Securitas v. Superior Court: Court of Appeal Affirms Judgment on Split Shift Issue

Securitas Security Services USA, Inc. v. Superior Court (Holland) (July 7, 2011) --- Cal.App.4th ----, 2011 WL 2641699, presents a discrete split shift issue. The plaintiffs are security guards. They allege failure to pay split shift pay, among other violations. The defendant moved for summary adjudication on the split shift cause of action:

Securitas moved for summary adjudication of the second count only, arguing that plaintiffs are not entitled to split-shift pay because they do not work “split shifts” as defined in Wage Order No. 4. Securitas argued that an uninterrupted work shift that spans midnight and falls in two calendar days and two workdays is not a split shift, and that a split shift does not occur if an employee ends such an overnight shift in the morning and begins another overnight shift late in the evening of the same workday. Plaintiffs argued in opposition that a split shift occurs whenever an employee works two nonconsecutive periods in the same workday, such as when a shift begins on one workday and ends on another and the employee then returns to work several hours later on the second workday. Plaintiffs also argued that Securitas had failed to pay split-shift pay not only where the employee worked shifts spanning midnight on consecutive days, but also where the employee worked nonconsecutive periods in the same workday without working through midnight.

Slip op. at 1. The trial court (Los Angeles Superior, Judge Jones) denied the motion, holding that a split shift occurs "whenever an employee works two nonconsecutive periods of time in the same workday." Slip op. at 2. Securitas filed a writ petition. The Court of Appeal reversed the trial court on the split shift issue:

Wage Order No. 4 defines a “split shift” as “a work schedule” that “is interrupted by non-paid non-working periods established by the employer, other than bona fide rest or meal breaks.” (Cal.Code Regs., tit. 8, § 11040, subd. 2(Q).) The term “work schedule” is not defined in either the wage order or the Labor Code. In the context of a provision establishing minimum wages to compensate employees who are required to return to work after an interruption in their “work schedule,” we believe that a “work schedule” simply means an employee's designated working hours or periods of work. In our view, this is so irrespective of the “workday” established by the employer. A “split shift” occurs only when an employee's designated working hours are interrupted by one or more unpaid, nonworking periods established by the employer that are not bona fide rest or meal periods. The fact that a single continuous shift happens to begin during one “workday” and end in another does not result in a “split shift.” Thus, employees working uninterrupted overnight shifts on consecutive days do not work a split shift and are not entitled to split-shift pay under the wage order.

Slip op. at 4. Regardless, the Court found that summary adjudication was not appropriate and denied the writ:

Plaintiffs' second count for failure to pay split-shift premiums ... is not limited to purported split shifts created by consecutive overnight shifts, but also encompasses other instances in which they allegedly worked split shifts. Securitas made no effort to show that plaintiffs have not worked split shifts in other circumstances that might fall within the wage order definition for which they may be entitled to split-shift pay. We therefore conclude that Securitas failed to sustain its burden as the party moving for summary adjudication to show that plaintiffs cannot establish an element of their cause of action and are not entitled to summary adjudication.

Slip op. at 5.

The opinion is available here.

Soderstedt v. CBIZ: Court of Appeal Affirms Denial of Class Certification

Will Soderstedt v. CBIZ Southern California, LLC (6/7/11, pub. 7/7/11) --- Cal.App.4th ----, 2011 WL 2186435, be the next case that the Supreme Court agrees to review and hold pending Harris v. Superior Court? If I were a betting man, I would have to say yes.

CBIZ is a public accounting firm. The plaintiffs sought to represent a class of individuals who: "(1) assisted certified public accountants in the practice of public accountancy, (2) worked as associates or senior associates in the assurance or tax lines of service, (3) were not licensed by the State of California as certified public accountants during some or all of this time period, and (4) were classified as exempt employees." Slip op. at 1. As in the recent 9th Circuit case of Campbell v. PricewaterhouseCoopers (blogged here), the plaintiffs alleged that they were not licensed as CPAs and could not be deemed exempt professionals.

The trial court (Los Angeles Superior, Judge Fahey) denied the plaintiffs' motion for class certification. "More particularly, the trial court ruled that there was no competent evidence of numerosity; the representatives' declarations were insufficient to show adequacy of representation; while common issues existed, they did not predominate; and class treatment would not be superior." Slip op. at 4. The Court of Appeal affirmed, finding that the trial court did not abuse its discretion in denying cert.

First, the Court held that substantial evidence supported the trial court's finding that common issues did not predominate. Slip op. at 7. Specifically, the Court held that application of the administrative exemption turns on individualized evidence. Slip op. at 8.

Addressing the disputed elements of the administrative exemption, the evidence showed individual differences in whether Associates and Senior Associates perform non-manual work directly related to management policies or general business operations.

***

The evidence likewise showed that Associates and Senior Associates regularly exercised varying levels of discretion and independent judgment, depending on a number of factors including their level of experience and the nature of the engagement.

***

Finally, the evidence established that the level of general supervision provided to Associates and Senior Associates varied depending on the individuals involved and the type of engagement, as well as the location of the CBIZ office.

Slip op. at 9. T he Court held that this evidence was sufficient to support the trial court's ruling. Slip op. at 10.

The Court also held that the trial court did not employ improper criteria in denying certification and that substantial evidence supported the trial court's findings that the plaintiffs failed to submit competent evidence of numerosity, adequacy of representation, and superiority. Slip op. at 14-16.

The opinion is available here.

Sullivan v. Oracle: Non-CA Residents Working in CA Are Subject to CA Overtime and the UCL; Those Working in Other States Are Not

The California Supreme Court yesterday issued its opinion in Sullivan v. Oracle Corp. (6/30/11) --- Cal.4th ---, 2011 WL 2569530. Sullivan raised three issues:

First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

Second, does § 17200 apply to the overtime work described in question one?

Third, does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

In my original post on the case (here), I said issues one and two were "gimme's" for the plaintiffs, but issue number three was more complex and uncertain. Turns out I do a pretty good job predicting the Cal. Supremes.

Here are the underlying facts:

Plaintiffs Donald Sullivan, Deanna Evich and Richard Burkow formerly worked as “Instructors” for defendant Oracle Corporation, a large software company headquartered in California. As Instructors, plaintiffs' job was to train Oracle's customers in the use of the company's products. Plaintiffs Sullivan and Evich reside in Colorado, and plaintiff Burkow resides in Arizona. Required by Oracle to travel, plaintiffs worked mainly in their home states but also in California and several other states. During the time period relevant to this litigation (2001–2004), Sullivan worked 74 days in California, Evich worked 110 days, and Burkow worked 20 days.

Slip op. at 2. Oracle treated its Instructors as exempt employees. The plaintiffs filed a class action alleging three causes of action: (1) California Labor Code claim for overtime hours worked in California; (2) Unfair Competition Law (UCL) claim for overtime hours worked in California in violation of the Labor Code; and (3) UCL claim for overtime hours worked outside of California in violation of the federal Fair Labor Standards Act ("FLSA"). The plaintiffs filed their case in the Northern District of California, and the Court (Judge Stotler) granted summary judgment for Oracle. The Ninth Circuit affirmed in part and reversed in part, then decided to ask the Cal. Supremes to decide the issues. The Supremes issued a unanimous decision, authored by Justice Werdegar.

On the first issue, the Court held that California's overtime requirements do apply to work performed in California by non-residents. First, as a matter of statutory construction, "California's overtime laws apply by their terms to all employment in the state, without reference to the employee's place of residence." Slip op. at 5. The Court held that the Legislature's intent to encompass all work done in California does not create ambiguity or uncertainty and is neither improper nor capricious. Slip op. at 6. The Court reaffirmed language from its decision in Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557.

We thus foresaw in Tidewater, as a possibility, only limited extraterritorial application of California's employment laws, precisely balanced by interstate comity: California law, we suggested, might follow California resident employees of California employers who leave the state “temporarily . . . during the course of the normal workday” (id., at p. 578), and California law might not apply to nonresident employees of out-of-state businesses who “enter California temporarily during the course of the workday” (ibid., italics added). In contrast, plaintiffs here claim overtime only for entire days and weeks worked in California, in accordance with the statutory definition of overtime. (See Lab. Code, § 510.) Nothing in Tidewater suggests a nonresident employee, especially a nonresident employee of a California employer such as Oracle, can enter the state for entire days or weeks without the protection of California law.

Slip op. at 9 (emphasis in original). This is an important point. Counsel representing employees should not assume that California's overtime laws apply to partial days worked in California.

Next, the Court conducted a conflict-of-laws analysis. The Court held that California overtime law differs from that of the plaintiffs' home states, Colorado and Arizona, but there is no "true conflict":

California has, and has unambiguously asserted, a strong interest in applying its overtime law to all nonexempt workers, and all work performed, within its borders. (See Lab. Code, § 1171.5, subd. (a) [“All protections, rights, and remedies available under state law . . . are available to all individuals . . . employed, in this state.”]; see also id., §§ 510, subd. (a) [“[a]ny work”], 1194, subd. (a) [“any employee”], 1199 [criminal sanctions]; see also discussion ante, at p. 6 et seq.) California's interests, as this court has identified them, are in protecting health and safety, expanding the labor market, and preventing the evils associated with overwork. (Gentry v. Superior Court, supra, 42 Cal.4th 443, 456.) Similar interests underlie the FLSA's overtime provisions (Barrentine v. Arkansas-Best Freight System (1981) 450 U.S. 728, 739) and, we may assume, Colorado law as well.

Slip op. at 15. Finally, the Court held that California's interests would be more impaired by the failure to apply California law than would the interests of the other states involved:

To permit nonresidents to work in California without the protection of our overtime law would completely sacrifice, as to those employees, the state‟s important public policy goals of protecting health and safety and preventing the evils associated with overwork. Not to apply California law would also encourage employers to substitute lower paid temporary employees from other states for California employees, thus threatening California‟s legitimate interest in expanding the job market.

Slip op. at 17-18.

Having held that California's overtime law protects these employees, the Court easily resolved the second issue by reaffirming that "the failure to pay legally required overtime compensation falls within the UCL‟s definition of an 'unlawful . . . business act or practice'." Slip op. at 18-19.

On the third point, the Court held that the UCL does not apply to claims under the FLSA for overtime work performed by nonresidents in other states. The section on this point is relatively short, and I find it interesting, so I will quote it in full, omitting citations:

This claim, despite its reference to the FLSA, arises under California and not federal law. In the prior class action, plaintiffs settled their timely claims under the FLSA, which were subject to a limitation period of two or three years, depending on the circumstances. Now, in this action, plaintiffs attempt to restate time-barred FLSA claims, which were excluded from the prior settlement, as UCL claims based on the predicate “unlawful . . . act” of violating the FLSA. The question before us is whether the UCL reaches plaintiffs' FLSA claims under the circumstances of this case. We conclude it does not.

Plaintiffs' claim implicates the so-called presumption against extraterritorial application. However far the Legislature's power may theoretically extend, we presume the Legislature did not intend a statute to be “operative, with respect to occurrences outside the state, . . . unless such intention is clearly expressed or reasonably to be inferred from the language of the act or from its purpose, subject matter or history.” Neither the language of the UCL nor its legislative history provides any basis for concluding the Legislature intended the UCL to operate extraterritorially. Accordingly, the presumption against extraterritoriality applies to the UCL in full force. We thus proceed to consider whether plaintiffs' proposed application of the UCL would cause it to operate, impermissibly, with respect to occurrences outside the state.

The Ninth Circuit has asked us to decide whether the UCL applies to plaintiffs' FLSA claims “in the circumstances of this case”, which we understand to mean in accordance with the same stipulated facts on which the federal courts have based their decisions. Those stipulated facts identify only a single instance of relevant conduct occurring in California: “The decision-making process to classify Instructors as exempt from the requirement to be paid overtime wages under the FLSA occurred primarily from within the headquarters offices of Oracle Corporation located in Redwood Shores, California.” Certainly the UCL reaches any unlawful business act or practice committed in California. But for an employer to adopt an erroneous classification policy is not unlawful in the abstract. What is unlawful, and what creates liability under the FLSA, is the failure to pay overtime when due. Accordingly, that Oracle's decision to classify its Instructors as exempt was made in California does not, standing alone, justify applying the UCL to the nonresident plaintiffs' FLSA claims for overtime worked in other states. Nor does any other basis for applying the UCL to those claims appear in the stipulated facts.

In contrast to the abstract classification decision, the failure to pay legally required overtime compensation certainly is an unlawful business act or practice for purposes of the UCL. Thus, the UCL might conceivably apply to plaintiffs' claims if their wages were paid (or underpaid) in California, but the stipulated facts do not speak to the location of payment. The parties invite us to speculate about the place of payment as a basis for holding the UCL does, or does not, apply. We decline to do so. Whether the parties are entitled to rely on facts or assertions beyond the stipulated facts to support or defeat the motion for summary judgment is a question of federal procedure for the federal courts. Given the limitations of the certified question procedure, which does not confer on us plenary jurisdiction over cases pending in the courts of other sovereign entities, our answer must be confined to the circumstances of this case as established by the stipulated facts.

Accordingly, we answer the third certified question as follows: Business and Professions Code section 17200 does not apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case based solely on the employer's failure to comply with the overtime provisions of the FLSA.

Slip op. at 19-23.

The decision (available here) thus leaves open the question of whether the UCL would apply to out-of-state work if the alleged underpayment happened in California. It's unfortunate that the Court could not resolve this question. Doing so would have saved people time and money down the road that they now will spend litigating the issue, not only in Sullivan, but undoubtedly in other cases as well.

Prieto v. US Bank: District Court Denies Motion for Summary Judgment on Prior Class Action Res Judicata Grounds

Thank you to Christian Schreiber for providing this decision.

In Prieto v. U.S. Bank, 2011 WL 2181459 (E.D. Cal. 6/2/11), the District Court for the Eastern District of California (Judge Kimberly J. Mueller) held, on a defendant's motion for summary judgment, that a wage and hour class action settlement on behalf of hourly employees does not prevent an action by an employee who alleges that the defendant misclassified her as exempt during part of her employment. That sounds more confusing than it is. Here are the facts:

Dolores Prieto worked for U.S. Bank in both non-exempt and exempt positions. She filed an action alleging that U.S. Bank misclassified her as exempt and thereby violated California and federal wage and hour laws. U.S. Bank settled a separate class action (Ross) on behalf of non-exempt employees. The settlement included a broad release of claims under California and federal law. Ms. Prieto was a member of the Ross settlement class for the time when she worked as a non-exempt employee. U.S. Bank moved for summary judgment, arguing that the Ross settlement barred Ms. Prieto's action.

The Court denied U.S. Bank's motion. First, relying on California law, the Court held that Ms. Prieto's claims were not barred by the doctrine of release because Ms. Prieto did not sign a release in the Ross action. Then the Court held:

Even if the court construes the settlement provisions of the Ross class action as a release, there are material issues of fact as to its scope.... [T]he agreement in this case must be read in its context: it was negotiated by hourly employees on behalf of other hourly employees, as defined by the two classes. Defendant has pointed to nothing beyond the language of the agreement itself suggesting that the named class members had any authority to negotiate a settlement on behalf of non-exempt employees.

Slip op. at 12. The Court then held that res judicata also did not bar Ms. Prieto's action:

Plaintiff does not dispute the fact that there was a final judgment in the Ross case, but argues that the instant cause of action is different than that litigated in Ross. Defendant insists that the same primary right is involved: the right to be compensated for earned overtime and for meal and rest periods that were denied. ECF No. 44 at 14. To resolve this dispute, the court “must compare the two actions, looking at the rights which are sought to be vindicated and the harm for which redress is claimed.” Citizens for Open Access to Sand and Tide, Inc. v. Seadrift Association, 60 Cal.App.4th 1053, 1067 (1998).

***

There is much overlap in the two actions, starting with the similarity of the facts and the Labor Code violations presented through the requests for payment of lost wages. In the case proceeding in this court, however, the harm flowed from defendant’s alleged misclassification of plaintiff and could have occurred even if it honored all its obligations concerning meal and rest periods and off the clock work to hourly employees; in Ross, the harm flowed from defendant’s refusal to pay hourly employees’ wages due under the provisions of the Labor Code. The harm in the instant case is the misclassification, which led to the alleged failure to pay, while the harm in Ross was the failure to pay. Because the actions involve different primary rights, res judicata does not bar the instant suit.

Slip op. at 14-15.

Smith v. Bayer Corp: SCOTUS Allows State Court Class Action After Denial of Certification in District Court

In a Supreme Court session that could be described as anti-class-action,

Smith v. Bayer Corp., 564 U.S. ---, 131 S.Ct. 2368, 2011 WL 768649 (6/16/11) provides an interesting, though limited, counter-point. Smith addresses whether a District Court's denial of a Rule 23 class certification motion prevent separate plaintiffs from obtaining certification in a separate state court action? The Court held that it does not, and that the District Court abused its authority by attempting to enjoin the state court from considering the class certification motion. The syllabus explains the decision as follows:

Respondent (Bayer) moved in Federal District Court for an injunction ordering a West Virginia state court not to consider a motion for class certification filed by petitioners (Smith), who were plaintiffs in the state-court action. Bayer thought such an injunction warranted because, in a separate case, Bayer had persuaded the same Federal District Court to deny a similar class-certification motion that had been filed against Bayer by a different plaintiff, George McCollins. The District Court had denied McCollins’ certification motion under Fed. Rule Civ. Proc. 23.

The court granted Bayer’s requested injunction against the state court proceedings, holding that its denial of certification in McCollins’ case precluded litigation of the certification issue in Smith’s case. The Court of Appeals for the Eighth Circuit affirmed. It first noted that the Anti-Injunction Act (Act) generally prohibits federal courts from enjoining state court proceedings. But it found that the Act’s relitigation exception authorized this injunction because ordinary rules of issue preclusion barred Smith from seeking certification of his proposed class. In so doing, the court concluded that Smith was invoking a State Rule, W. Va. Rule Civ. Proc. 23, that was sufficiently similar to the Federal Rule McCollins had invoked, such that the certification issues presented in the two cases were the same. The court further held that Smith, as an unnamed member of McCollins’ putative class action, could be bound by the judgment in McCollins’ case.

Held: In enjoining the state court from considering Smith’s class certification request, the federal court exceeded its authority under the “relitigation exception” to the Act. Pp. 5–18

(a) Under that Act, a federal court “may not grant an injunction to stay proceedings in a State court except” in rare cases, when necessary to “protect or effectuate [the federal court’s] judgments.” 28 U. S. C. §2283. The Act’s “specifically defined exceptions,” Atlantic Coast Line R. Co. v. Locomotive Engineers, 398 U. S. 281, 286, “are narrow and are ‘not [to] be enlarged by loose statutory construction,’ ” Chick Kam Choo v. Exxon Corp., 486 U. S. 140, 146. Indeed, “[a]ny doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed.” Atlantic Coast Line R. Co., 398 U. S., at 297. The exception at issue in this case, known as the “relitigation exception,” authorizes an injunction to prevent state litigation of a claim or issue “that previously was presented to and decided by the federal court.” Chick Kam Choo, 486 U. S., at 147. This exception is designed to implement “well-recognized concepts” of claim and issue preclusion. Ibid. Because deciding whether and how prior litigation has preclusive effect is usually the bailiwick of the second court—here, the West Virginia court—every benefit of the doubt goes toward the state court, see Atlantic Coast Line, 398 U. S., at 287, 297; an injunction can issue only if preclusion is clear beyond peradventure. For the federal court’s class-action determination to preclude the state court’s adjudication of Smith’s motion, at least two conditions must be met. First, the issue the federal court decided must be the same as the one presented in the state tribunal. And second, Smith must have been a party to the federal suit or must fall within one of a few discrete exceptions to the general rule against binding nonparties. Pp. 5–7.

(b) The issue the federal court decided was not the same as the one presented in the state tribunal. This case is little more than a rerun of Chick Kam Choo. There, a federal court dismissed a suit involving Singapore law on forum non conveniens grounds and then enjoined the plaintiff from pursuing the “same” claim in Texas state court. However, because the legal standards for forum non conveniens differed in the two courts, the issues before those courts differed, making an injunction unwarranted. Here, Smith’s proposed class mirrored McCollins’, and the two suits’ substantive claims broadly overlapped. But the federal court adjudicated McCollins’ certification motion under Federal Rule 23, whereas the state court was poised to consider Smith’s proposed class under W. Va. Rule 23. And the State Supreme Court has generally stated that it will not necessarily interpret its Rule 23 as coterminous with the Federal Rule. Absent clear evidence that the state courts had adopted an approach to State Rule 23 tracking the federal court’s analysis in McCollins’ case, this Court could not conclude that they would interpret their Rule the same way and, thus, could not tell whether the certification issues in the two courts were the same. That uncertainty would preclude an injunction. And indeed, the case against an injunction here is even stronger, because the State Supreme Court has expressly disapproved the approach to Rule 23(b)(3)’s predominance requirement embraced by the Federal District Court. Pp. 8–12.

(c) The District Court’s injunction was independently improper because Smith was not a party to the federal suit and was not covered by any exception to the rule against nonparty preclusion. Generally, a party “is ‘[o]ne by or against whom a lawsuit is brought,’ ” United States ex rel. Eisenstein v. City of New York, 556 U. S. ___, ___, or who “become[s] a party by intervention, substitution, or third-party practice,” Karcher v. May, 484 U. S. 72, 77. The definition of “party” cannot be stretched so far as to cover a person like Smith, whom McCollins was denied leave to represent. The only exception to the rule against nonparty preclusion potentially relevant here is the exception that binds non-named members of “properly conducted class actions” to judgments entered in such proceedings. Taylor v. Sturgell, 553 U. S. 880, 894. But McCollins’ suit was not a proper class action. Indeed, the very ruling that Bayer argues should have preclusive effect is the District Court’s decision not to certify a class. Absent certification of a class under Federal Rule 23, the precondition for binding Smith was not met. Neither a proposed, nor a rejected, class action may bind nonparties. See id., at 901. Bayer claims that this Court’s approach to class actions would permit class counsel to try repeatedly to certify the same class simply by changing plaintiffs. But principles of stare decisis and comity among courts generally suffice to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs. The right approach does not lie in binding nonparties to a judgment. And to the extent class actions raise special relitigation problems, the federal Class Action Fairness Act of 2005 provides a remedy that does not involve departing from the usual preclusion rules. Pp. 12–1.

Justice Kagan wrote the Court's near-unanimous opinion. Justice Thomas joined only in parts I and II-A. The opinion is available here.

Campbell v. PwC: Ninth Circuit Says Unlicensed Accountants May Be Exempt under California Law

Two-thousand unlicensed junior accountants brought this wage-and-hour class action against their employer, PricewaterhouseCoopers LLP (PwC). Among other things, the accountants claim PwC failed to pay them mandatory overtime under California law. The district court granted partial summary judgment to the accountants, finding as a matter of law that PwC could not exempt them from California’s overtime requirements. PwC filed this interlocutory appeal.

We must decide whether unlicensed accountants in California are categorically ineligible, as a matter of law, to fall under two state regulatory exemptions from mandatory overtime: the professional exemption and the administrative exemption. We hold they are not. Because the district court [E.D. Cal., Judge Karlton] erroneously rejected triable defenses under both exemptions at summary judgment, we reverse.

Campbell v. PricewaterhouseCoopers LLP, --- F.3d ----, 2011 WL 2342740 (9th Cir. 6/15/11). Slip op. at 1.

The parties' exemption arguments followed familiar lines: 

Plaintiffs claim their work is predominately routinized and menial. They argue that strict instructions, comprehensive computer auditing software, and an extensive work-review system all preclude them from exercising any significant degree of discretionary judgment or analytical thinking. Named-plaintiff Sobek described her work as “comparing one number to another number to see if they agree. . . . a very tedious activity.” Plaintiffs also characterize their responsibilities as “sitting at[a] computer, going through highly routinized and nondiscretionary Steps.”

PwC, on the other hand, argues Plaintiffs perform analytical work “integral” to PwC's Attest services. To the extent Plaintiffs do not regularly exercise discretion and independent judgment during an audit engagement, PwC says they are failing to meet the firm's expectations. PwC emphasizes the variety of duties performed by Plaintiffs during an engagement and claims the failure to perform those tasks adequately can have “significant consequences” for PwC's clients. During one engagement, for example, named-plaintiff Campbell overlooked approximately $500,000 in the client's unrecorded liabilities. This oversight, which Campbell himself described as a “serious error,” was ultimately discovered by another team member. The error required a late financial adjustment and made the client unhappy.

Slip op. at 2.

First, the Ninth Circuit held that unlicensed accountants may be exempt as professionals, focusing on the alternative language of the Wage Order:

(3) Professional Exemption[:] A person employed in a professional capacity means any employee who meets all of the following requirements:

(a) Who is licensed or certified by the State of California and is primarily engaged in the practice of one of the following recognized professions: law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting; or

(b) Who is primarily engaged in an occupation commonly recognized as a learned or artistic profession.

In other words, even though the Wage Order lists accounting as a profession in section (a), an accountant can be exempt under section (b). Slip op. at 4. The Court rejected the plaintiffs' contention that the language of section (a) requires accountants to be licensed in order to be exempt. Ibid. "Although we express no opinion on how easily or frequently unlicensed accountants might satisfy subsection (b), we do not agree that an unlicensed accountant could never possibly do so." Ibid.

The Court then held that PwC had raised triable issues of fact as to whether or not the plaintiffs were in fact exempt.

As already explained, the crucial touchstone for the professional exemption—especially subsection (b)—is the employee's actual job duties and responsibilities. § 541.308(a) (incorporated by § 11040(1)(A)(3)(e)); see also DLSE Enforcement Policies & Interpretations Manual § 52.3.1 (2002) (“As with any of the exemptions, job titles ... alone may not reflect actual job duties, and therefore[ ] are of no assistance in determining exempt or non-exempt status.”) [hereinafter 2002 DLSE Manual]. The record here contains myriad conflicting evidence about Plaintiffs' duties and responsibilities as unlicensed Attest associates. The parties dispute everything from what Attest associates actually do during audit engagements to whether PwC can reasonably expect unlicensed junior accountants to perform anything more than menial, routinized work. The wide array of evidence from both parties includes depositions from class members and other PwC employees, internal PwC manuals explaining job roles and procedures for audit engagements, and detailed training documents for PwC's auditing software. Only a factfinder can weigh this voluminous conflicting evidence and determine whether Plaintiffs meet the standards of the professional exemption. See People v. Maury, 30 Cal.4th 342, 133 Cal.Rptr.2d 561, 68 P.3d 1, 46 (Cal.2003) (“[I]t is the exclusive province of the [factfinder] to determine the credibility of a witness and the truth or falsity of the facts upon which a determination depends.”).

Slip op. at 8.

Next the Court held that PwC had "proffered enough evidence to survive summary judgment and take the administrative-exemption defense to trial." The district court "found there was no material fact question on whether Plaintiffs' work during audit engagements was performed 'under only general supervision.'" The Ninth Circuit disagreed:

[The district court cited] a California statute and a professional accounting standard, both require that unlicensed accountants be subject to control, supervision, and review by licensed CPAs. Campbell, 602 F.Supp.2d at 1183–84 (citing Cal. Bus. & Prof.Code § 5053; American Institute of Certified Public Accountants (AICPA) Professional Standards § 311.12). Although these two provisions tell us Plaintiffs must be supervised, they say nothing about whether that supervision must exceed mere “general” supervision. Neither provision distinguishes general supervision from any other kind of supervision. Both provisions require supervision of some kind, but not of any particular degree or scope. See Amicus Br. of AICPA 8 (“It simply is impossible to derive a single rule of supervision from the Auditing Standards....”). For that reason, we cannot conclude as a matter of law that all unlicensed accountants are necessarily subject to more than general supervision.

Slip op. at 10. The Court thus held that PwC's exemption defenses "must be resolved at trial." Slip op. at 11.

The opinion is available here.

Supreme Court Reverses Certification Order in Dukes v. Wal-Mart

As anticipated, the Supreme Court of the United States this morning reversed the district court's order in Dukes v. Wal-Mart certifying a class of female employees' gender discrimination claims. The decision's syllabus states:

Respondents, current or former employees of petitioner Wal-Mart, sought judgment against the company for injunctive and declaratory relief, punitive damages, and backpay, on behalf of themselves and a nationwide class of some 1.5 million female employees, because of Wal-Mart’s alleged discrimination against women in violation of Title VII of the Civil Rights Act of 1964. They claim that local managers exercise their discretion over pay and promotions disproportionately in favor of men, which has an unlawful disparate impact on female employees; and that Wal-Mart’s refusal to cabin its managers’ authority amounts to disparate treatment. The District Court certified the class, finding that respondents satisfied Federal Rule of Civil Procedure 23(a), and Rule 23(b)(2)’s requirement of showing that “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” The Ninth Circuit substantially affirmed, concluding, inter alia, that respondents met Rule 23(a)(2)’s commonality requirement and that their backpay claims could be certified as part of a (b)(2) class because those claims did not predominate over the declaratory and injunctive relief requests. It also ruled that the class action could be manageably tried without depriving Wal-Mart of its right to present its statutory defenses if the District Court selected a random set of claims for valuation and then extrapolated the validity and value of the untested claims from the sample set.

Held:

1. The certification of the plaintiff class was not consistent with Rule 23(a). Pp. 8–20.

(a) Rule 23(a)(2) requires a party seeking class certification to prove that the class has common “questions of law or fact.” Their claims must depend upon a common contention of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke. Here, proof of commonality necessarily overlaps with respondents’ merits contention that Wal-Mart engages in a pattern or practice of discrimination. The crux of a Title VII inquiry is “the reason for a particular employment decision,” Cooper v. Federal Reserve Bank of Richmond, 467 U. S. 867, 876, and respondents wish to sue for millions of employment decisions at once. Without some glue holding together the alleged reasons for those decisions, it will be impossible to say that examination of all the class members’ claims will produce a common answer to the crucial discrimination question. Pp. 8–12.

(b) General Telephone Co. of Southwest v. Falcon, 457 U. S. 147, describes the proper approach to commonality. On the facts of this case, the conceptual gap between an individual’s discrimination claim and “the existence of a class of persons who have suffered the same injury,” id., at 157–158, must be bridged by “[s]ignificant proof that an employer operated under a general policy of discrimination,” id., at 159, n. 15. Such proof is absent here. Wal-Mart’s announced policy forbids sex discrimination, and the company has penalties for denials of equal opportunity. Respondents’ only evidence of a general discrimination policy was a sociologist’s analysis asserting that WalMart’s corporate culture made it vulnerable to gender bias. But because he could not estimate what percent of Wal-Mart employment decisions might be determined by stereotypical thinking, his testimony was worlds away from “significant proof” that Wal-Mart “operated under a general policy of discrimination.” Pp. 12–14.

(c) The only corporate policy that the plaintiffs’ evidence convincingly establishes is Wal-Mart’s “policy” of giving local supervisors discretion over employment matters. While such a policy could be the basis of a Title VII disparate-impact claim, recognizing that a claim “can” exist does not mean that every employee in a company with that policy has a common claim. In a company of Wal-Mart’s size and geographical scope, it is unlikely that all managers would exercise their discretion in a common way without some common direction. Respondents’ attempt to show such direction by means of statistical and anecdotal evidence falls well short. Pp. 14–20.

2. Respondents’ backpay claims were improperly certified under Rule 23(b)(2). Pp. 20–27.

(a) Claims for monetary relief may not be certified under Rule 23(b)(2), at least where the monetary relief is not incidental to the requested injunctive or declaratory relief. It is unnecessary to decide whether monetary claims can ever be certified under the Rule because, at a minimum, claims for individualized relief, like backpay, are excluded. Rule 23(b)(2) applies only when a single, indivisible remedy would provide relief to each class member. The Rule’s history and structure indicate that individualized monetary claims belong instead in Rule 23(b)(3), with its procedural protections of predominance, superiority, mandatory notice, and the right to opt out. Pp. 20–23.

(b) Respondents nonetheless argue that their backpay claims were appropriately certified under Rule 23(b)(2) because those claims do not “predominate” over their injunctive and declaratory relief requests. That interpretation has no basis in the Rule’s text and does obvious violence to the Rule’s structural features. The mere “predominance” of a proper (b)(2) injunctive claim does nothing to justify eliminating Rule 23(b)(3)’s procedural protections, and creates incentives for class representatives to place at risk potentially valid monetary relief claims. Moreover, a district court would have to reevaluate the roster of class members continuously to excise those who leave their employment and become ineligible for classwide injunctive or declaratory relief. By contrast, in a properly certified (b)(3) class action for backpay, it would be irrelevant whether the plaintiffs are still employed at Wal-Mart. It follows that backpay claims should not be certified under Rule 23(b)(2). Pp. 23–26.

(c) It is unnecessary to decide whether there are any forms of “incidental” monetary relief that are consistent with the above interpretation of Rule 23(b)(2) and the Due Process Clause because respondents’ backpay claims are not incidental to their requested injunction. Wal-Mart is entitled to individualized determinations of each employee’s eligibility for backpay. Once a plaintiff establishes a pattern or practice of discrimination, a district court must usually conduct “additional proceedings . . . to determine the scope of individual relief.” Teamsters v. United States, 431 U. S. 324, 361. The company can then raise individual affirmative defenses and demonstrate that its action was lawful. Id., at 362. The Ninth Circuit erred in trying to replace such proceedings with Trial by Formula. Because Rule 23 cannot be interpreted to “abridge, enlarge or modify any substantive right,” 28 U. S. C. §2072(b), a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims. Pp. 26–27.

603 F. 3d 571, reversed.

Justice Scalia wrote the opinion. Justices Roberts, Kennedy, Thomas, and Alito joined. Justices Ginsburg, Breyer, Sotomayor, and kagan joined in Parts I and III, making those parts unanimous. Justice Ginsburg wrote an opinion concurring in part and dissenting in part, in which Justices Breyer, Sotomayor, and Kagan joined.

The opinion is available here.