour laws by misclassifying its managers and failing to pay them overtime. The trial court initially denied class certification. The Supreme Court then issued Sav-On, 34 Cal. 4th 319. In light of Sav-On, the trial court reconsidered its decision and granted certification, but retained authority to decertify the class if it subsequently appeared that the class certification was no longer appropriate.
Three years later, after extensive discovery, Tuesday Morning moved for decertification. The trial court conducted a three-day hearing on the motion. During the hearing, Tuesday Morning presented detailed evidence showing significant differences among the stores, including size, configuration, sales volume, number of employees, store demographics, and store location. Tuesday Morning established that the size of the store affected how the managers performed their duties, including making merchandising decisions, arranging for deliveries, planning, budgeting, scheduling, and processing returns and exchanges. The store size also affected how many employees the managers supervised.
Tuesday Morning also presented evidence, including expert testimony, regarding how much time the managers spent performing managerial duties which varied depending on factors, such as their experience, their managerial style – whether they were a hands’ on manager, whether they delegated tasks to subordinates – and whether they had support from other managerial staff. Tuesday Morning also showed that, although all managers received training regarding corporate policies and guidelines, the company expected each manager to adapt those guidelines to their particular store, using their independent judgment and discretion.
In response, Keller argued that common issues predominated primarily because Tuesday Morning provided the same training, budgets, and policies to their managers. Keller further argued that Tuesday Morning designed its operations to ensure that all managers perform similar tasks. The trial court found that, although the issue of whether management policies mandated exempt duties was subject to class-wide proof, the amount of time managers spent performing managerial duties and exercising discretion were matters of individual inquiry. Accordingly, the trial court granted the motion for decertification, and Keller appealed.
On appeal, the court first reviewed the standard for certifying a class -- the party seeking certification must establish the existence of both an ascertainable class and a well-defined community of interest among class members. The court noted that a class action will not be permitted “where there are diverse factual issues to be resolved, even though there may be many common questions of law.” The court examined another case that concerned unpaid overtime of grocery store managers. In Dunbar v Albertson’s, Inc., 141 Cal.App.4th 1422 (2006). The court relied on evidence that the work performed by the managers varied significantly from “store to store and week to week,” and concluded that individual issues predominated.
The court noted that in a class action involving a retail store, the California Supreme Court cautioned that great deference should be given to the trial court’s class certification orders. Based on the detailed evidence submitted by Tuesday Morning, the court found that the trial court acted within its discretion when it determined that individual issues involving the time that the managers spent performing managerial tasks would predominate over class issues involving whether managerial guidelines mandate exempt duties. Accordingly, the court affirmed the decertification order.
In a similar class action for alleged unpaid overtime brought by store managers against a large retailer, Jackson Lewis attorneys successfully argued that the trial court should deny class certification. As in Tuesday Morning, the plaintiffs argued that the retailer operated its stores in a uniform manner and that the managers performed similar duties. The employer in the Jackson Lewis case offered detailed evidence to the contrary through declarations of store managers. Specifically, the employer demonstrated through individualized declarations (not boilerplates) that showed that the stores’ operations varied considerably based on size, inventory, number of employees, and managers’ style, discretion, and experience.
Plaintiff’s contentions are flatly contradicted by persuasive evidence submitted by defendants’ managers, who are members of the putative class. These persuasive declarations, which are neither repetitive or identical, and which are specific and supported by individual detail, establish that the operations of [defendant’s] stores, and concordantly the activities performed by the managers of those store, vary substantially based on the size of the store, the type of inventory or merchandise carried, and number of employees working at a particular location, the personality and independent judgment of each store manager, the manager’s experience, the time of year, and particular unique challenges (e.g. remodeling or opening of new stores) presented. In short, there is no fixed or set allocation of time accorded to a limited number of tasks. Nor, as is plainly and inescapably established by these declarations, does [defendant] operate its stores or supervise its managers in a uniform and standardize manner.
Based on the employer’s evidence, the trial court found that the retailer did not operate its stores in a uniform manner and the managers’ duties and tasks varied substantially from store to store. Accordingly, the trial court denied the plaintiffs’ motion for class certification, finding that individual issues regarding the managerial duties performed by the store managers and the differences in the stores predominated over the employees’ claims that the retailer ran the stores in a standardized manner.
Finally, a federal district court used similar reasoning to deny certification of a class of non-exempt assistant managers alleging they were denied meal and rest breaks. Hostetter v. Barnes & Noble Booksellers, Case No. 09-1572 (C.D. Cal. 2010). The plaintiff argued assistant managers were forced to skip breaks when they were the sole manager on duty or when the store was busy. The court reasoned that each of these theories raised predominantly individual issues that were not amenable to class treatment. To determine whether any given assistant manager was forced to miss a break under either of these circumstances, the court would need to inquire into the precise circumstances facing each assistant manager at his or her particular store. The court held those individual inquiries made class certification inappropriate.
These cases provide guidance regarding the detailed evidence needed to establish that individual issues predominate in a wage hour class action. Carey Palmer, a Partner in Jackson Lewis’ Sacramento office, noted: “We are seeing continued success in defeating class certification by focusing our efforts on our clients’ operational distinctions among their retail units. From the various court decisions on this issue, we have culled those distinct and key facets of retail operations that distinguish each store and provide an avenue to attack certification.”
