In August, the California Supreme Court decided a much anticipated case expected to clarify the requirements for certifying wage and hour class actions. Its decision in Sav-On Drug Stores, Inc. v. Sup. Ct., 34 Cal. 4th 319 (2004), initially delighted the plaintiffs’ bar and created some angst among those representing employers. However, on closer inspection, the decision broke no new ground, though it is perhaps most remarkable in the degree of deference shown to trial courts in making class certification decisions and in the lack of rigor shown in applying its own standards. Trial courts inclined to certify such class actions will no doubt feel less restrained in doing so.
The case involved alleged violations of California overtime laws. Plaintiffs asserted that Sav-On had misclassified operating managers and assistant managers throughout its California retail stores as exempt from state overtime pay requirements. Sav-On contended that the managers were properly classified as exempt because they performed managerial work requiring the exercise of discretion a majority of the time. In the trial court, plaintiffs successfully moved for class certification, but the court of appeal reversed. Plaintiffs then sought review in the California Supreme Court.
Under California law, to obtain certification of a class, the class proponent must show, among other things, that common issues of law or fact predominate over individual issues, that the claims or defenses relating to the class representatives are typical of those relating to the class, and that the class representatives can adequately represent the class. Sav-On addressed the first of these requirements, whether common issues would predominate over individual issues. In most cases where class certification is contested, predominance is the key issue. In simplified terms, if the facts and claims are such that plaintiffs can establish liability for the entire class through common proof, a class action provides an appropriate and superior means of trying the case, as compared to many individual trials where the same proof would be presented again and again, and where there would be a risk of inconsistent results. On the other hand, if the matter can only be resolved through separate adjudication of the claims and circumstances pertaining to each individual class member, not only does it make no sense practically for the case to proceed as a class action, but doing so would raise also serious due process questions where the rights of class members not before the court are resolved without their having the opportunity to present their own evidence. Predominance of common issues thus has become under California law the principle gatekeeper for class actions.
In Sav-On, plaintiffs contended that common issues would predominate, given their theory of the case. They asserted, among other things, that Sav-On had deliberately misclassified the managers, that it had done so based on job descriptions alone rather than any analysis of their work, and that it had imposed uniform operational requirements on the stores such that managers had to spend a majority of their time doing non-exempt work. All of these issues, plaintiffs argued, were susceptible of class-wide common proof. Sav-On contended that much of plaintiffs’ theory was beside the point. Whatever Sav-On’s intent, or the reliance on job descriptions, or the operational circumstances, liability ultimately would turn on whether the managers were properly classified or not, and that determination could only be made on an individual-by-individual basis: what tasks did each manager perform, and how much time was spent on each task.
Nominally, the Supreme Court resolved the dispute on very narrow grounds – whether the trial court had abused its discretion in determining that the class should be certified. It thus looked to see if the trial court had applied the correct legal standards and whether there was substantial evidence to support the trial court’s decision. Where both requirements are met, the Court noted, the decision of the trial court must be affirmed, even if the reviewing court would have reached a different result had it addressed the matter de novo.
In assessing the legal standards applied by the trial court, the Supreme Court made no new law, largely quoting from its prior opinions instead. What it chose to quote, however, was selective. It emphasized that the predominance and other class certification issues are essentially procedural questions, rather than determinations of the legal or factual merits of the lawsuit. Further, in addressing predominance, courts must consider “whether the theory of recovery advanced by the [plaintiffs] is, as an analytical matter, likely to prove amenable to class treatment.” (34 Cal. 4th at 327.) Thus, the plaintiffs’ theory of a case substantially influences how certification issues are to be addressed.
In assessing the plaintiffs’ theories in Sav-On, the Court displayed more deference than rigor. To cite but one example, plaintiffs contended, as noted above, that Sav-On had deliberately misclassified the managers, relying on job descriptions rather than actual work performed. Sav-On argued, as also noted above, that its intent and reliance on job descriptions were irrelevant, because neither was probative of whether the classification results, however reached, were correct. The Court never really addressed defendant’s argument directly, but rather resorted to the technicalities of the substantial evidence rule. It set a low threshold for satisfying the rule, found the rule satisfied by the evidence plaintiffs had presented (such as uniform job descriptions, performance review forms, and training programs, among other materials), and observed that the court of appeal was not free to reverse the trial court where the decision was supported by substantial evidence. In doing so, the Court also declined to resolve the conflict between the four manager declarations submitted by plaintiffs saying manager work was non-exempt, and the 51 manager declarations submitted by Sav-On saying the work was exempt. If, as the Court found, plaintiffs’ declarations and other evidence are “substantial,” that is the end of the inquiry, without regard to how substantial the evidence might be on the other side. Nowhere does the Court address, much less explain, how in fact liability for the hundreds of managers would be established through common proof.
A concurring opinion by Justice Brown points to an aspect of the case which alone would have been sufficient to support the result. Plaintiffs and Sav-On essentially agreed on the list of tasks performed by the managers, but disagreed on whether those tasks were exempt or non-exempt. Trial of these issues would in fact be common to the entire class, and could go far to resolve liability, though issues of how much time was spent on each might remain. It is significant that the Court majority chose not to rely on this aspect alone, but elected a far more sweeping approach emphasizing the favored status of class actions, deference to trial courts, deference to plaintiffs’ theories of liability, and the ease with which the substantial evidence rule can be satisfied.
The take-away message from Sav-On is that an ounce of prevention is worth many pounds of opposition to class certification. Trial courts will likely be more inclined to certify employment class actions in light of Sav-On, and once a class is certified, most cases settle on terms far more favorable to plaintiffs than would otherwise be the case. Accordingly, in this era of wage/hour class actions, employers need to be ever more diligent about the legality of their practices lest they find themselves making the same arguments that proved unsuccessful in Sav-On.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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