In Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1 (Duran), Justice Carol Corrigan used the phrase “exceedingly rare beast” to describe “a wage and hour class action that proceeded through trial to verdict.” (Id. at p. 12.) The plaintiffs in Duran had alleged their employer misclassified them as exempt from the laws requiring premium pay for overtime and mandatory meal breaks and rest periods during the workday. Such lawsuits are notoriously difficult to manage on a large scale, are often deemed unsuitable for class treatment, and usually settle if class certification is granted. The Duran action, which involved a class of 260 people, lasted more than 16 years and ultimately ended in decertification due to the unmanageability of issues arising from the employer’s defenses.
We dare say the present case is even rarer and more beastly than Duran. The original complaint was filed 19 years ago. There have been numerous interlocutory appeals and writ proceedings, the most recent of which involved review by the California Supreme Court. (North American Title Co. v. Superior Court (2024) 17 Cal.5th 155.) At long last, an appeal of the underlying judgment is presented for review on the merits. Unfortunately, the end is still nowhere in sight.
The wage and hour claims of approximately 700 plaintiffs, divided into two classes based on whether they had been designated as exempt or nonexempt employees, were litigated in a bifurcated bench trial. Upon conclusion of the first phase, the “Nonexempt” class was ordered decertified. However, the trial court ruled against the defendant employer on certain defenses asserted as to the claims of the “Exempt” class. The court then appointed a referee to conduct the second phase of trial, doing so without the parties’ consent and over defendant’s strenuous objections. The reference proceedings lasted years and included live testimony from over 230 class members, all leading to the entry of a $43 million judgment.
A nonconsensual reference of the scope and magnitude ordered in this case is not merely a rare occurrence. It appears unprecedented in our state jurisprudence. A trial court’s authority to delegate matters to a referee without the parties’ consent is strictly circumscribed by the California Constitution and Code of Civil Procedure. The reference proceedings below were entirely unauthorized. This error alone compels reversal of the judgment.
Prejudicial errors were also committed in the first phase of trial, which became known as the “liability phase” even though it did not truly resolve all issues of liability. Critical aspects of the trial plan and format contravened the holdings of Duran. The employer’s affirmative defenses were also rejected out of hand, on a classwide basis, due to misinterpretations of the applicable law.
The employer relied on two different Labor Code exemptions, both of which largely depend on how employees spend their time during the workday. To provide a very simplified primer, certain types of employees may be exempt from California’s overtime laws if they spend over half of their time performing duties and tasks meeting the legal definitions of exempt work. If an employee spends 49 percent of their time on exempt work, such as managerial tasks, but the other 51 percent of their time on nonexempt work, they do not qualify for the exemption. “Given California’s uniquely quantitative approach … [citation], some proof about how individual employees use their time will often be necessary to accurately determine an employer’s overtime liability [on a classwide basis].” (Duran, supra, 59 Cal.4th at p. 27.)
It was alleged that all members of the roughly 400-person “Exempt” class, despite having a variety of different job titles and working in different offices throughout the state over a 10-year period, all performed the same allegedly nonexempt job the same way, all the time. One problem with this theory was that several cohorts within the class, e.g., “Branch Managers,” indisputably did perform exempt work on a regular basis. The issue then became how to make a classwide showing that, despite variation among and between class members, none met the 51 percent threshold.
In the Branch Manager example, plaintiffs elicited testimony from roughly 15 percent of the cohort (about 24 out of 156 people) and argued the work habits and experiences of those witnesses could be relied upon as representative of the entire group. The Duran opinion rejects such reasoning as scientifically invalid. “If sampling is used to estimate the extent of a party’s liability, care must be taken to ensure that the methodology produces reliable results.” (Duran, supra, 59 Cal.4th at p. 42.) A valid extrapolation model requires expert input to determine the appropriate sample size and margin of error, and the sample group of witnesses must be randomly selected. (Id. at pp. 42–43.) None of those requirements were met.
Without common proof of employee misclassification, the trier of fact “may have sufficient evidence to make judgments as to particular individuals, but lacks a basis to extrapolate from those findings to a class-wide judgment.” (Marlo v. United Parcel Service, Inc. (C.D.Cal. 2008) 251 F.R.D. 476, 485 (Marlo).) The absence of common proof leaves the alternative of hearing individual testimony from hundreds of class members, which turns the class action device on its head. In the “liability phase,” the trial court imposed limits on how many witnesses could testify. The number was arbitrarily set at approximately 100 witnesses for each side to prove or refute the claims of all 700 people comprising both classes. The court later authorized individual testimony from all members of the “Exempt” class in the second phase of trial (such authorization being the main reason for appointing a referee) but prohibited the employer from questioning the witnesses on matters related to its exemption defenses. The exemption defenses were deemed to have failed on a classwide basis in the first phase of trial.
As held in Duran, “decertification must be ordered whenever a trial plan proves unworkable.” (Duran, supra, 59 Cal.4th at p. 32.) Here, the obligation to decertify both classes was apparent during the initial phase of trial. Failure to decertify the “Exempt” class, in combination with the other prejudicial errors, warrants reversal and a decertification order by this court. (Id. at pp. 24, 50.) The cause will be remanded for retrial of the named plaintiffs’ individual claims. “The trial court is of course free to entertain a new certification motion on remand [as to the “Exempt” class], but if it decides to proceed with a class action it must apply the guidelines set out here.” (Id. at p. 33.)
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