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Calif. App. Court (2nd Dist) Upholds Denial of Class Cert Based on Survey and Statistical Sampling

The Court of Appeal for the Second District of California affirmed an order denying class certification in a wage and hour litigation, holding that the plaintiffs’ proposed anonymous, double-blind survey and statistical sampling failed to address individualized issues for liability and damages.

In so ruling, the Appellate Court held that the plaintiffs’ trial plan was unmanageable and unfair because, among other things, the proposed survey deprived the defendants of the ability to cross-examine the witnesses and to assert defenses. 

A copy of the opinion in McCleery v. Allstate Insurance Company is available at:  Link to Opinion.

In this putative class action, property inspectors (“plaintiffs”) alleged that they were engaged by three service providers to perform property inspections for two insurance companies. 

The plaintiffs alleged they were employees of the insurers and service companies (“defendants”) jointly, and the defendants failed to pay minimum wages and overtime (Cal. Lab. Code § 1194), furnish timely or accurate wage statements (Cal. Lab. Code § 226(e)), establish a policy for meal or rest breaks, or reimburse them for employment expenses (Cal. Lab. Code § 2802), and in so doing violated California’s Unfair Competition Law (Bus. & Prof. Code § 17200, et seq.).

The plaintiffs moved for class certification, supported by their expert’s declaration that liability could be determined and damages calculated classwide by using “established survey methods and statistical analyses” of a random sample of class members.

The trial court denied certification on the ground that the plaintiffs failed to show their status as employees could be established on predominantly common proof.

The plaintiffs appealed and the Appellate Court reversed the order, remanding with instructions for the trial court to evaluate the plaintiffs’ trial plan.

On remand, the plaintiffs’ expert elaborated on the trial plan, proposing an anonymous, double-blind survey of all class members.  Specifically, the plan provided that all potential class members would be invited to participate in the survey and a telephone survey firm would conduct interviews and ask questions concerning:

(1) the amount of overtime worked, (2) the numbers of meal and rest breaks to which inspectors were entitled to take under California law but did not take (assume the law applied to these individuals), (3) the amount of time inspectors spent performing specific tasks of relevance to the claimed minimum wage violations, (4) the number of miles that inspectors drove to do their work, [and] (5) the amount of money that inspectors spent for other business expenses incurred in connection with their work.

The respondents would receive a small financial incentive to participate in the survey, and would be told their answers and participation were confidential.

The respondents would be asked to recall, among other things, the time they spent doing inspection, the number of days per week worked beginning in 2005, the number of hours worked, when they took breaks and the duration of each break, whether they incurred expenses, and which of the three service companies and only one of the insurers they worked for and for how long.

The survey did not include questions about the second insurer for unknown reasons.  When asked why, the plaintiffs’ expert answered “I wasn’t asked to do that.” 

Using the sampling data from the survey, the plaintiffs’ expert would generate estimated totals for each subclass, apportioned separately for inspections done for each of the defendants, and provide a margin of error and confidence levels.

In opposition to the plaintiffs’ trial plan, the defendants’ expert identified several flaws in the proposed survey.

First, the survey asked no questions related to the employee/independent contractor distinction, and in fact avoided questions about the degree of independence inspectors enjoyed. 

Specifically, the survey did not ask questions about the defendants’ knowledge or control of any facet of an inspector’s workday, e.g., how many hours the inspector worked, what breaks were or could have been taken, or what meetings were attended or expenses incurred.  The defendants argued that this deficit left the independent contractor question unanswered and potentially skewed the survey results by artificially narrowing variances.

The expert also argued that the very precise recall required by the survey questions about events stretching back 10 years invited significant error.  Further, if the data showed that the respondents’ experiences varied widely, the average may not be representative of the actual experiences of many members of the class, and the anonymous nature of the survey led to inaccurate and unverifiable results.

The trial court again denied certification, finding the plaintiffs’ statistical sampling unworkable because it did not specify which insurer’s inspections were performed, or explain whether the inspectors’ failure to take meal or rest breaks was due to preference or to the exigencies of the job.  Also, the survey’s anonymity deprived the defendants from cross-examining witnesses to verify responses or test them for accuracy or bias.

This appeal followed.

As you may recall, “in wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting.”   Duran v. U.S. Bank National Assn., (Cal. 2014) 59 Cal. 4th 1, 28-29.  “Class certification is appropriate only if ‘individual questions can be managed with an appropriate trial plan.'” Id., at 27.

The plaintiffs argued that their expert’s survey was “methodologically correct and scientifically valid, captured all pertinent variation in hours worked among inspector, eschewed irrelevant questions, and produced reliable and accurate results.”

The Appellate Court explained that the problem with the survey was not the scientific measurement procedure; rather it failed as a trial plan because it did not fairly establish the defendants’ liability on a classwide basis as to any claim.

With respect to overtime and meal and rest breaks, the Appellate Court noted that “simply having the status of an employee [did] not make the employer liable for a claim for overtime compensation or denial of breaks.” Instead, “[a]n individual employee establishe[d] liability by proving actual overtime hours worked without overtime pay, or by providing that he or she was denied rest or meal breaks.”

The Appellate Court found that the plaintiffs’ expert asked no questions about the second insurer, and thus, it was unclear how the plaintiffs could establish the liability of the second insurer without considering whether any inspector worked for this insurer more than eight hours in a day or 40 in a week (Lab. Code § 510).

The Appellate Court explained that the plaintiffs’ plan also failed with respect to their minimum wage claim (Lab. Code § 1194), because the inspectors were paid a piece rate for each inspection performed and the plaintiffs offered no explanation as to how they could establish the number of inspections performed for the second insurer, how long they took, or what the second insurer paid for them.

Regarding the meal and rest period claims, the Appellate Court explained that the inspectors performed inspections for a number of insurance companies, including non-parties, often in the same day, but the survey failed to ask if anyone ever worked long enough in a day for either of the insurance companies in this case to be entitled to a meal or rest period from that insurer or any of its three co-employers.

Further, the Appellate Court noted that “plaintiffs made no effort to explain how they could establish through common proof what expenses, if any, inspectors incurred for any particular insurer, or how they were deprived of wage statements.”

The Appellate Court determined that the anonymous survey deprived the defendants of any meaningful examination of any witnesses, as the plaintiffs’ expert did not know who the survey respondents were and why any class member had chosen not to participate.

After the Appellate Court issued an opinion affirming the trial court’s ruling, the plaintiffs petitioned for rehearing, arguing the defendants’ liability could be established independent of the survey by examining the various policies and contracts demonstrating all the defendants were co-employers that had the right to control the plaintiffs’ work.

The plaintiffs argued that liability may be established classwide by the failure of one employer to pay overtime or provide a rest break on even a single occasion.

This approach, in the Appellate Court’s view, was similar to that rejected in Duran, where the plaintiffs alleged their employer had misclassified them as outside sales persons, rendering them exempt from overtime laws.  In Duran, the plaintiffs proposed to proceed classwide with an initial liability phase and a second phase to address the extent of damages, but the California Supreme Court held that whether a given employee is properly classified depends in large part on the employee’s individual circumstance.  Duran, 15 Cal.4th at 36. 

The Appellate Court also observed that in Brinker, the California Supreme Court analyzed the elements of the off-the-clock claim before it, holding that “liability is contingent on proof [the employer] knew or should have known off-the-clock work was occurring.”  Brinker, 53 Cal.4th at 1024. 

As the Appellate Court explained, “an employer’s liability for failure to provide overtime or rest breaks will depend on the employees’ individual circumstance.  Liability to one employee by one employer does not establish even that employer’s liability to other employees, much less the liability of a joint employer to any employee.”

The Court continued, explaining that “[e]ven if a class action trial could determine that an employer is liable to an entire class for a consistently applied policy or uniform job requirements and expectations contrary to Labor Code requirements, or if it knowingly encouraged a uniform de facto practice inconsistent with the requirements, ‘any procedure to determine the defendant’s liability to the class must still permit the defendant to introduce its own evidence, both to challenge the plaintiffs’ showing and to reduce overall damages.'”

The plaintiffs proposed that once the subclasses were certified and liability established in the first phase, class members could submit claims by answering a questionnaire, and any dispute could be resolved in “streamlined trials” where the defendants could cross-examine claimants and present their own witnesses.

The Appellate Court explained that this approach would render any prior liability phase either duplicative or superfluous, as the defendants would likely raise several objections, and consequently the second phase could easily occupy the trial court for several months.

Finding the plaintiffs’ survey afforded “no fair, manageable way” to establish liability on common proof, the Appellate Court affirmed the trial court’s order denying class certification.

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